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Thursday, 15 October 2015

Global Payments Business – Challenges and Opportunities to Banks

The global payments industry is experiencing the digital disruption and opportunities across regions; it is in a state of fundamental transformation. Digitization of banking, digital-wallets, and surge in e-commerce acceptance are driving the growth in retail payments. However, the traditional corporate payment which is non-cash payment transaction type still is the major contributor to the global payments revenue. To take advantage of the opportunities offered in the global payments business, banks have to act fast and embrace the new age payments technology.
Key themes influencing these advancements are:
New Age Technology: Non-bank payment platforms are distrupting the global payments landscape with m-payments and e-payments. E.g: Globally most or all major e-commerce platforms has enabled digital wallets to improve customer experience.
Changing Customer Expectations: With increased internet and smart phone penetration globally and consumer preference towards digital payments are fuelling growth in non-cash payments market. Which also challenges the legacy payment methods to innovate.
Changing Global Demographics: Europe and Americas non-cash payments were high, but Emerging regions like APAC, South America and Africa non-cash payments are growing to outpace the developed markets soon.
E-commerce & Online Security: Migration of many retail brands to online market places to grow revenues; enhanced online security are increasing the consumer confidence on e-commerce spending.
Growing Impact of Regulation & Industry Initiatives: European Unions revised (PSD II), EMV adoption in US, Real Time Retail Payments intiatives, Pressure on Cards Interchange Fees, Merchant Acquisition Fees, NFC, SEPA, Virtual Currency Regualtion are all driving positive growth in payments market
Disruptive Non-Bank Payments Platform Providers
Payments were a service traditionally provided by banks, are now provided by innovative non-bank payment providers, who are rapidly gaining ground in the developing/emerging markets and among under-banked demographic segment. Technological leapfrogging can be clearly seen in the developing world, where traditional payments infrastructure is lacking. Paypal, Alipay, Western Union, MoneyGram, M-Pesa, Bitcoin and Prepaid Wallets are few examples which disrupted the payments business globally:
  • Paypal is fast growing number of customers globally for payments, also partnered with international e-commerce providers for Cross Boarder e-commerce inclusion. Alipay and Paypal continue to dominate as most preferred e-wallets types globally.
  • Western Union and MoneyGram are the largest remittance payments providers globally, where the banks have huge potential to tap in.
  • M-Pesa has demonstrated success in Kenya by providing payments services for un-banked customer segment and recently entered Europe.
  • Prepaid Wallets like Paytm, Mobikwik, Freecharge, and PayZapp are widely used for payments in e-commerce, taxi booking, mobile recharge, bill payments, travel ticket booking, and movie ticket booking.
  • Apple Pay, a NFC based payment technology has potential to grow with improving technology infrastructure landscape in retail outlets globally
  • Bitcoin provides a unregulated payments propositions
Non-Cash payment instruments such as cheque, Debit Cards, Credit Cards, Prepaid Cards, interbank electronic transfers, cross boarder electronic transfers, and pre-paid mobile wallets are all targeting revenue growth aiming to replace physical cash handling in the long term.
Expected Competition from Technology and Social Media Companies
Global Large technology and social media companies such as Apple, Amazon, Google, and Facebook are eying opportunities in payments business; by providing secure and straightforward payment options they can leverage and monetize millions of customers who already use their non-payment offerings. Clearing houses, network solution providers are also posing challenges to banks in the form of changing the way the multi-currency capabilities are delivered and impacting the value proposition of traditional correspondent banking models.
The tech savvy generation is taking leadership in global commerce, who are very familiar with social media and e-commerce are expected to adopt new age technologies to run their business.
Tapping the Opportunities in Global Payments Business
Banks have not been the quickest to respond or adapt to new technological advancements or customer expectations but this is the time to wake-up and respond to remain as key players in payments business.
Payments will not remain as utility products from banks in the future, there should be value addition. Successful payment providers will be those:

  •  Taking payments business into banks strategic growth priorities and devising a market specific payments business strategy that recognizes the unique needs, character, and evolution of payments business
  • Identify and penetrate the lines of business where payments are prominent
  • Target high-growth and traditionally under-served customer segment
  • Adopting and upgrading the technology infrastructure to deliver services and solutions in-line with customer expectations
  • Partnering with disruptive technology providers, social media companies, to enable access to technology and new customer base
  • Position themselves for increasing cross border and global nature of payments through multi-currency offerings
  • Targeting global remittances business aimed at high-growth economies such as Middle East, South Asia, and Africa
  • Constantly involve in pro-actively advising associations and regulators to shape the future regulatory framework

Definitions & Further Discussion:
E-Payments: Retail and travel sales; digital downloads purchased via any digital channel, and sales from businesses that occur over primarily consumer-to-consumer (C2C) platforms such as eBay. (Source: World Payments Report 2014)
M-Payments:  Form of payment where the mobile phone is used as a payment method–not just as an alternative channel to send the payment instruction – and the payment information flow takes place in real-time. (Source: World Payments Report 2014)
PSD:  Payment Services Directive
Figure: Global E-Transaction Payment Mix
  • By 2017, alternative payment methods will account for 60% of all transaction, an increase from 43% in 2012
  • 17% of global e-transactions were made using e-wallets in 2012, replacing that of credit and debit cards
  • Cash on delivery will account for 2% of global e-transaction by 2017
  • In 2012, 29% of e-transaction are made using non card methods in US and Canada, which was 41% in Europe, 53% in LATAM, 66%% in MEA
  • Globally, Europe and US are relatively slow in the uptake of new payment technologies owing to the widespread existence of legacy technologies
  • The developing markets such as Brazil, China and India are leading the way in adopting and innovating the new age payment technologies, given these markets are home to an increasingly middle class and mobile population who are tech savvy generations and more open to new ideas fueling demand for innovative, technology driven and easily integrated transaction methods.

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