Digitisation, Collaboration and Payments Transformation: Introducing the 2017 World Payments Report

 
By Helen Sanders, Editor

 

In this special executive interview, which coincides with Sibos 2017, Christophe Vergne, Payments and World Payments Report Leader, Capgemini and Jan Dirk van Beusekom, Executive Director, Client Advisory,  Strategic Marketing and Engagement, Cash Management Competence Center, BNP Paribas Group, talk to Helen Sanders, Editor, about the aims and key findings of the 2017 World Payments Report which is launched at the event.

For those not familiar with previous versions of the World Payments Report, what are the aims of the report?

Christophe: The World Payments Report, now in its 13th year, is an in-depth analysis of the evolving dynamic payments environment. It is designed to help both banking and corporate sectors understand payment trends, challenges and opportunities, and help benchmark their own activities.

Jan Dirk: The 2017 World Payments Report (WPR 2017) is focused on the emergence of a new payments ecosystem, which is being driven by changing corporate and customer expectations for value-added services, a dynamic regulatory landscape, the growing influence of financial technology firms, and an increase in payments-enabling technologies. As corporate demand for value-added services grows, coupled with structural changes in the financial industry, we are seeing increasing collaboration between banks and industry participants to shape this new payments ecosystem.

What is the background behind the collaboration between Capgemini and BNP Paribas in the production of this report, and what is the value of this partnership?

Christophe: 2017 marks the second year of partnership between Capgemini and BNP Paribas. As a global banking player and recognised leader in transaction banking and cash management, we are delighted to continue our collaborative partnership with the bank. By working together, we are able to offer a unique perspective of the global non-cash transaction environment as it relates to banks and the payment-related topics are particularly relevant to the corporate sector.

We talk a lot about the digitisation of payments, but what is happening at a global level?

Jan Dirk: Not only are non-cash, or digital payments on the rise, but momentum is building. Although cash remains the most common payment method, particularly for low-value transactions, and in markets with a lack of modernised payment infrastructure and citizen and business access to banking systems, non-cash transactions (most commonly debit cards and credit transfers) are growing strongly. Global non-cash transaction volumes grew by 11.2% during 2014–2015 (the last full year for which figures are available), the highest growth of the past decade, to reach 433.1bn.  This growth was driven to a large degree by developing markets, which recorded a 21.6% increase in 2015 while mature markets grew by 6.8%. China has now become the world’s third largest user of non-cash transactions. 

Christophe: This growth in emerging markets is being driven by initiatives to promote cashless societies, a push towards increasing financial inclusion, such as in India, Vietnam, Indonesia and Latin America, and technological innovation. While the proliferation of mobile payments and innovative digital payment methods is expected to continue, there are differences in adoption patterns and use cases across regions. Growth will also be encouraged by the entry of new players, the ability to leapfrog to new technologies, and the digitisation of traditional payments infrastructures. Meanwhile, in mature markets, a combination of near field communications (NFC)/contactless technology and mobile payments may lead to the development of new payments use cases. Countries such as Australia, Canada, and the UK are exhibiting this trend. 

We estimate that non-cash transactions globally will increase at a CAGR of 10.9% from 2015–2020 (figure 1) with developing economies growing at 19.6%.  Emerging Asia, driven mainly by China and India, is expected to grow by 30.9%  over this period. As a result, emerging economies, that currently represent one third of global non-cash transaction volumes, will grow to half of it by 2020.

  

Fig 1:  Number of Worldwide Non-Cash Transactions (billion) by region, 2015 – 2020

 

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What else does the report suggest is likely to shape the payments landscape, in addition to the shift from cash to digital payments?

Jan Dirk: Technological innovations such as the Internet of Things (IoT) and blockchain are expected to transform the payments market as data becomes central to payments. New mobility solutions, connected homes, entertainment and media could drive the volume of non-cash transaction volumes significantly. For example, by 2021, the report suggests that more than 15 billion machine to machine (M2M) and consumer electronic devices will be connected. Further growth will be driven by the proliferation and adoption of alternate payment channels such as contactless, wearables, and augmented reality, coupled with biometric and other emerging authentication and authorisation techniques. By 2019, it is estimated that about half of debit or credit card transactions will be made either online or through a mobile phone. Consequently, while e- and m-payments comprised 31.2% of total card transactions in 2015, their share could increase to 45% by 2019. 

What – or who - are the key drivers of this shift?

Christophe: The growth and adoption of next-generation payments will continue to be driven by retail customers, with regulators expected to play a key role in providing a level playing field, as we have seen in Europe with PSD2 (second payment services directive), to encourage payment services competition and innovation. Collaboration between new and existing market participants and regulators will be essential to avoid complexity and delay in the introduction and adoption of next-generation payments, and to maintain a focus on risk reduction and standardisation.

