The card and mobile markets (the lines between the two are increasingly becoming blurred) are evolving rapidly and it is difficult for participants to keep up. Much of the drive is from new technology but there are other factors as well, particularly regulation and consumer behaviour (with the latter influenced of late by the financial and economic climate).
According to the 2010 World Payments Report, non-cash payments constituted about 270 billion, of which 157 billion were card payments. The number of cards in circulation was put at around five billion by the Nilsson Report in mid-2009, although 3.15 billion of these were China Union Pay. There are 1.1 billion EMV cards, according to EMVCo. Europe has around 700 million cards. According to the ECB, the average number of transactions per head per year is 58, although the difference in use ranges from Greece (twelve per year) to Finland (350). The ECB also estimated there were more than 175 million prepaid cards in circulation in the EU by late 2010. Payments specialist and author, Mike Hendry, estimated contactless cards at this time stood at around 15 million in Europe, of which around two-thirds were in the UK.
An estimate from Equens is that there will be 30 million contactless bank cards in the UK alone by the end of 2011, driven by the MasterCard PayPass and Visa PayWave contactless initiatives, readiness for the 2012 London Olympics, and general market acceptance through experience with existing cards, particularly Oyster. Around 26,000 merchants were accepting contactless by
late 2010 but there was no one single major retailer in the UK that had taken the leap (unlike Carrefour in France with over 20,000 contactless POS terminals by mid-2010).
A survey of European payment participants carried out in 2010 by Equens, IBM and Fraunhofer asked about innovations that would drive future growth in the payment business. Most commonly cited (by 85 per cent of respondents) were e-payments (online-based) followed by e-invoicing (69 per cent), e-billing (65 per cent), contactless m-payments (52 per cent), contactless cards (50 per cent), prepaid cards (40 per cent), risk management services (e.g. fraud prevention) (39 per cent) and biometric payments (15 per cent). Such a spread and such relatively high percentages reflect the anticipated rate of change.
Forecasts from Edgar Dunn & Company related to global advanced payments show online payments at $1,842 billion in 2015, contactless cards at $395 billion and mobile at $510 billion. While still dominant, the growth rate for online payments is expected to be considerably slower in relative terms than for the other two categories. For online payments, within the same timescales, the company predicts relatively slow growth for credit and debit cards, with prepaid and non-card payments
becoming a more important part of the mix (the latter are predicted to account for 15 per cent of online payments in 2015). Hurdles for new forms of payment are being broken down. For instance, the lack of phones with NFC has been a hindrance (a pilot by Paypal, with S1, in Poland a couple of years ago failed to take off for this reason) but this is changing as new devices are shipped and as the likes of Google with Android add NFC capabilities.
There is innovation elsewhere. For instance, Travelex and ICE have a card that offers dynamic currency conversion so that a customer using the card abroad can know the actual cost of a purchase in his or her home currency. The operators make money on the FX.Hendry pointed out a number of challenges. The gradual disappearance of national schemes and interests means the loss of
'protected' markets. The credit card's loss of favour means interest is no longer a reliable source of income for issuers, while the increase in regulation means interchange fees are heading the same way and regulation also controls direct charges in some countries.
The demand for unbundling and 'interchange-plus' pricing are challenges for many legacy systems. However, the economic climate means it is difficult to gain approval for major new investments. 'It is bad timing to ask for a major slug of investment,' said Hendry. Much of the growth is in less traditional markets, either from a geographical perspective (Asia, central Europe) or
a sector perspective (e-commerce) but by far the largest volumes are still in developed and traditional markets, so this gives participants a dilemma when trying to define their strategy.
Contactless interfaces are likely to become increasingly prevalent. This will not only be on a proximity basis but also over wide area networks. Currently particularly pioneered by the transport sector, they often work more efficiently than contact ones and are easier to maintain. Forms of prepaid will multiply, with this type of payment becoming a general purpose one, with
potentially a significant impact on cash payments. Citi has had a contactless pilot in Banglalore, using mobile proximity for contactless transactions.
The banks are trying to forge a role but it is hard not to argue with Birch's observation that payment initiatives driven by mobile operators are much more successful at present than those launched by banks. 'It could be where friction will occur.' The wellknown success of M-Pesa in Kenya (see below) would look to back up this assertion. John Maynard, lead business development manager at the operator behind M-Pesa, Vodafone, has said the aim is not to cut out the banks. 'Don't fight against us, no one benefits, work with us.'
Emerging (or increasingly established) players in the mobile payments space include also Coinstar, Obopay, Luup, Xoom, iKobo, iDeal (part-owned by KLM), Wizzit and Zapa Technologies. Some heavyweights are also moving in, particularly Google and with Apple also expected to do so. Not all initiatives will succeed and, indeed, the sector already has its casualties, including BillPoint, Citibank's C2it and Yahoo PayDirect. The remarkable rise of social networks cannot be ignored and these sites are developing e-money or some form of credit exchange to enable payments.
Thus, much of the discussion when talking about innovation centres on retail payments but the corporate banking space could certainly do with some innovation as well. Of course, some of the breakthroughs will be applicable to both but there is often a chasm between retail and B2B, suggested Colin Digby, EMEA head of treasury solutions and markets at Deutsche Bank. There
is still old technology around, including DOS-based green screens, and even in newer e-banking offerings there is seldom the personalisation capabilities that were available with Yahoo even in the late 1990s. The offerings are often disjointed, based on siloes. 'If a client can figure out your organisation chart by how you present your products on your website then you have failed,'
he observed.
