The 2010 edition of the World Payments Report from Capgemini, RBS and EFMA shows that electronic payment methods are increasingly displacing cash worldwide, with payment cards the clear winners. As Victoria Conroy reports, payment volumes overall appeared resilient despite the recent economic crisis.
The latest edition of the World Payments Report, published by Capgemini, RBS and EFMA, will make encouraging reading for those engaged in the war on cash. The global use of non-cash payment instruments continued to grow in 2008, despite the financial crisis.
The overall growth in volumes accelerated to 9% in 2008 from 7% in 2007, and preliminary data suggests payments continued to grow in 2009. Volumes in 2008 grew only modestly in developed markets and registered the largest increase in certain developing economies such as China (up 29%), South Africa (up 25%) and Russia (up 66%).
Behind the aggregate increase in 2008 non-cash payments volumes, there were notable trends in the mix, and use of individual instruments, including cards (credit and debit) remaining the preferred means of non-cash payments globally, accounting for more than 40% of non-cash volumes in most markets and above 58% globally.
Globally, card transaction volumes were up 15% from 2007, and their value was up 6.6%. Both debit and credit card volumes rose at a similar pace although regional differences were apparent.
Credit transfer volumes rose 7%, while direct debits, which also showed a 7% volume increase, are especially gaining popularity in Europe and the US.
Encouragingly, cheque volumes continued to decline (by 6%), largely reflecting the increasing popularity of online bill payment and efforts by banks and governments to reduce usage.
The growth in global non-cash payments volumes accelerated to 9% in 2008 from seven% in 2007, despite the continued financial crisis. Volumes totalled 269bn in 2008, after sustained growth of 8.4% a year since 2001 – growth that has far outpaced the expansion in global GDP.
The outright volume of non-cash payments remained heavily concentrated in developed markets. In fact, while volumes grew only modestly (5 to 6%) in North America and the mature economies of Europe and Asia-Pacific, those segments still accounted for a combined 77% of non-cash payments volumes in 2008. The top 10 payments markets accounted for 91% of all global volumes in 2008.
Still, the rate of growth in non-cash payments volumes was faster in developing economies, especially the BRIC (Brazil, Russia, India, China) nations, in which economic activity remained robust, relative to more developed nations. For example, the year-on-year growth in transaction volumes was particularly strong (29%) in China in 2008.
Emerging markets also have far more limited banking infrastructures than developed markets, and these constraints are spawning a significant number of payments innovations, which should be an important source of growth in payments volumes in the years ahead.
Evolving usage trends
While overall payments volumes are rising, there are clearly ongoing shifts in usage patterns. In the US, for example, non-cash payments volumes rose 4% in 2008 to 102.5bn, leaving the US to account for more than 38% of the world’s volumes.
In Europe, non-cash payments are certainly increasing steadily enough to warrant investment by banks in new payment technologies, especially as regulation is likely to drive or restructure non-payments usage, either through far-reaching payments initiatives, such as SEPA, or the efforts of individual countries to replace outmoded instruments. For example, the UK Payments Council National Plan has set a strategy to phase out cheque usage by 2018.
At present, the largest non-cash payments markets in Europe are still Germany, France and the UK, while Poland and Sweden showed the highest year-on-year growth rates in 2008. However, the maturity of non-cash usage still varies considerably by country. Finland and Sweden lead Europe in terms of usage per inhabitant. In fact, the Finnish people are the heaviest users of non-cash payment instruments, even ahead of the Americans. The usage in Nordic countries has been driven by the concerted effort of governments and banks, and the willingness of residents to adopt new electronic payment technologies.
Germans still like to use cash; cards are used less frequently than in other countries, mainly for cost reasons. Overall, though, the country has sophisticated payment technologies, and the aggregate volume of non-cash transactions is second only to France in the eurozone, amid heavy use of direct debits and credit transfers.
In Greece, Italy and Poland, non-cash usage per inhabitant is still minimal (less than 60 transactions per year). The Polish government is actively trying to encourage non-cash transactions, starting with legislative amendments that will remove some of the barriers to developing non-cash payments. This will fuel the uptrend in transaction volumes that has already become evident.
Disparity between countries
Different non-cash payment instruments are still favoured more in some countries than in others. In Europe overall, the average value per card transaction dropped slightly in 2008, to €56 ($76) from €59 in 2007. This decline is in line with trends reported in the 2009 report, suggesting many individuals are increasingly using non-cash means even for low-value transactions.
In North America, the average value of card transactions also dropped in 2008, to $56 from $61. US consumers transacted less on credit cards in 2008 as they sought to reduce spending and borrowing amid the economic slowdown. At the same time, though, debit card usage rose – with US volumes up 13% – at least in part because consumers were trying to use more “pay now” strategies, especially seeking to shift everyday purchases from credit cards.
