Mobile Payments Soar

Cash Is King No More As Mobile Payments Soar

10/18/2014 @ 7:11AM

Debit and credit transactions are taking the place of cash around the world — faster in developing countries than in North America and Europe, according to a recent report by Cap Gemini and RBS, the UK bank. Total non-cash transactions will reach 365.5 billion in 2013, growing at more than 20 percent in developing markets but only 5.6 percent in mature markets.

In some cases, developing countries will be able to leapfrog mature markets by moving directly to newer, more flexible technologies in payments, similar to their rapid adoption of wireless without the burden of wire legacy systems.

“Developing markets are establishing initiatives and upgrading infrastructure in order to boost non-cash volumes,” the report found. Mobile phones are making a huge impact and that will only increase as inexpensive smartphones proliferate.

“M-payments are expected to grow by 60.8 percent annually through to 2015. E-payments will decelerate to 15.9 percent growth during the same period. There is a gradual convergence of e- and m-payments as the distinction between the two diminishes.”

Although the report doesn’t hesitate to take its measurements and projections to a single decimal point — that always suggests such precision? — the consultancy and the bank admitted being unsure of how to measure hidden payments.

“Unreported payment niches are being formed as payments move away from the highly regulated banking sphere. Although non-banks continue to pursue digital innovations and capture more of the payments market, we are yet to witness any concrete action on improving and reporting of data for the hidden market.”

The future of cards should be interesting as the study found that direct debit continues to grow, although cards still contributed most of the growth in non-cash transactions at 12.3 percent in 2012.

Debit cards have proven to be highly popular, especially among young people. Companies like Moven and Simple offer a combination of a debit card and a mobile phone app to help people track and control their spending. They have suggested a generational change and a wariness of credit. The World Payments report suggests another contributing factor — banks “reduced their focus on the credit card business to avoid an increase in bad debts” after the 2008 financial crisis.

Direct debit could be a sign of economic recovery.

“Growth in direct debit in mature markets can be attributed to an improved economy and easing of credit flows compared to 2008.  In this improved environment, it is possible that consumers are less cautious about the timing of their payments and are willing to pay periodic monthly bills directly from their accounts.”

Checks have almost disappeared in many markets, making up just 4.8 percent on non-cash transactions in Europe in 2012. The U.S. remains a checking account powerhouse, a somewhat dubious distinction, accounting for 65.1 percent of global check transactions.

The report producers note that while the non-cash picture does not show substantial shifts, big changes may be on the way in developing markets because some countries are upgrading their infrastructure to boost the use of non-cash transactions. In the U.S., the Fed is expected to release a recommendation later this year on moving to a real-time payment infrastructure. Consultants count more than 20 countries that already have real-time payment systems, including Japan which has had one for 40 years and Mexico which recently developed its own.

Meanwhile nonbanks will increase the number of transactions they handle from 1.1 billion in 2012 to 7 billion in 2015, but banks will maintain the lion’s share reaching 39.9 billion in 2015.

“The mobile payments space is increasingly competitive with banks and non-banks striving for insightful data, market dominance and consumer loyalty.” In mobile, non-banks are expected to grow faster than banks. PayPal processed more than $27 billion in mobile payments in 2013, around 15 percent of total payment volumes, it said.

The data on the Walmart and American Express Bluebird prepaid card wasn’t any fresher than the Amex presentation at Money2020 last year, but the growth in the Starbucks card was impressive — 10 million customers making nearly 5 million transactions per week, totaling 250 million transaction in 2013, double the previous year. Talk about the value of a good brand!

Turning to the U.S., the report found significant innovation, such as Square, that could push change even if individual companies fail.

”While many of these fledgling companies could fail, they nonetheless open the way for others to play a bigger role in the payments. This is causing the overall payments industry to fragment.”

Earlier this week I reported on McKinsey’s view of the payment industry. Philip Bruno, a senior partner in McKinsey’s Global Payments Practice, noted that some of the players in payments now — such as Google and Apple — are huge companies with ample financial resources and will create a different of competitive threat than the payment startups from the days of Internet 1.0.

Cap Gemini ’s report said that despite areas of innovation “the U.S. market generally lags the rest of the world in certain other payments trends. Checks are still in high use, there is no real-time payment clearing and settlement system, and adoption of EMV technology has been slow.”


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