World payments business growing in recession

The global payments industry is robust and growing even through the worldwide recession, according to a new study released in September 2011. But the impact of rapid industry change on financial institutions and ISOs will mean significant adjustments as they fight to differentiate their services and demonstrate their value in the marketplace, the report said.

The World Payments Report 2011, the seventh annual study sponsored by United Kingdom companies Capgemini S.A. and the Royal Bank of Scotland PLC, along with the European Financial Management Association, looked at trends in payment volumes and the payment tools used by the industry. It also studied the regulatory and industry changes driving change in the industry and successful strategies for coping in the resulting new environment.

"Payments have weathered the economic crisis well: the volume of noncash payments globally continued to grow in 2009, albeit at a more modest pace than in recent years," the paper said. "Initial data suggests the growth in volumes picked up again in 2010, but several external and internal factors are driving banks and forcing transformation in the industry."

ISO impact

The report said the impact of the shifting regulatory environment, the rapidity of technological change, the standardization of the industry and the blurring of lines among traditional payment transactions will significantly impact ISOs. The report also stated that ISOs and merchant level salespeople (MLSs) will have to find ways to specialize and rely more on their "ability to build a distinctive set of products and services."

The report said it is likely the industry will eventually sort itself into companies that sell wholesale processing services and companies that focus on merchant level sales "since few are likely to have the scale, capabilities, strategic ambition or will to pursue both ends of the value chain as it disaggregates."

In addition, the report predicted a wholesale shift in the way banks, processors and ISOs will do business and concluded consolidation of the processing industry is "inevitable" as only a few large global or regional banks will have the capacity for this task.

"Market conditions and trends are driving standardization in the payments landscape, increasing commoditization in most payments instruments," the study said. "In this environment, the imperative for banks and [ISOs/MLSs] is to distinguish their propositions and prove their value through specialization."

Emerging trends

The study found that the trends driving change include:

• Increased regulation to minimize financial risk in the aftermath of the world financial crisis
• Initiatives to standardize the industry with efficiencies, streamlining and cost reductions
• Transparency impacting how payment companies do business, particularly in areas such as service fees
• Blurring of lines between traditional payment methods leading to increased competition between real-time gross settlement providers and automated clearing house networks for low-value payments
• More specialization as new technologies like near field communication (NFC) and mobile payment devices hit the marketplace

The report also indicated ISOs and MLSs may be better positioned than banks to leverage technology and harness it to customer needs.

Deeper analysis

The World Payments Report 2011, based on data collected in 2009 and including only preliminary data from 2010, also found that the global volume of non-cash payments (direct debit, credit transfers, cards and checks) grew 5 percent in 2009, to 260 billion transactions. However, the rate of volume increase is slowing despite the predicted double-digit payment volume growth for most of the world's major markets.

Additionally, the report found that the use of credit and debit cards continues to grow worldwide, with transaction volumes up 9.7 percent. However, while cards remain the payment method of choice for more than 40 percent of the market, the average value per credit card transaction continues to fall.

Meanwhile, check use remained on the decline globally in 2009, accounting for only 16 percent of payments that year, down from 22 percent in 2005, the report said. Europe continues to favor cash payments over alternative payments, the report added.

The report stated that mobile and Internet commerce growth continues to skyrocket; by 2013, e-payments is expected to reach 30.3 billion transactions while m-payments is projected to reach 15.3 billion. Government use of e-payments is speeding the move to non-cash payments in developed countries, the report noted.

Finally, the report addressed the movement toward standardization that is occurring in payments, driven by market demands and trends affecting other industries, such as energy and telecommunications. Standardization is making it harder for competitors to differentiate products and services, which has forced businesses to find differentiators in other business processes, such as in distribution and production, the report concluded.

The report can be accessed at www.capgemini.com/insights-and-resources/by-publication/world-payments-report-2011/ .

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