Residents of mature Asia-Pacific markets continued to have the highest average value per card transaction in 2008 – little changed at $97. In much of Asia, cash remains the preferred means of payment for lower-value payments. Direct debits are used more often in Europe than in other markets, and the average value per direct debit transaction rose there in 2008, to €785 from €722. Direct debits are increasing in popularity, with more corporates and small- and medium-sized enterprises starting to use them. Direct debits are more effective for the payees, as the reconciliation process is easier, and fewer balances go unpaid.
Direct debits will never totally replace credit transfers, which are more useful for “one-off” payments, for example, and which tend to be preferred for higher-value automated payments. Credit transfers are especially popular in certain countries, such as the UK and Germany. The average value per credit transfer in Europe in 2008 was €11,069, though that was down from €13,376 in 2007. Direct debits are, however, likely to take an increasing share of the payments once made via cheques.
Cheque usage has declined as a percentage of total non-cash transactions in Europe, from 11% in 2005 to 8% in 2008. Concerted action from regulators and banks has helped reduce cheque usage in countries like the Netherlands and Belgium, but cheques are still a mainstay in both France and the UK.
The UK Payments Council National Plan, meanwhile, is seeking to close cheque clearing in 2018, an ambitious plan that requires a comprehensive understanding of cheque usage, and subsequent action to migrate users to appropriate alternatives.
In the US, the volume of cheques used dropped another 6% in 2008 as banks continued to encourage alternative non-cash means. In mature Asia-Pacific markets, the average value of cheque payments is far higher ($3,376 in 2008) than in either Europe or North America, but that is largely because cheques there are used mainly for legal and government-related transactions, which tend to be of a higher value.
Euro cash in circulation still expanding
Euro cash in circulation has sustained average growth of about 11% per year, almost doubling since the euro was introduced in 2002, even when excluding the €500 and €200 notes that are the most hoarded (in the eurozone and in neighbouring Eastern European countries).
In 2008, the year-on-year expansion in cash in circulation was much higher than the increase in non-cash transactions per inhabitant (11% against four%).
According to estimates from the European Payments Council (EPC), cash payments cost the EU economies between €50bn and €75bn per year, expenses that should motivate all stakeholders to take more determined action to discourage cash payments.
Within the eurozone, different countries are at different stages of the cash substitution process. In general, cards have yet to replace cash largely because consumers favour cash for low-value transactions, and merchants see card processing as slower and more costly than cash for smaller amounts. As a result, even though the number of non-cash transactions per inhabitant is likely to keep rising, cash-in-circulation will also continue to rise unless merchants and consumers are incentivised to switch.
Resilient payment flows
While final data on 2009 payments volumes are not yet available, initial data suggests payments flows remained strong in emerging markets into 2009. The payments markets in mature Europe and the US remained resilient, as evidenced by the findings shown below from data produced by central banks and other payments-industry bodies.
In the US, the volume of retail payments continued to grow, though the mix changed. There was a small decline in the volume of credit card payments (down 4%), due in part to a tightening of credit standards by banks, but the decline was more than offset by an increase in the use of debit cards and prepaid cards (up 13%).
The number of transactions processed as automated clearing house (ACH) payments grew 2%, largely due to ongoing efforts to replace inefficient instruments such as cheques.
In Europe, the use of cards and other retail payment instruments also grew. For example, across the UK, France, Italy and Spain (accounting for 60% of European payments), the retail payments market continued to grow at a 2%-to-6% rate, with the increased use of cards, direct debits and credit transfers more than offsetting any decline in cheque usage.
There was significant growth in cards usage, while the average value of card transactions continued to decline, reflecting greater use of cards for low-value cash transactions, and possibly some crisis-related belt-tightening by consumers. While retail payments flows reportedly remained strong in 2009, there was a decline in the number and value of high-value payments as a direct consequence of the liquidity crisis. The number of payments cleared through the UK’s Clearing House Automated Payments System (CHAPS) dropped 10.8% and their value by 20%. Target 2 payments dropped 6.5% in volume and 19.3% in value.
The value of US dollar large-value payments processed on the central bank Fedwire fell 29.5%. Overall though, there is no evidence in early data to suggest there was any decline in global payments volumes in 2009 or even in early 2010. Admittedly, there is a significant lag in global payments data, so it is premature to conclude what effect the crisis will ultimately have had on payments flows. But there has been no significant impact on emerging-market payments flows in 2009; the mature markets of Europe and the US continued to grow overall, though the mix of payment instruments may be changing.
In fact, the report’s authors expect data to show that the size of the US and European payments markets increased slightly in 2009 in terms of the number of transactions and the aggregate value of those payments flows.
Moreover, interim data from the UK and other developed economies suggests there is every reason to believe payments were still growing as of mid-2010. This resilience in payments further demonstrates why retail payments remain a critical source of stable revenues for many banks.