According to the 2010 World Payments Report, non-cash payments constituted about 270 billion, of which 157 billion were card payments. The number of cards in circulation was put at around five billion by the Nilsson Report in mid-2009, although 3.15 billion of these were China Union Pay. There are 1.1 billion EMV cards, according to EMVCo. Europe has around 700 million cards. According to the ECB, the average number of transactions per head per year is 58, although the difference in use ranges from Greece (twelve per year) to Finland (350). The ECB also estimated there were more than 175 million prepaid cards in circulation in the EU by late 2010. Payments specialist and author, Mike Hendry, estimated contactless cards at this time stood at around 15 million in Europe, of which around two-thirds were in the UK.
An estimate from Equens is that there will be 30 million contactless bank cards in the UK alone by the end of 2011, driven by the MasterCard PayPass and Visa PayWave contactless initiatives, readiness for the 2012 London Olympics, and general market acceptance through experience with existing cards, particularly Oyster. Around 26,000 merchants were accepting contactless by
late 2010 but there was no one single major retailer in the UK that had taken the leap (unlike Carrefour in France with over 20,000 contactless POS terminals by mid-2010).
A survey of European payment participants carried out in 2010 by Equens, IBM and Fraunhofer asked about innovations that would drive future growth in the payment business. Most commonly cited (by 85 per cent of respondents) were e-payments (online-based) followed by e-invoicing (69 per cent), e-billing (65 per cent), contactless m-payments (52 per cent), contactless cards (50 per cent), prepaid cards (40 per cent), risk management services (e.g. fraud prevention) (39 per cent) and biometric payments (15 per cent). Such a spread and such relatively high percentages reflect the anticipated rate of change.
Forecasts from Edgar Dunn & Company related to global advanced payments show online payments at $1,842 billion in 2015, contactless cards at $395 billion and mobile at $510 billion. While still dominant, the growth rate for online payments is expected to be considerably slower in relative terms than for the other two categories. For online payments, within the same timescales, the company predicts relatively slow growth for credit and debit cards, with prepaid and non-card payments
becoming a more important part of the mix (the latter are predicted to account for 15 per cent of online payments in 2015). Hurdles for new forms of payment are being broken down. For instance, the lack of phones with NFC has been a hindrance (a pilot by Paypal, with S1, in Poland a couple of years ago failed to take off for this reason) but this is changing as new devices are shipped and as the likes of Google with Android add NFC capabilities.
There is innovation elsewhere. For instance, Travelex and ICE have a card that offers dynamic currency conversion so that a customer using the card abroad can know the actual cost of a purchase in his or her home currency. The operators make money on the FX.Hendry pointed out a number of challenges. The gradual disappearance of national schemes and interests means the loss of
'protected' markets. The credit card's loss of favour means interest is no longer a reliable source of income for issuers, while the increase in regulation means interchange fees are heading the same way and regulation also controls direct charges in some countries.
The demand for unbundling and 'interchange-plus' pricing are challenges for many legacy systems. However, the economic climate means it is difficult to gain approval for major new investments. 'It is bad timing to ask for a major slug of investment,' said Hendry. Much of the growth is in less traditional markets, either from a geographical perspective (Asia, central Europe) or
a sector perspective (e-commerce) but by far the largest volumes are still in developed and traditional markets, so this gives participants a dilemma when trying to define their strategy.
Contactless interfaces are likely to become increasingly prevalent. This will not only be on a proximity basis but also over wide area networks. Currently particularly pioneered by the transport sector, they often work more efficiently than contact ones and are easier to maintain. Forms of prepaid will multiply, with this type of payment becoming a general purpose one, with
potentially a significant impact on cash payments. Citi has had a contactless pilot in Banglalore, using mobile proximity for contactless transactions.
The banks are trying to forge a role but it is hard not to argue with Birch's observation that payment initiatives driven by mobile operators are much more successful at present than those launched by banks. 'It could be where friction will occur.' The wellknown success of M-Pesa in Kenya (see below) would look to back up this assertion. John Maynard, lead business development manager at the operator behind M-Pesa, Vodafone, has said the aim is not to cut out the banks. 'Don't fight against us, no one benefits, work with us.'
Emerging (or increasingly established) players in the mobile payments space include also Coinstar, Obopay, Luup, Xoom, iKobo, iDeal (part-owned by KLM), Wizzit and Zapa Technologies. Some heavyweights are also moving in, particularly Google and with Apple also expected to do so. Not all initiatives will succeed and, indeed, the sector already has its casualties, including BillPoint, Citibank's C2it and Yahoo PayDirect. The remarkable rise of social networks cannot be ignored and these sites are developing e-money or some form of credit exchange to enable payments.
Thus, much of the discussion when talking about innovation centres on retail payments but the corporate banking space could certainly do with some innovation as well. Of course, some of the breakthroughs will be applicable to both but there is often a chasm between retail and B2B, suggested Colin Digby, EMEA head of treasury solutions and markets at Deutsche Bank. There
is still old technology around, including DOS-based green screens, and even in newer e-banking offerings there is seldom the personalisation capabilities that were available with Yahoo even in the late 1990s. The offerings are often disjointed, based on siloes. 'If a client can figure out your organisation chart by how you present your products on your website then you have failed,'
he observed.
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