A global payments report issued today by Capgemini and the Royal Bank of Scotland strikes a positive note: the use of e-payments is rising, while use of old-school checks and cash is fading. "One pleasant, surprising thing is if you look at the overall growth rate in non-cash payments in 2009 and 2010 in the context of global financial crisis, despite that economic environment, we still saw a 5% growth rate in '09, picking up to pre-crisis levels with an estimated growth rate of 7.8% in 2010," says Simon Newstead, head of FI Market and Business Strategy at RBS. "That's a pleasing finding of growth momentum, even in difficult economic conditions." Overall, there were 260 billion non-cash payments in 2009, including credit transfers, wires, direct debit, mobile payments and card transactions.
Globally, cards remain the preferred non-cash payment instrument, with global transaction volumes up almost 10% and a market share of more than 40% in most markets.
The U.S. remained the largest non-cash payment market in the world in 2009, accounting for 40% of the global total. Individuals in the U.S. are the most frequent users of non-cash payments, averaging 340 transactions per person in 2009. In the U.S., 58% of non-cash payments were made using cards.
Mobile payments are also growing quickly, the report found — they're expected to grow from 4.6 billion in 2010 to 15.3 billion in 2013, at a rate of 48.8% per year. Mobile payments will represent 15% of all card transactions by 2013, and will overcome card volumes within 10 years if growth continues at the same rate. The researchers say non-bank providers handled 6% of mobile payments in 2010 (272 million transactions) and expect non-banks to handle 8% of all mobile payments in 2013 (1.2 billion).
The U.S. is not a leader in mobile payments, due to its lack of mobile payment infrastructure. "If you go into a typical store today, chances are they won't have a contactless payment reader, given that the U.S. has been a laggard," says Christopher Fay, principal at Capgemini. "There are infrastructure barriers here. Emerging markets are embracing the technology a lot faster than mature markets are, and that's reflected in the growth rates."
The biggest growth in non-cash payments — 22% — took place in CEMEA (Central Europe, Middle East and Africa) and Latin America (15.4%). North America contributed only 1.8% to this payment growth, Europe 4.7%, and "mature" Asia Pacific (defined as Australia, Japan, Singapore and South Korea) 10.1%. "There's a regional story here; Europe and North America are showing growth but at a much less aggressive rate than some other market," Newstead says.
The use of checks continues to lessen, accounting for just 16% of all non-cash global transactions in 2009, down from 22% in 2005. But as U.S. bankers already know, to their chagrin, other countries lead the U.S. in the phasing out of checks and adopting electronic alternatives. "We continue globally to chip away at checks, but there are geographical differences," notes Fay. "The U.S. has embraced an acknowledgement of checks continuing, through Check 21 and digital imaging." Checks have declined in the U.S. from 52% of all payments in the country in 2001 to 23% in 2009. "We're making progress and there are more and more initiatives in government and private industry that are chipping away at checks," Fay says.
In mature Asia Pacific, only 6% of payments made in 2009 were checks; similarly in Europe, only 7% of 2009 payments were checks. In Europe, however, there's wide variety between countries. Some Scandinavian countries have no checks, while in the U.K. and France there's still significant usage.
How do other countries get rid of checks? "In Finland, there was a private/public sector common objective that the politicians, government, private sector all bought into, that said it would be in the interests of our economy to move to payment instruments," Newstead says, stepping away from the report data and offering his own observations. "There was a single commitment on all sides to do that. The nature of that market was such that they were able to reach that agreement and it's a technically advanced country, more able to accept alternatives than some other places might be."
One source of global payments — trade finance demand — is increasing, the report found, as exports increase. Exports were 24% higher at the end of 2010 than they were at the beginning of 2009, with Asian trade flows rebounding more strongly than those of developed economies. Basel III could inflate the cost of trade finance, the researchers say, as banks will be required to hold more capital against their assets. Workers' remittances were hit had by the crisis and global volumes contracted 5% in 2009, with remittances to Europe and Central Asia dropping 23%. Remittances appear to have resumed growth in 2010, albeit at a slower pace — 6% — than pre-crisis.
All the e-payment numbers in this report are dwarfed by the volume of cash still in circulation, the report found. More than 715 billion cash transactions were conducted in 2009, that's 80% of all transactions. The report authors point out that cash is expensive to transport and secure; increasing adoption of alternatives could help banks and retailers, the biggest stakeholders of the cash cycle, keep their costs down.
Research for the report was gathered from industry sources such as SWIFT, MasterCard, Visa, the Federal Reserve and the World Bank and augmented with interviews with RBS and Capgemini subject matter experts.
