A digital payments boom is being driven by developing markets, but the innovation landscape in payments is uncertain as BigTech entrants make their presence felt and incumbents face technical and regulatory complexity in developing collaborative payments ecosystems with FinTechs.

This is according to the World Payments Report 2018 from Capgemini and BNP Paribas, which also found that it will take more than bank-led initiatives to grow the new payments landscape.

It forecasts that non-cash transactions will post a compound annual growth rate (CAGR) of 12.7 per cent through to 2021, following growth of 10.1 per cent in 2015-16, which saw the total volume of non-cash transactions reach £482.6 billion.

This non-cash boom is being driven by developing markets, with Russia (CAGR of 36.5 per cent), India (33.2 per cent) and China (25.8 per cent) as notable movers during 2015-16. Mature markets maintained steady growth of more than 7 per cent.

Developing markets are set to show a 21.6 per cent CAGR, led by emerging Asia at 28.8 per cent over the next five years. By 2021, developing markets are expected to account for around half of all non-cash transactions worldwide, overtaking the mature markets for the first time, whose current share stands at 66.3 per cent.

Disruption of the payments market is accelerating as new technologies take hold and BigTechs and FinTechs make their presence felt, stated the report. In particular, e-wallets are on the rise and present a major market opportunity for non-traditional payments providers.

In 2016, e-wallets accounted for 8.6 per cent of non-cash transactions (a volume of 41.8 billion), of which 71 per cent were facilitated by BigTech providers.

Although disruption is accelerating and market entrants are proliferating, there are regulatory and technical complexity challenges to the development of innovative new payments ecosystems, along with the expectation of the current level of security. Only 38 per cent of bank executives surveyed for the report said they were planning an anchor role in new payments ecosystems.

“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,” said Anirban Bose, chief executive of Capgemini Financial Services.

“With their significant market share in the payments industry and implementation of new technologies, banks are in a unique position to shape the marketplace,” he continued, adding: “They can also create new revenue streams through innovative, collaborative relationships with FinTechs and active participation by the broader financial services community.”

Indicative of the complexities that surround innovation in the payments marketplace, many respondents said that adoption of a real-time payments infrastructure was being inhibited by lack of interoperability between schemes (identified by 74.1 per cent of executives), weak data and authorisation standardisation (59.3 per cent).

On distributed ledger technology (DLT), 85.9 per cent highlighted lack of interoperability, 83.1 per cent cited lack of regulatory clarity, and 77.1 per cent stated the ability to scale, as factors limiting adoption.

The report also showed how key regulatory and industry initiatives are threatening to create conflicts as they spread from a regional to a global level. Conflicting regulations pose implementation and operational challenges that could hinder the transition to new payments ecosystems, with examples including the fifth Anti-Money Laundering Directive (5AMLD) and the second Payments Services Directive (PSD2) conflicting.

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