Now in its fifth year, the latest edition of the World Payments
Report notes that non-cash payment volumes continue to rise.
However, it warns banks that they cannot afford to become
complacent and must constantly revisit their business models to
stay profitable. Victoria
The fifth World Payments Report, published
by global consultancy Capgemini, Royal Bank of Scotland and the
European Financial Management & Marketing Association, is
regarded as a barometer of the global payments industry, covering a
multitude of issues and emerging trends affecting all aspects of
various payment chains, be they cash or electronic.
This year’s report, published in September
2009, explores how the economic tremors felt throughout the world
during the past two years have impacted the global payments
industry – and also looks at the progress of SEPA.
Non-cash payment volumes continue to
The report, which has historically
charted the use of cash versus non-cash payments, found that
despite a weakened economic environment, global non-cash payment
volumes continue to grow – over the 2001-2007 period, non-cash
transaction volumes grew by 8.6 percent, outpacing global GDP
growth of 3 percent.
The bulk of this growth came from
card usage, with global credit and debit card transactions growing
14.5 percent in 2007, and by 15.7 percent during the 2001-2007
period. In tandem, the number of cards worldwide continues to grow
in double digits, especially in Latin America (28.2 percent) and
Central Europe, Middle East and Africa (CEMEA) by 21.3 percent.
Overall, debit and credit cards grew by 17.2 percent and 5 percent
respectively. In contrast, cheque usage continued to decline,
falling 6.8 percent in 2007.
In terms of geography, the US and the Eurozone
continue to dominate the global non-cash payment market,
representing 61 percent of transactions in 2007. The US accounted
for 39 percent of global payments in 2007, with volumes having
grown steadily at about 5 percent a year since 2001.
Cash usage is being eroded by increasing debit
card volumes, which jumped 16.2 percent, and by credit card
transactions which increased by 5.6 percent.
In Europe, with the report using a 17-country
sample which accounted for 95 percent of volume and value in
European non-cash payments transactions in 2007, card transactions
grew by 9.6 percent in 2007.
The three largest non-cash payment markets
continue to be Germany, France and the UK, with Italy, Poland and
Greece at the bottom of the table.
However, France, which had the most non-cash
payments per capita in 2001, has dropped down the table to sixth
place, and in Spain, the number of transactions per capita declined
more than expected in 2007 because the country’s economy slowed
markedly in the second half of that year.
Germany, Austria and Slovenia are identified
in the report as having significant room to expand in card usage,
with cards currently used for 20 percent or less of total non-cash
The report states that sustained non-cash
payment growth is possible, but only if banks, merchants and
end-users make necessary investments in infrastructure, provide
education and incentivisation and develop more innovative
“If the requisite enabling actions do not
transpire, the volume of non-cash payments is unlikely to expand
beyond any growth in GDP, and its growth is likely to slow in a
downturn,” the report noted.
BRIC countries expand non-cash
The report notes that the global
payment market is highly fragmented, but developing economies
continue to grow their share of transactions every year.
In just six years (between 2001 and 2007),
their share has jumped from 9 percent to 20 percent, led by CEMEA
and BRIC (Brazil, Russia, India and China), in which annual growth
was around 25 percent during the 2001-2007 period.
BRIC’s share of the global non-cash payments
market was 15 percent in 2007, up 3 percentage points from 2006,
driven by sharply higher transaction volumes in Russia (up 47.7
percent), and China (30.3 percent). Although India still relies
heavily on cash, non-cash payments volumes grew 14.6 percent in
2007, with 16 percent paid via cards, and volumes grew a sustained
12.7 percent a year in 2001-2007.
In China, which is also cash-heavy, non-cash
payment volumes grew by 43.6 percent over 2001-2007, helped by the
country’s development of payment infrastructure.
Cards are the most developed non-cash
instrument in China with around 1.5 billion cards in circulation in
2007, generating 93.7 percent of all non-cash payments
transactions. Cards have become the most popular non-cash payment
instrument of the Chinese public in retail consumption.
The report notes that despite the economic
crisis of 2008 (spurred by the collapse of Lehman Brothers),
non-cash payments continued to grow in that year, indicating that
the strength of the non-cash payments market depends more on
infrastructure, end-user education and user preferences than on
overall market conditions.
Figures show that US general-purpose card
transactions grew 7.7 percent in 2008, with the number by debit
card up 12.1 percent and by credit card up 1.7 percent, while debit
cards accounted for 57.5 percent of total non-cash purchase
transactions in 2008, up from 22.9 percent just ten years
Still, the economic downturn made credit cards
even less popular in 2008, and debit cards’ share of transactions
grew by 5 percentage points from 2007. In Europe, general-purpose
card transactions grew 11.4 percent in 2008.
