World Payments Report 2009: Non‐cash payments transactions grow to 250bn; Global Transaction services remain significant contributor to revenue

Non‐cash payment volumes continued to grow in 2008 after an increase of 8.6 percent globally in 2007 to 250 billion transactions, according to the World Payments Report 2009, released today from Capgemini, RBS and Efma. The use of cards continues to be the single strongest driver for this growth with Global card transactions (credit and debit) growing 14.5% in 2007 and 11.2% in 2008.

Global markets are dominated by the US and Eurozone, which together account for 61% of transactions with developing economies continuing to grow their share of global transactions every year. Amidst weak economic conditions and a challenging time for the banking industry, Global Transaction Services (GTS) divisions were cited as a stable and profitable source of revenue for financial institutions.

The report finds that while some GTS divisions suffered from deteriorating market conditions and reduced business volumes in the first quarter of 2009, GTS still accounts for 5‐20%of group revenues, and remains an important source of revenue for banks, with a cost/income ratio as low as 50%.banks, wi Bertrand Lavayssière, Managing Director, Capgemini Global Financial Services said, “GTS remains an attractive business even in light of economic conditions. The credit crisis has caused a shift in priorities

where clients are seeking to optimise working capital as they face a squeeze in external funding amid tighter credit conditions.”

In addition, transaction banking services generate recurrent revenues as well as providing an important source of liquidity. To create successful GTS businesses Brian Stevenson, Chief Executive, Global Transaction Services, RBS stated, “Key success factors for a sustainable transaction business remain: skilled people, strength of client relationships, secure technology platforms, an effective global network strong servicing capabilities and scale to drive efficiencies.” 2

SEPA Standardization still on the Agenda

In Europe, the political will to drive a unified financial system remained intact and efforts continued to move ahead with SEPA implementation. The risk of a mini‐SEPA1 remains real unless stakeholders get certainty on key issues: an end‐date for full migration to SEPA; evidence that SEPA solutions can provide tangible improvements in operational performance; and clarity on standards to be used for SEPA payments (e.g., around data) so participants can prioritize IT investments and SEPA‐implementation plans. In response, European regulators are increasingly supportive of the need to encourage quicker implementation by setting a common end date.

Bertrand Lavayssière of Capgemini said, “SEPA is a positive initiative which should reduce costs and minimise risk for the payments process. However, banks, corporations and public authorities need to play a more proactive role in order for SEPA migration to progress. New business opportunities will come with payments standardisation and will become more apparent as competition increases in the payments industry.”

Fully realising the goals of the SEPA Cards Framework (SCF) will involve overcoming a number of potential hurdles, such as issues over scheme compliance, ongoing standardisation activities and the continuing uncertainties surrounding interchange fees.

Future Growth and Innovation potential: Focus on Asia

In other regions, such as Asia, innovations in payments are leading to revenue benefits according to the report.

For banks seeking to grow and enhance payments revenue streams, best practices and a range of initiatives out of Asia have demonstrated that payments innovation is a potential source of revenue, particularly with non banks. The Asian market offers valuable insights on the success factors for developing different payment tools, and the opportunities for banks to generate new revenues from emerging payment instruments.

“Emerging payment methods like m‐payments, contactless payments, e‐payments and biometric authentication can help banks to attract and retain new clients, reduce the use of cash, create new offers, reach unbanked markets and decrease operational costs,” said Bertrand Lavayssière of Capgemini.