The 2012 World Payments Report – by RBS, Capgemini and EFMA – throws light on the relationship between regulation and innovation and the continual growth in non-cash payments. The report also highlights how the BRIC concept is no longer valid in the payments space, writes Meghna Mukerjee
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Banks should solidify their innovation foundation to remain competitive, according to the 2012 World Payments Report (WPR) released in October by Royal Bank of Scotland (RBS) in partnership with Capgemini and European Financial Marketing Association (EFMA).
According to research conducted for the 2012 WPR, banks are "not as strongly positioned to be successful innovators as they would be if their innovation building bricks were best in-class".
Alongside innovating, evolving innovation capabilities is vital for banks to succeed, states the 2012 WPR. The WPR also highlights banks’ needs to ensure that they have capabilities in place across all dimensions to make their value added services accessible and easy to use.
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By GlobalDataIn its eighth year, the WPR assessed the state of the payments business as it faces challenges from more regulation, economic and competitive headwinds, technology advances, and customer expectations.
In the 2011 WPR, a key overall conclusion was that non-cash payment volumes continue to rise, despite the major challenges of more regulation and the unfavourable economic conditions.
In 2012, non-cash transactions volumes continue to show healthy growth on a global basis, and debit cards continue to gain mar¬ket share from credit cards and other types of payment methods because "they easily allow people to bypass the use of cash".
More and more consumers have also moved to mobile and other electronic payments platforms, and the growth of non-cash payments is increasingly likely to be fuelled by payments areas in which innovation is "specifically designed to meet the evolving demands of customers".
The proliferation of smart phones and easy access to payment apps has resulted in a "surge" of mobile payments usage at a "breakneck pace", states the WPR 2012. The potential for additional growth is "still huge", with mobile payments set to reach 17bn by 2013 and e-payments 31.4bn by 2013, with only 2.1% of all mobile users currently making m-payments.
Customers can expect to see "exponential growth of innovative payment solutions" says Kevin Brown, global head, transaction services product, international banking, RBS.
The WPR 2012 also throws light on the fact that the BRIC (Brazil, Russia, India, China) concept is no longer valid in pay¬ments, with Brazil being the second-highest ranking country by payment volumes after the US.
There were 20bn non-cash transactions in Brazil in 2010, compared with 13.1bn in Russia, India and China combined.
India’s payment volume grew at 10% and has great potential for future growth, but is still the BRIC payment laggard.
"The BRIC acronym no longer works in payments. Given significant differences in each market’s stage of development, the four countries should be viewed very differently. This is particularly important for Brazil, where volumes now surpass all the individual European markets," says Patrick Desmarès, secretary general, Efma.
Globally, the volume of non-cash payments remains concentrated in developed markets, with North America, Europe and mature Asia-Pacific together accounting for 79.5% of all payments.
Banks also need to focus on offering innovative solutions that "can and will" spring from regulatory and market pressure to transform, states the 2012 WPR.
Given the increasing number and scope of regulatory initiatives, effective responses may involve partnerships with non-banks so that the combined strengths of partners can offer customers a compelling experience.
"Regulation must not be created in regional isolation. Its central goal needs to drive innovation forward, and deliver customer benefits that push industry boundaries," says Jean Lassignardie, corporate vice president, head of sales and marketing, Capgemini Global Financial Services.
The 2012 WPR also reaffirms that regulatory pressure, and the drive toward standardisation and commoditisation, have been converging to propel a fundamental transformation in the payments landscape in the mid-to-longer term.
Hybrid forms of e-payments now combine various payment channels to give consumers more options, and innovations in electronic and m-payments are emblematic of the broader imperative for PSPs.
PSPs need to identify the must-haves for any payments solution or experience they create, pursue, or present, according to the report. This imperative is especially pressing for banks, which unlike non-banks, have a wider scope than a single, narrowly focused solution or experience.
Banks could consider creating a ‘Payments Innovation Ecosystem’, according to the 2012 WPR, looking outside the banking industry to find small or medium-sized partners to collaborate with on more niche and customer-focused innovations.
The report also suggests that banks must ‘be’ the money and take the following steps towards improving their services and augment their longstanding customer relationships with new solutions designed to deliver tangible value:
– Virtual Currency: Create their own currency in a virtual world for closed-loop payments and align it to real world currency;
– Lend the money: Bundle payments with lending and account services such as Escrow (wholesale), P2P, Micro-finance;
– Change the money: Focus on currency conversion, such as money changing, remittances, and changing to virtual currency;
– Create prepaid products: Also leverage of ‘liability base’ brought in through quality payment services;
– Move the money: Make online and off-line payments easy through any payment instruction mode such as plastic, mobile, or NFC;
– Analyse the money: Focus on information presentation, e.g., cash forecasting for corporates, and personal finance management for retail;
– Secure the money: Focus on security of payment processing such as AML checks, PCI-DSS compliance, fraud management, e-locker;
– Payment processing: Processing payments including origination, settlement and reporting (most commoditised value space);
– Risk management: Manage the different types of payment risks such as counterparty, liquidity (including intra-day), foreign exchange, and settlement;
– Real-time visibility into payments: Across treasuries and client organisation components;
– Match the money: Matching invoices and supply chain information with money flow to provide value-added services;
– Manage the money: Drive more value out of money through visibility, investment propositions, and liquidity solu¬tions (pooling, balancing).
Looking ahead, the challenge for banks is to respond to the changing needs of customers and concurrently continue to operate compliantly in the markets where they compete.
Customer retention and acquisition are the two most critical areas for innovation, according to the 2012 WPR. But in customer service, banks face tougher challenges than their non-bank counterparts, which in some cases have been able to focus on being customer-centric, without the same regulatory pressures.
It also remains to be seen exactly how the relationships between banks and non-banks will evolve in coming years, or how the regulatory environment will choose to monitor payments activities and players that are increasingly difficult to classify in the categories used by today’s banking system, states the WPR 2012.
