Regulatory and operational barriers to digital payment remain

22 October 2018 Authored by Consultancy.uk

While demand for digital payments soars, particularly in developing markets, regulatory and operational requirements remain barriers to innovation. A failure to offer regulatory certainty, and perceptions of corruption, mean many nations have yet to realise the potential of digital payments.

Digital payment systems have gradually become more prevalent over the past decade, with the rolling out of new technologies encouraging digitally savvy consumers to switch to the new systems for the sake of convenience. However, trust remains a major barrier to change of this nature, according to a new study from Capgemini in partnership with BNP Paribas.

The World Payments Report 2018, which looks at innovation in the digital payments landscape and highlights what to expect from BigTech entrants, found that digital payments are experiencing a boom driven by developing markets. Emerging Asia has seen a meteoric rise in digital payments in the past three years. Having risen by over 31% between 2012 and 2016, the market now sees more non-cash transactions than the mature Asia Pacific region – which includes China, Japan and Australia, among other leading economies.

Number of Worldwide Non-Cash Transactions (Billions)

Similarly, CEMEA (Central Europe, Middle East, Africa) has seen a rapid shift in the acceptance of the new technologies. While the market still hosts less than half the number of non-cash transfers which occur within the Eurozone, CEMEA saw growth in adoption of such payments – which was more than double that of its European neighbours. This suggests the region will quickly make up the remaining ground in the future.

Conversely, however, Latin America remains well behind the global curve, and is around 7% slower to take up non-cash payments than the rest of the globe. Indeed, Latin America’s stagnation illustrates a number of key trends which are holding back the adoption of digital payments among the broader population. A high level of economic and social corruption has led to economies such as Mexico and Brazil lagging behind their peers, albeit to different degrees, in terms of adopting digital payment offerings.

Global Non-Cash Transactions per Capita vs. Corruption Perception Index

Similarly, Russia, Saudi Arabia, China and India, all of which are recognised as some of the world’s most flagrantly corrupt nations both politically and economically, boast some of the lowest levels of non-cash transactions around the globe. While obviously the perceptions of a country not being corrupt should be taken with a pinch of salt, meanwhile, nations like the US, South Korea, Sweden and the UK fared much better on the 2016 corruption perception index. While this may have changed since, according to Capgemini’s research, this positioned them as market leaders in the digital payment arena.  

A factor which further reflects this is nations with higher perceptions of corruption also host lower propensities toward proactive regulatory work. Regulatory clarity from an early stage can offer higher levels of consumer confidence in new technologies, and help drive demand. This is evident from the still reluctant demand from citizens in Brazil, China and Thailand.

There are some examples which buck this trend. Again, based on perceptions from 2016, India was comparatively proactive in terms of regulating cashless transactions. However, the economy still saw relatively low uptake of digital payments. This could be due to a number of other variables, including a lack of technology having been rolled out to support such payments across the nation.

Evolution of Regulatory Landscape Across Select Countries

At the other end of the spectrum, meanwhile, the US took a relatively laissez-faire approach to regulation, but still saw high demand. Ideologically, this could be due to America’s historic disdain for state regulation in the market, or a number of other variables, including the level of convenience cashless transactions offer for a nation which enjoys an increasingly sedentary lifestyle.

Commenting on the report, Anirban Bose, CEO of Capgemini’s Financial Services and member of the Group Executive Board said, “As demand for digital payments is strong, especially in developing markets, some banks may want to revisit their choice to not seek an anchor role in the new emerging payments ecosystem. With their significant market share in the payments industry and implementation of new technologies, banks are in a unique position to shape the marketplace. They can also create new revenue streams through innovative, collaborative relationships with FinTechs and active participation by the broader financial services community.”

Bruno Mellado, Head of International Payments and Receivables at BNP Paribas added, “Large payments users are also a key constituency in the evolution of innovation in the payments industry. Without their participation, payments services providers are missing a vital opportunity to shape new offerings in transaction banking such as in cash aggregation, cash forecasting and automated treasury. These offerings could equip corporate treasurers with the means to move beyond a tactical or operational role and towards a more strategic one for their companies.”

Related: Digital bank platforms rise as co-operation with FinTechs grows.

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