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Advancements in digital technology continued to shape the payments industry in 2015 as mobile,

 Digital Payments Report 2016

online and other digital forms of payments moved into the mainstream.

From mass transit to gas stations and supermarkets, businesses of all sizes, across all the regions surveyed, now accept various types of digital payment, making paying for goods and services quicker, but above all, easier for the consumer.

While this seems very encouraging, what does the landscape look like beyond 2016?

The Digital Payments Report set out to survey and evaluate all the Payment industry stakeholders from the three major payments markets in the world: Americas, Europe and Asia Pacific. The industry survey respondents were largely senior executives from Card Issuers and Acquirers, Retail Banks, Financial Institutions, Payment Networks, Mobile Network Providers and FinTech suppliers.

The responses across the regions offer a unique insight into how the Payments industry is evolving in 2016 and beyond.

Download the REPORT HERE

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Emerging Asian countries are driving the growth in non-cash, particularly China which is expected to move into fourth place behind the US, Europe and Brazil in terms of non-cash payments. The rising penetration of mobile phones in smaller Chinese towns and cities is resulting in increased mobile payments — 4.5 billion in 2014, up 170%. Steps taken by the Chinese regulatory authorities to accelerate the deployment of point-of-sale equipment to merchants and to open the domestic card payments to competition have also increased non-cash payments.

Number of non-cash transactions (billion) by region, 2009-2013 Sources: World Payments Report 2015, Capgemini/Royal Bank of Scotland. Accenture.

Growth occurred in all non-cash payment methods globally, except cheques which declined 10.9 percent. The share of non-cash transactions made via cards grew to 62.8% in 2013, up from 60.9% in 2012. Although growth in debit card payments globally slowed in 2013, this payment method still remains the most used of all non-cash methods. Debit card usage in the US bucked the trend by increasing by 8.3% in 2013. A total of 61 billion debit card transactions were made in the US, dwarfing Europe, the second largest market, with 34 billion payments.

The growth rate of credit cards remained steady at 9.6%, despite a decline in growth in Latin America from 18.2% in 2012 to 10% in 2013. There were 69 billion credit card payments in 2013, and these are expected to grow in the US and Europe as their respective economies recover.

On an individual consumer basis, Finland again led the way in terms of the number of non-cash transactions per inhabitant. Each Finn made an average of 451 transactions in 2013. Following Finland was the US, where inhabitants made an average of 390 non-cash transactions.

Payments processed through non-bank systems, which the report refers to as ‘hidden payments’, were estimated to have reached 24-40 billion in 2014. This would make them around 10% of non-cash payments, at the upper end of this range. ‘Hidden payments’ include those made through closed loop cards, mobile apps, digital wallets, mobile money and virtual currencies. The growing level of ‘hidden payments’ is a disintermediation threat for banks and those within the financial services industry. There are also wider implications for regulators and consumers around some elements of these payment methods. This includes dispute resolution, consumer protection, information security, privacy, fraud and anti-money laundering provisions.

Despite the rise of challengers and new market entrants, the report feels that banks are perhaps better positioned than their rivals to offer holistic solutions. Banks are able to operate across various payment methods and channels to offer customer-centric innovations. This makes them a consolidated provider for consumers and businesses, as opposed to customers having separate relationships with multiple parties depending on the payment scenario. Banks are also strongly placed to develop innovative offerings based on existing infrastructure, such as immediate payments, to differentiate themselves from other PSPs.

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Asian payment methods driving global mobile adoption

The increase is driven particularly by major Asian-based payment methods including JCB, UnionPay, and

Mobile Payments Index: a third of global online transactions now mobile

Alipay. JCB recorded the highest share of mobile payments across all the payment methods analyzed, with 54% of payments made on a mobile device, up from 47% last quarter. Alipay increased to 44% (up from 35%), and UnionPay to 31% (from 23%).

In Europe, iDEAL (Netherlands) was steady at 49% of online payments on mobile, Open Invoice (Scandinavia and Germany) reached 47%, Bancontact/Mr Cash (Belgium) was at 39%, and SEPA Direct Debit (Europe-wide) at 22%.

Smartphones now more popular than tablets for online retail purchases…

Shoppers have generally preferred making retail purchases on tablets rather than smartphones. However, the Index shows that for the first time, smartphones have overtaken tablets as the preferred device for making online retail purchases, at 17.5% on smartphone against 16% on tablet, compared to 14% and 17% respectively last quarter. This compares to 29% of digital goods payments on mobile against 7% on tablet, figures that are consistent with last quarter.

..and lead tablets in mobile payment share across the world

Smartphones continue to grow their share of mobile payment volume, increasing 2% from last quarter to 68% on smartphone versus 32% on tablet. This trend of smartphone increasing its share has now been continuing for 10 straight quarters.

On a regional basis, smartphone use far outweighed tablet in Asia, with 29.5% of online payments on a smartphone compared to 4.5% on a tablet. Europe and the US displayed a similar but less pronounced trend, with 23% of online payments on a smartphone and 11% on tablet in Europe, and 23% on a smartphone and 8% on a tablet in the US.

iPad has highest average transaction value

But despite the overwhelming popularity of smartphones over tablets in terms of making a purchase across both regions and verticals, one bright spot for tablets is that in terms of average transaction value (ATV) for device types, for the first time, the iPad led the way, at $107, edging out not just smartphones, but also desktop/laptop, the traditional leader, at $106. This was followed by the Android tablets at $86, iPhone at $83, and Android smartphones at $73.

