National payments schemes must adapt to stay relevant, according to The Outlook for National Payment Schemes in a Global Economy.

This is a survey of 17 of the world’s most significant national schemes conducted by Anthemis Group, the financial services investment and advisory group. Traditionally national schemes have tended to follow an incremental development approach but now many of them believe that they will have to take more risks to avoid being marginalised. Although the remit of national schemes is to serve the interests of their local market, the majority now consider it imperative to have a more comprehensive international strategy.

Eighty six per cent of schemes consider that co-branding with MasterCard and Visa will remain important but a similar proportion believe that they should also be working with a broader range of players such as Diners/Discover, UnionPay and JCB. Almost all respondents support co-operation between schemes for some form of reciprocal acceptance although they are not clear how this would operate in practice.

The research shows that national schemes understand their power to retain and win new business through low fees and efficient business models, especially for debit cards. The schemes believe that banks value their low fees and are concerned that since their IPOs, MasterCard and Visa increasingly serve their own interests rather than their users. However, the bank owners of some national schemes insist on absolute minimum fee levels which generate little investment funding for innovation.

National schemes currently see product innovation as an area of relative weakness given this trade off between competitive pricing versus international schemes and having sufficient funds for innovation. Consequently, some schemes are exploring different ways to access external capital to solve this dilemma. National schemes believe that there is a major role for them to play in the emerging alternative payments space, especially mobile and e-commerce, where there is considerable reluctance to see MasterCard and Visa develop the same level of market power as they do in the conventional card sector

John Chaplin, director at Anthemis, says: “National schemes can look forward to a bright future provided that they adapt to meet the demands of the global economy. First, all schemes need to develop international acceptance strategies that go beyond a total reliance on MasterCard and Visa. Second, they must strike the right balance between maintaining low fees and generating sufficient funds for innovation. Third, schemes should streamline their decision-making processes to reflect the faster pace of the market. Finally, national schemes must avoid concentrating solely on the card space and invest in the provision on alternative payments, an area where MasterCard and Visa are less dominant.”

Incentive payments offered by MasterCard and Visa (mainly to card issuers) are widely viewed as the single biggest threat to the survival of the national schemes. Upfront incentive payments are seen to distort the decision-making process of many banks when choosing between schemes and there is real surprise at the failure of regulators globally to address this issue. Currently, MasterCard and Visa are making incentive payments totalling over $4 billion annually.

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