Global payments volumes continued to grow in 2009 despite impact of financial crisis

19 October 2010

World Payments Report 2010 shows increased competition and new regulatory initiatives are creating a more complex payments landscape

Confirmed by the European Central Bank’s recent announcement of four percent growth in the EU, global payments volumes continued to grow in 2009, despite economic pressure from the financial crisis according to findings from the World Payments Report 2010, announced today by Capgemini, RBS and Efma. This followed a period of overall growth in non cash-payments which accelerated to nine percent in 2008 from seven percent in 2007. The rate of growth in non-cash payments volumes in 2008 was far faster in developing economies, such as China (29 percent), South Africa (25 percent) and Russia (66 percent), than in mature markets, such as North America which had a growth rate of four percent.

The World Payments Report 2010 examines the latest trends in the global payments landscape including payments volumes and instruments usage as well as key payments-related regulatory initiatives and the consequent strategic challenges and options for banks. The report reveals that globally, cards remain the preferred non-cash payment instrument, accounting for more than 40 percent of payments in most markets and 58 percent globally. In the Eurozone, cash-in-circulation has continued to maintain a steady growth of around 11 percent per year since 2002, representing significant cost for society. Alternative, or non-bank providers, have made significant strides in m-payments, particularly in emerging markets, and e-payments – although both still account for only a small percentage of total worldwide transaction volumes.

Progress towards SEPA continues but challenges remain

The report highlights several key developments that have taken place in the last year around the Single Euro Payments Area (SEPA) and Payment Services Directive (PSD), revealing nearly all European Economic Area (EEA) Member States have now transposed PSD into national law1. The report also reveals that while SEPA Direct Debits (SDD) were launched in November 2009 for both consumers and corporates, usage at this stage remains very low. At the same time, usage of SEPA Credit Transfers (SCTs) has continued to grow but is still 1 The EEA comprises the 27 European Union (EU) Member States plus three non-EU countries (Iceland, Liechtenstein and
Norway). By August 2010, only two countries (Poland and Iceland) still had to undertake PSD transpositions. behind expectations. Nearly all stakeholders, including government and industry, now agree that full SEPA migration will continue to lag unless supported by regulation and in June 2010, the European Commission (EC) announced that it was intending to draft binding legislation on migration end-dates.

Additional regulatory pressures continue to affect the global payments industry

In response to the crisis, regulators are taking further steps that will have significant consequences for key elements of the payments industry. Implementing the Basel III framework, in particular, will require management attention and investment which, along with more stringent liquidity requirements, will increase costs and could require a deeper strategic repositioning for banks. Additional pressures come from Anti-Money Laundering (AML) and Anti-Terrorist Financing (ATF) requirements, which are likely to increase the costs of processing payments orders, reducing efficiency and slowing the rate of Straight-Through Processing (STP).

“While further progress has been made with SEPA this year, the process of turning this ambitious initiative into reality is still slow,” said Bertrand Lavayssière, Managing Director, Global Financial Services, Capgemini. “Global economic challenges and crisis after-effects have distracted progress, causing some banks and endusers to be more hesitant in making the needed investments to speed SEPA migration. However, in light of recent regulatory activity around liquidity many banks are focusing their attention on their payments businesses with heightened interest.”

Global payments industry continues to evolve

Together with post-crisis regulatory initiatives, new technologies and added competition are making the payments landscape increasingly complex. Banking leaders interviewed for the report commented that the payments industry has seen many new entrants to the market, such as e-payments providers, and these changes mean traditional players need to adapt to the new landscape.

Brian Stevenson, Chief Executive, RBS Global Transaction Services, said : "Banks are currently facing a variety of challenges from the rapidly changing payments landscape. These challenges also present significant opportunities for banks that are able to adjust their strategies and move quickly to take full advantage of new ways of working in the global payment industry."

Banks will increasingly need to decide to what extent payments are core to their business strategies, putting in place a well balanced combination of revenue and cost focused initiatives that may require defining clear sourcing strategies as well as building up cost-effective payments processes and architectures. In particular, the client-facing and processing elements of payments services are likely to be impacted. Partnerships and sourcing strategies are likely to play an increasing role in banks’ payments strategies here. Cooperation with third parties for revenue-focused initiatives could help banks speed time-to-market, spread investment expenses, reduce operating costs of new payments initiatives and help extend their payments footprint. Insourcing and outsourcing have also become integral to cost-focused initiatives, helping banks to achieve reduced costs and improved scale and efficiency.

The report also reveals a new trend whereby many banks are reassessing their payments operating models and architectures, integrating operations to create centralized Payments Hubs focused on cost optimization and revenue growth. This can enable banks to better understand performance and profitability related to each payment instrument, offer customized value-added services to clients and tailor pricing and billing as required while taking an open, flexible and scalable approach, essentially enabling them to achieve more with less.

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