The UK nudges 50% mobile transactions online

Among individual markets, the UK continues to lead the way in mobile payment adoption, with 49% of online transactions on mobile device (and just over 34% of these on a smartphone). Among other high adoption markets, the Netherlands reached 35% (23% on smartphone), and Sweden 32% (25% on smartphone).

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They are projected to grow at a rate of 8.9% to reach a record high of 389.7 billion transactions,² up from 2013’s 7.6% growth rate. Driven by a combination of factors including robust growth of non-cash transactions volumes in Emerging Asia ³ and widespread adoption of mobile technology for payments in mature markets,⁴ the volume of non-cash payment transactions grew faster than GDP across all geographies in 2013.  For 2014, growth is expected to have been propelled by the continued economic recovery in mature markets, rapid expansion in China, adoption of mobile and contactless technology, and the global move towards Immediate Payment ⁵ schemes.

Number of non cash transaction by region

Emerging Asia continues to push growth upwards

Non-cash transactions in Emerging Asia are expected to have grown by 27% in 2014 from 22% in 2013 driven by increasing internet use and the adoption of mobile payments. In particular, non-cash payment volumes in China are expected to surpass those in Germany, the UK, France, and South Korea, moving it into fourth position globally, behind the US, Eurozone, and Brazil in first, second and third place respectively. China posted record non-cash payment growth of 37.7% in 2013 as regulators accelerated the opening of the domestic payments card market to overseas competition and point of sale terminals were rolled out across the country. Mobile payments also grew significantly in volume – by 170% – to reach 4.5 billion transactions, making it a core element of China’s payments ecosystem.

Top 10 non cash transaction markets

Hidden payments volumes are also increasing

Hidden payments, or payments processed through non-bank systems, are now estimated to be as big as around 10% (40.9 billion) of non-cash transactions in 2014 and are expected to grow in the coming years. The lack of coherent data on hidden payments, which include payments made through closed loop cards and mobile apps, digital wallets mobile money, and virtual currencies makes it challenging for banks and non-bank payment services providers in determining optimal operating and processing models in such markets.  As hidden payments are not subject to regulation, there are also concerns about the lack of consumer protection on data privacy, information security, dispute resolution as well as fighting fraud and money laundering and regulation is needed to minimize these risks.

Banks still in a strong position to offer customer-centric innovation

Despite the rise of other competitive payment providers along with new and alternative payment methods including digital wallets and mobile apps, banks are still in a strong position to develop innovations that improve the customer experience. Banks are better positioned than their alternative provider rivals to provide holistic solutions across all instruments and channels which make them more efficient as a single provider of payment services as opposed to having multiple providers for each payments scenario.  As banks continue to enhance their holistic solution offerings, Immediate Payment systems can act as an enabler for banks to develop new value-add propositions and drive business growth.  Immediate Payment systems allow money to be moved from one account to another within seconds, 24 hours a day, ensuring customers can use incoming funds just as quickly.

Regulation also has a role in driving innovation through the harmonization required for the cohesive global expansion of Immediate Payment schemes.  According to the WPR 2015, 86% of payment executives surveyed believe that regulators will need to evaluate and make changes to the existing regulation to make Immediate Payments a reality globally. In particular, the adoption of Immediate Payments is challenged by a lack of interoperability of systems built using different standards in Europe and around the globe.  Regulators can help resolve this by working to develop and guide standards and rules to support industry interoperability.

“Each year banks face new and greater challenges in innovating to meet consumer demands for more convenient, faster, more secure and more mobile payment methods,” comments Andrew Lees, Global Sales Officer, Capgemini Financial Services. “Facing this pressure and the need for new regulatory initiatives to support innovations like Immediate Payments, payment services providers must take a long-term approach for payments processing by building a holistic set of offerings that can deliver value on a global scale.”

Another development re-shaping the payments market is Blockchain technology.⁶  Three key features of Blockchain are transparency, decentralization and key signing permission ⁷. This mix has the potential to improve the efficiency of financial transactions and transform the global financial network.  This technology could accelerate the velocity of money and provide an alternative for legacy banking systems in the future.

“New technology is accelerating change in the payments industry, offering holistic solutions as customers move from physical to digital payments as evidenced by the adoption of contactless in the UK with 53m transactions in March 2015. As a trusted partner, we’re at the heart of client transactions, facilitating the transition to digital payments,” comments Marion King, Director of Payments, RBS.

“As the digital economy transforms innovation in technology, it in turn gives customers greater choice and convenience in how they pay and conduct business.”

[2] The World Payments Report 2015 is an annual report which examines the latest developments in the global payments landscape, including payments volume trends, payment instruments (such as cards and checks), key regulatory initiatives and their impact on strategic considerations and options for banks. The transactional data in the report is from 2013. It makes a projection for 2014. Data is not yet available for 2015.

[3] Emerging Asia includes India, China, and other Asian countries.

[4] Mature Markets are: Mature Asia-Pacific including Australia, Japan, Singapore, and South Korea; Europe, including the Eurozone; and North America (the U.S. and Canada).

[5] Immediate Payment schemes, also known as real-time payments, allow money to be moved from one account to another within seconds, 24 hours a day, ensuring customers can use the funds just as quickly.

[6] Blockchain is a new technology initially used to support Bitcoin and cryptocurrencies which is based on federating independent computing power to capture and record transactions.

[7] In key signing permissions, the security of transactions is based on multiple synchronous validations from network participants.

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