Payments innovation in
A range of initiatives in Asia have
demonstrated that payments innovation is a potential source of
revenue for banks.
Emerging payment methods can also help banks
to attract and then retain new clients, reduce the use of cash,
create new offers, reach unbanked markets and decrease operational
costs. But the report warns that banks must fight to stay relevant
and consider a variety of business models or the benefits could be
lost to other service providers.
The ubiquity of mobile phones in the region
along with a wide range of technology options has led to the
emergence of several business models.
Although countries in the region have varying
levels of payment instrument usage, and alternative service
providers (telecom operators, transit agencies, and other service
providers), technology vendors/phone manufacturers and banks have
tailored their solutions accordingly, some commonalities exist.
In the field of mobile payments, the dominant
technologies are near-field-communications (NFC) and short message
service (SMS), whereas contactless payments are dominated by
contactless transit card and contactless payment cards with NFC
Other types of initiatives are also being
actively explored in the region, including online payments and
biometric authentication for payments (using fingerprints or voice
The scheme owner is the primary interface with
the customer and generally the main recipient of revenues. The
owner can be a bank or an alternative service provider (telecom
operator, transit agency or other service provider).
According to the report, three distinct
business models are evident:
• Alternative service provider-centred model:
Telecom operators, transit agencies or other service providers are
fully responsible for the offering, from customer interface to
• Partnership model: Banks and alternative
service providers join forces, with each partner having a defined
scope of responsibility based on their core capabilities.
• Bank-centred model: Banks control the scheme
and co-operate with specialists/technology providers, as well as
controlling the money transactions and accounts.
The report has identified two main trends in
the business case for payments innovations, whatever the structure
of the operating model:
• Newcomers focus on low-value transactions
and pricing across a large (and often pre-established) customer
• Established players focus on utilising their
experience and infrastructure to provide enhanced payment services
and experience for customers.
The report notes that telecom operators and
other payments service providers have pioneered most new payment
services in Asia, drawing on their large customer bases.
Conversely, banks own few of the new
initiatives to date, but they are pursuing various efforts (for
example, payments with biometric authentication and NFC
However, bank initiatives are generally
expensive to implement as they often imply additional transaction
processing fees and require heavy investment in equipment
deployment (fingerprint and NFC readers) for which merchants may
not be willing to assume the cost.
The report states that if bank schemes are to
thrive, they need to attract the endorsement of key stakeholders –
Visa or MasterCard in contactless credit/debit cards, issuers and
acquirers – to bring in enough funds for investments and to drive
Alternative service providers, by contrast,
build on an existing customer base that is already well established
and thus mainly need to drive people into using their services.
To become successful, banks therefore need to
decide first on their position in the value chain:
• Partnerships with telecom operators or other
service providers will help them assume the benefits of mobile
penetration. At first, banks can provide a processing and account
management structure. Consumers who become familiar with their
account may then migrate towards retail banking.
• Banks that are willing to create a business
on their own should design an offer that will target a specific
group of customers and provide users with value-added services.
Technology is not the only attraction for customers. Moneo in
France, for example, developed an electronic purse that has failed
to catch on because merchants and users apparently do not believe
the technology benefits warrant the associated costs.
Emerging payment methods provide banks with a
real opportunity to gain and lock in new clients, reduce the use of
cash, create new offers, reach unbanked markets and decrease
But banks must fight to stay relevant, and
proactively position themselves to capture potential sources of
revenue that could otherwise be lost to telecom operators and other
In order to succeed, then, bank initiatives
must be able to do the following:
• Bring value-added services to customers
(individuals and merchants), for example, in terms of quicker
transaction times for cards;
• Take advantage of a critical mass of users
and acceptors or quickly reach it (like Hong Kong’s contactless
Octopus mass-transit card);
• Leverage other drivers of demand by, for
example, getting support from key players (large corporates, public
administrations) or improving an existing service;
• Be interoperable, at least on a national
• Focus on frequent low-value transactions
that do not require authentication;
• Partner with other stakeholders and leverage
their capabilities; and
• Create a business model that will benefit
To date, banks tend to handle the security
issues as they would for legacy payments services. Service
providers usually set limits for transactions and deposits, and
limits are imposed on transit card balances.
If a scheme is owned by multiple parties, a
clear framework has to be defined to identify the responsibilities
for each stakeholder. But even when designing operating rules,
regulators are not concerned with business models, so it is left to
banks to develop a business model that is compliant with laws and
regulations but still economically viable.
