Payment firms are being pushed rapidly into transformation, even as they handle larger transaction volumes, face increased competition and heightened risk factors amplified by COVID-19.
This is according to Capgemini's annual World Payments Report, which also raised the possibility of the pandemic causing the end of cash transactions. It predicted that a compound annual growth rate (CAGR) of 12 per cent is expected for global non-cash transactions for 2019 to 2023.
Global non-cash transactions surged nearly 14 per cent from 2018 to 2019 to reach 708.5 billion transactions, the highest growth rate recorded in the past decade.
Asia Pacific surpassed Europe and North America to become the 2019 non-cash transactions volume leader at 243.6 billion. The increase was driven by increasing smartphone usage, booming e-commerce, digital wallet adoption and mobile/QR-code payments innovations, led by China, India and other Asian markets (31.1 per cent growth).
The report also showed that 30 per cent of consumers are using a BigTech for payment services, while half are already using a challenger bank for some payments. As of April this year, more than 38 per cent of consumers said they discovered a new payment provider during the lockdown.
Online or mobile banking and direct account transfers were, and still are, the preferred payment method throughout the crisis, according to 68 per cent of consumer survey respondents. Contactless cards came in second, with 64 per cent of respondents stating they used them often. Digital wallets - including QR based payments - were the preferred choice of 48 per cent.
Capgemini expects digital wallet use to jump from 2.3 billion in 2019 to four billion by 2024 – half of world’s population. Invisible payments, or automated payment processes such as those found in Amazon Go stores and Uber, are on pace to reach a 51 per cent CAGR between 2017 and 2022.
Meanwhile, payments executives said businesses are exposed to risks such as cyber security (42 per cent), regulatory (37 per cent), operational (35 per cent) and business (30 per cent). A further 87 per cent of executives said they face a high likelihood of cyber vulnerabilities, as criminals are exploiting exposures opened by the COVID-19 lockdown.
While bank executives ranked client-visible innovation (79 per cent) and digital transformation (75 per cent) as the top drivers of their strategic initiatives for 2020 and beyond, payments transformation appears inevitable.
Capgemini stated that banks are actively pursuing two different ways to achieve a leaner and more agile backend that can keep pace with a digital front-end, by either developing in-house capabilities or by working with digitally agile new players. In addition to developing in-house capabilities, 60 per cent of bank executives believe that working with third parties throughout the value chain will help them augment ecosystem-based propositions.
“COVID-19 has accelerated the rate of innovation within the payments space to quickly form the ‘next normal’, requiring payments firms to be digital masters almost overnight,” said Anirban Bose, chief executive of Capgemini’s financial services group. “Currently, we are seeing visionary banks and payments firms diligently prioritising technology transformation and actively adopting a ‘curate and collaborate’ approach by teaming with agile new players to create more nimble organisations.”
More than 8,600 consumers participated in the survey. An additional online survey to banks, FinTechs, payment services providers and corporates provided data from 235 respondents, with a further 45 interviews conducted executives at banks, payments firms, card scheme firms, technology service providers and retailers.
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