Does the report anticipate that banks’ role in the new payment environment will be diminished?

Jan Dirk: On the contrary, but as new payment methods, players, behaviours and technologies evolve, all participants, including banks, need to make a strategic decision about the role they play. Corporates are increasingly turning to their banking partners for help in providing value-added services to their clients which presents an opportunity for banks to enhance their value proposition and create competitive advantage. By doing so, banks can not only retain and grow business with existing clients, but also acquire additional market share, despite challenges from bank and non-bank competitors.

What are the obstacles to a new, truly digital payments landscape?

Christophe: There are both organisational/strategic and technology challenges to overcome.  Firstly, participants need to determine their future payments strategy, and proactively seek collaborative opportunities to fulfill it. Secondly, while new technologies and payment methods, open APIs and regulatory support for innovation are key enablers of the new payments ecosystem, lack of harmonisation and standardisation are slowing the development of the ecosystem.

What does a new payments landscape mean for corporate treasurers and finance managers?

Jan Dirk: Automation of repetitive tasks and the growing use of digital payment methods for collections means that corporate treasuries are evolving into a more digitised function and therefore assuming a more strategic role (figure 2), focusing on activities such as cash forecasting and fraud prevention. Security risks continue to pose a very real threat, and treasurers are turning to their banks to help them improve their security infrastructure. As ecosystems develop, it becomes increasingly important that all participants demonstrate the highest level of cyber and transaction security, and evaluate risks from multiple sources.

  

Fig 2:  Future Evolution of the Treasury Management Function

 

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What conclusions would you particularly highlight from the report?

Jan Dirk: In order to remain relevant and competitive in leading and shaping this new payments ecosystem, banks must embrace the opportunity to enhance their offerings in collaboration with other stakeholders such as fintechs and third-party developers as well as their clients and industry partners. Breakthrough technologies and significant market and regulatory developments are facilitating this collaboration. However, an open, collaborative environment highlights challenges such as a lack of standardisation and cybersecurity vulnerabilities, which is slowing the emergence of the new ecosystem. As the way forward remains uncertain, all stakeholders must be flexible, prepared to deal with ambiguity and nuance, and assess their roles accordingly. 

In the corporate payments world, corporates are embracing the operational and financial benefits of digital payment methods, but they need to leverage the full benefits of digital transformation to increase overall efficiency. By leveraging new technologies and harnessing centralised payment solutions, corporates can address inconsistencies and operational inefficiencies in corporate payments. 

Christophe: The growing volume of non-cash transactions is taking place in an environment of increased regulation. Regulators across the world are focused on opening banking systems to a wider range of competitors, while ensuring data privacy of end users and the security of payment transactions. Even so, the emergence of a new payments ecosystem provides many opportunities for banks, with network effects, the creation of new services for corporates and internal governance amongst the key success factors for such an ecosystem. In addition, a robust governance model and usage of common communications standards will be important to avoid obstacles and delays in payment innovation and adoption.

While a new ecosystem has the potential to mitigate many of the challenges faced by banks and corporates, challenges are likely to remain, so flexibility will remain key. By focusing on collaboration with the right strategic partners, seamless integration, such as through effective use of open APIs, and common use of standards, banks have the opportunity to lead the development of the new ecosystem and achieve transformational change across the entire consumer and corporate community. 

  

Christophe Vergne Payments and World Payments Report Leader,  Capgemini Backed by a solid banking background, Christophe Vergne has played a critical role in building Capgemini’s global payments transformation capability, enabling major institutions to transform and consolidate their leadership across all market segments and services. For the past decade Christophe has been the co-author of the World Payments Report, helping to make it the most successful publication on payments transformation.

 

Jan Dirk van Beusekom Executive Director, Client Advisory, Strategic Marketing and Engagement, Cash Management Competence Center BNP Paribas Group Jan Dirk has over 25 years’ experience in cash, treasury and risk management, people management and training. He started his career with Avery Dennison at their European Treasury Centre as European Cash Manager, followed by a position as Assistant Treasurer with Hagemeyer N.V. both in The Netherlands. In 1997, he switched to consultancy and banking as Financial Consultant with MeesPierson. In 2001, he moved with his family to Belgium to start the first eCommerce department within Fortis Bank. In 2004 Jan Dirk became responsible for the European expansion of cash management and created and led the European sales organisation. The following step was the creation of the Financial Supply Chain Management team, a combination of Trade, Trust, Factoring, Supply Chain Finance and Cash Management. Currently he is executive director Client Advisory, Strategic Marketing and Engagement of the Cash Management Competence Center, BNP Paribas Group.