Except for contactless credit/debit card
initiatives, which are being rolled out worldwide by
MasterCard/Visa, the current lack of standardisation essentially
limits initiatives to a domestic market – at least initially.
SEPA progress remains
The progress of SEPA continues to
cause headaches for European payment players. The report notes that
no date has been set for abolishing domestic instruments and
stakeholders agree that SEPA volumes will not reach critical mass
as long as SEPA and domestic services are allowed to operate in
The SEPA Cards Framework (SCF) has outlined
the principles needed to underpin SEPA-wide card acceptance, but
more recently, the European Payments Council has appeared to accept
a “mini-SEPA” situation in which national schemes continue for
domestic payments, with a link into as few as one other European
card scheme for cross-border transactions – a far less ambitious
vision of the European Payment Council’s (EPC) “any card at any
terminal” vision. The EPC has also clarified that the SCF is not
intended to be restricted to four-party systems.
The report notes that the European Commission
(EC) and the European Central Bank have developed a deeper
understanding of the complexities involved in creating a new
pan-European debit card scheme, and have realised the current
requirements on interoperability “arguably favour a duopoly of
The report adds that the viability of a new
scheme is being questioned by banks, especially after EC scrutiny
of European cross-border interchange fees.
In the meantime, existing national card
schemes are being adapted to unbundle, as required for SCF
compliance, their governance, processing and other functions to
ensure enhanced transparency in service offerings and pricing in
each area. Among the card schemes that have already declared
themselves compliant are Girocard in Germany, Banksys in Belgium,
GIE CB in France and Bancomat in Italy.
Meanwhile, the SCF-related migration to EMV
chip standards is due to be completed in 2010, although 2012 now
looks to be more likely, given that some countries (for example,
the Netherlands and Spain) are making relatively slow progress.
Consequently, the average level of EMV
compliance in Europe (at 62 percent of cards) is still relatively
low, especially given that EMV implementation began back in
The report states that the SCF “faces unique
challenges because the cards business is complex and some
well-established global card schemes are already in place, making
the role and functioning of any SEPA cards schemes quite
The report cites scheme compliance as an
issue, “because it is foreseen at this point that every scheme will
be responsible for declaring itself compliant. Self-assessment will
not provide a homogeneous evaluation of compliance milestones and
does not readily provide transparency into how the scheme is really
functioning or what will be done to arbitrate on compliance if the
Also, multilateral interchange fees (MIF) are
still under discussion, with the report noting the EC’s prohibition
of MasterCard’s multilateral intra-EEA interchange fee for
cross-border transactions conducted with MasterCard-branded
MasterCard originally appealed against that
decision but has now adopted an interim solution pending the
The report stated: “Its [MasterCard’s]
approach employs the ‘avoided-cost test’ methodology used in
economic theory to assess efficient interchange fees. This method
(also known as the ‘tourist test’ or ‘balancing fee’), sets a cap
for fees such that merchants do not pay more than for a cash
“In this case, the benefits are deemed to be
derived for merchants in avoiding the costs of handling cash, but
cash is not used for all payment situations and hence not all cards
transactions are covered by this calculation. MasterCard so far
bases its ‘avoided-cost test’ calculations on studies by the
central banks of the Netherlands, Belgium and Sweden.
“As a result, it has fixed its cross-border
intra-EEU MIF at 0.2 percent for debit card transactions and 0.3
percent for credit card transactions. In general, the methodology
has led to a weighted-average MIF that is the lowest worldwide both
for credit and debit card transactions.”
The report adds that the avoided-cost test
benchmark is something that the banking industry is not keen to see
used across Europe, because the MIF has been an important source of
revenue and it covers the cost of providing a wide variety of
economic benefits to merchants, including payments guarantee, and
services related to security and anti-money-laundering
Banks also argue that the role of acquirers
has not been taken into account and the ‘avoided-cost test’ MIF
therefore excludes the merchant services charge covered by existing
There are also country-by-country differences
in card activity, cost and operations. The report noted that given
the number of variables that underpin the avoided-cost test, its
use seems likely to intensify the debate over fees, rather than
helping to resolve it.
The report identifies the lack of a deadline
for migration as the last challenge for SEPA cards.
“The EC has said it would be premature to
contemplate an end-date for migrating to SEPA cards when none of
the requisite standards have been finalised (card-to-terminal,
terminal-to-acquirer, acquirer-to-issuer and certification
“At some point, an end-date will obviously
need to be discussed and has been requested by some market players,
but a more robust version of the ‘Volume’ (functional, technical
and security specifications) and the framework (standards
definitions) will need to be finalised first.”