How Governments Steer Payments Innovation

One number leaps off of the 56-page World Payments Report released by Capgemini (CAP) and Royal Bank of Scotland (RBS) on Monday: 1073.

That number's not a dollar figure for global payments, or a measurement of how many banks have adopted mobile banking, or even a projection for near field communication (NFC) volume in 2016. Rather, it's a Section of Dodd Frank (yes, Dodd Frank has more than 1,000 sections) that includes a February 2013 deadline for a raft of requirements for remittance transfers. Dodd Frank 1073, which covers remittances and U.S. initiated international payments, is one of more than two dozen payments related rules or regulations either issued in 2012 or with a pending deadline during the next year, which cover most payment types. The rules call for banks or other money transmitters to guarantee delivery (or receipt) of funds, fully disclose fees and exchange rates, provide post-transaction cancellation options, and resolve errors.

This portends substantial investment in reporting, tracking, and document population and management technology to ensure accurate processing and reporting, particularly since most countries have some local equivalent of Dodd Frank Section 2013. Capgemini RBS' report counts more than two dozen such regulatory payments regulations in 2012. That includes HM Treasury in the UK's July launch of national payments services industry reform, Canada's Code of Conduct for Cards and Hong Kong Multi-Currency Clearing. Other laws and regulations such as Basel III also include tighter liquidity requirements, which will likely lead to substantial reconstructions of balance sheets and expanded scope of payments reporting.

"One area that is of particular importance [in these regulations] is the intraday liquidity, there's a value being placed on that. There needs to be an increasing amount of sophistication about how it's tracked and analyzed. It's an area where the regulations are around systemic risk reduction, but it's triggering a lot of changes form a technology perspective," says Simon Newstead, head of financial institutions market and business strategy for RBS.

Most of these new regulations are still built of off post-crisis requirements that require banks to demonstrate healthy cash flows, which means any effort on the part of banks to speed payment processing or enable more payments faster still has to include reporting that shows regulators and other third parties that payments are being processed accurately and with a balanced mix.

In the U.S., for example, developing tech that helps banks monitor cash positions has become a big business for tech vendors. Capgemini and RBS' report includes heat maps that tie specific regulations to specific tech advancements. To name a couple, the Durbin Amendment is having a high impact on transparency of service, or data reporting, and SEPA is having a high impact on standardization. While much of this tech work is invisible to the consumer, the report says regulations can have a direct impact on customer-facing payments products. For example, the Canadian Task Force, by defining the roles of different stakeholders in the payments ecosystem, had the result of leveling the playing field and creating a more competitive market.

"Canada has a pretty well-evolved payments market…and in Europe, there has been growth following the formation of a flagship policy for digital signage, electronic invoicing and the monetizing of the payment infrastructure," says Newstead.

Overall, The World Payments Report showed that for 2010, the most recent year for which finalized data is available, non-cash payments grew 7.1%, and are on pace to show an 8 percent growth in 2011 when numbers are finalized. Cards accounted for 55.8% of all non-cash payments in 2010, up from 53.4% in 2009 and 35.3 % in 2001. The volume of electronic and mobile payments is forecast to reach 314 billion in 2013, with 20 percent yearly growth between 2009 and 2013. Mobile payments alone are expected to reach 17 billion by 2013. In North America, noncash transactions are expected to expand to 122 billion in 2011, up from 117 billion in 2010.