Wednesday, 18 September 2019 11:35

Non-cash payments market boom, but banks ‘reluctant’ to embrace open banking

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Non-cash payments market boom, but banks ‘reluctant’ to embrace open banking Image Stuart Miles, FreeDigitalPhotos.net

The global transaction volume of non-cash payments is growing rapidly, including in Australia, with non-cash transactions booming and competition flourishing, despite many banks remaining reluctant to embrace open banking via data sharing, ecosystem partnerships and open platforms, according to a new report.

According to the Capgemini World Payments Report 2019 multiple incumbents in the non-cash payments market perceive open banking as a potential challenge “when it is a necessity for improved customer experience and retention in the long-run”.

Growth in the market is coming from developing markets within Asia (32% growth) and CEMEA - Central Europe, Middle East and Africa - with 19% growth.

And Capgemini’s report projects non-cash transactions globally will top 1,046 billion by 2022 - equating to a compounded annual growth rate of 14%.

Phil Gomm, Financial Services Practice Leader and Head of Banking at Capgemini Australia said: “Global non-cash transaction volumes continue to grow at 12% reaching 538b transactions in 2017. Developing markets led the way with China, Russia and India each recording growth rates of more than 30%.

“Australia recorded growth above 11% in line with the growth projection for the mature APAC region of above 10% CAGR through to 2022. Australia also climbed one position globally to be the third highest market in terms of non-cash transactions per inhabitant, trailing only Norway and Sth Korea.

“Although instant payments has been with us for some time now, take up remains weak. Corporate solutions look to be the key for increased growth, as further value added use cases emerge that leverage the additional transaction payload available with an instant payment message. Merchant adoption for instant payments will remain low until pricing incentives are in place.”

“The move to Open Banking in Australia is now playing out in the form of the introduction of the new Consumer Data Right. We see Open Banking as the key to sustaining market share. Open API’s and ecosystem-based business models are necessary, but banks globally are slow to adopt. Banks are not comfortable with mandated data sharing, with no reciprocity.”

“We see our major banking clients moving from a transaction led relationship with their customers to a data led relationship, which we see as necessary to ensure banks remain at the heart of customer relationships.

“Banks are also looking to capitalise on their position of Trust, by investing in additional security, fraud detection, and regulatory compliance solutions that bring increased security benefits to their customers,” Gomm concluded

“Yet in a market defined by innovation, many incumbents are more fearful than optimistic about the pace and direction of change,” Gemini’s report notes.

“In numerous cases, they cite the threat of BigTech challengers alongside only embracing Open Banking to the extent that regulators require, rather than seeing it as an opportunity for offering differentiation, customer retention and market leadership.”

Key findings of the report include:

  • Developing markets are leading the growth in the non-cash payment sector, projected to rise by a compound annual growth rate (CAGR) of 23.5% between 2017 and 2022. Emerging markets will soon dictate and shape the global payments landscape in terms of innovation, transaction capacity handling, and industry trends.
  • In 2017, these markets accounted for 35% of global growth, a share expected to rise to 50% in the coming years. Key contributors include Russia, where non-cash transactions grew by 40% in 2017, India (39%) and China (35%).
  • By contrast, mature markets including APAC, Europe and North America saw a steadier growth rate of 7%. Globally, non-cash transaction volume rose by 12% in 2016-17 to 539 billion.
  • Debit cards were the fastest-growing non-cash payment instrument, with transactions up by 17% in 2017, ahead of credit cards (11%) and credit transfers (10%).

According to Capgemini the payments landscape is growing more complex as new market participants and emerging technologies spur disruption and market incumbents are wary of open banking and new competition.

And, in addition, Capgemini says changing consumer expectations and regulatory demands are forcing banks to evolve their business models for payments, but many remain wary of change:

  • Less than half (48%) of those surveyed in the report said they are planning to use open APIs beyond the level needed for regulatory compliance.
  • While a clear majority (63%) identified BigTech competitors leveraging their global reach, brand equity, customer trust, great customer experience and finally payments infrastructure as a leading threat.

Capgemini says that - although banks are gradually, though too slowly - moving towards a more open, data-led and cloud-based approach, there remains a reluctance to fully embrace open banking.

And Capgemini says 90% of survey rerspondents identified ecosystem-based business models as key to long-term success, yet only 44% expressed interest in building and orchestrating an ecosystem of their own.

According to Capgemini regulation is forcing change, but pace is slow, and the shift towards a converged payments ecosystem has partly been driven by regulatory changes focused on standardisation and interoperability, including a shared digital identity platform, interoperability guidelines, and real-time payments clearing.

“Most digital transformation efforts at 60% of banks are in response to regulatory compliance,” Capgemini states in its report.

“Adoption of APIs beyond what regulation requires has been sluggish: a majority of banks have no plans to implement APIs that expose data in areas including intra-bank statement (53%), conditional payments (53%) and branch/ATM location (67%).

“Where banks are not being mandated to share more data, they are generally choosing not to do so. Open API is seen as a regulatory compliance game rather than a growth opportunity.”

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Peter Dinham

Peter Dinham is a co-founder of iTWire and a 35-year veteran journalist and corporate communications consultant. He has worked as a journalist in all forms of media – newspapers/magazines, radio, television, press agency and now, online – including with the Canberra Times, The Examiner (Tasmania), the ABC and AAP-Reuters. As a freelance journalist he also had articles published in Australian and overseas magazines. He worked in the corporate communications/public relations sector, in-house with an airline, and as a senior executive in Australia of the world’s largest communications consultancy, Burson-Marsteller. He also ran his own communications consultancy and was a co-founder in Australia of the global photographic agency, the Image Bank (now Getty Images).

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