Issue 228Issue 228Issue 327
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September 2004September 2004|
August 2014B a n k i n g A u t o m a t i o n
B U L L E T I N
The interrelationship between
cards and cash
More than 200 billion card payments
worldwide in 2013
UK cash landscape is shifting
Cash continues to reign in the USA
Transaction banking: it’s not what you
do, it’s the way that you do it
Country profile:
Latvia
Published by RBR since 1979 www.rbrlondon.com/bulletinEX
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B a n k i n g A u t o m a t i o n
B U L L E T I N
RBR © RBR. No part of Banking Automation Bulletin may be reproduced or copied in any form, in whole or in part,
Editor Dominic Hirsch
Managing Editor Morten Jorgensen
Assistant Editor Tomomi Kimura
Contributors Raja Bose, Robert Chaundy, Richard Cummings, Alison Ebbage, Chris Herbert, Alex Maple, Emily Mason
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The interrelationship
between cards and
cash
This month’s Bulletin highlights the complex interrelationship between payment cards and cash. Our lead article (see page 2) charts the inexorable rise of payment cards worldwide, with a 11% increase in card numbers in 2013 to 10.8 billion. The article, based on the finding of RBR’s latest global payment cards survey, suggests that it will not be long before we see half a trillion card payments in a year (there having been 205 billion in 2013).
The Federal Reserve Bank of San Francisco recently released a report (see page 12) examining consumer payment choice, which found that while debit cards are the most common payment method in the USA, cash is proving extremely resilient. In contrast to some of the payments stereotypes that exist, the report claimed that cash is more popular with 18-24 year olds than any other age category.
Two recent studies in the UK also discuss the balance of cards and cash. The first, from the UK Payments Council (see page 5), states that 50% of UK payments in 2013 were made in cash, compared to 30% for cards. It argues that the rise in contactless payments is gradually having an impact on cash volumes, which will fall by around 1% per year for the next decade; while this may seem relatively modest, it will mean that the UK is one of only a handful of countries where the number, as well as the share, of cash payments is falling.
The British Retail Consortium (BRC) has published its Retail Payments Survey 2013
(see page 6) which presents a broadly similar picture of the UK payments scene, but with a rather more bullish perspective on cash. The BRC has long complained about the impact of interchange fees on its members, so a slight bias is not completely surprising. Nevertheless, the report highlighted some interesting findings, not least an analysis of average transaction times which showed times falling for both cards (down to 34 seconds) and cash (down to 24 seconds). It is often simply assumed that card payments are quicker than cash payments, but this is one of a number of studies that demonstrate the reverse.
One of the reasons it is difficult to predict the future evolution of the use of different payment methods is that payments is not a zero sum game. The total number of payments is increasing, which means that payment methods are not so much cannibalising each other, but evolving in their own way, influenced by a wide range of factors, of which an alternative payment method is just one.
Dominic Hirsch, Editor
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GLOBAL PAYMENT CARDSMore than 200 billion card payments worldwide in 2013
6
DIEBOLD PERSPECTIVEThe next ‘big thing’ in technology
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TRANSACTION BANKINGIt’s not what you do, it’s the way that you do it
10
CASH USAGE IN THE UK UK cash landscape is shifting11
RETAIL PAYMENTS IN THE UKCash still king as interchange fees cost retailers £1billion p.a.
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US CONSUMER SPENDING Cash continues to reign in the USA14
NEWS BULLETINBanking, ATM and payments news
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COUNTRY PROFILEATM and cards intelligence on Latvia
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CONFERENCE DIARY2
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August 2014|
Banking Automation B U L L E T I Nwww.rbrlondon.com/bulletin
RBR’s latest research into payment cards worldwide,
Global Payment Cards Data and Forecasts: 2013-2019, shows that there were 10.8 billion cards in circulation worldwide at the end of 2013, a rise of 11% compared to 2012. Although seven European cards markets contracted in 2013, only one outside Europe (South Korea) saw a fall in card numbers. This would appear to indicate that most cards markets are far from saturated. Even some of the countries whose card bases shrank in 2013 are likely to return to growth as economic factors were partly responsible for the declines.
The continued rapid growth in the Chinese market has led UnionPay’s global share to increase further to represent 38% of cards worldwide. This may edge above 40% in the coming years, barring a marked slowdown in the expansion of its home market or an overhaul of the current regulations requiring the UnionPay brand to appear on Chinese cards. UnionPay’s entry into other markets, including Russia in 2013, may well cement its position as the largest card scheme in terms of card numbers. The research also shows faster growth in card usage and spending compared to card numbers, which reflects an expanding global physical and virtual merchant acceptance network as well as a gradual migration from cash (and in some countries, cheques) to cards for everyday payments.
Growth in card numbers fastest in Asia-Pacific and Middle East and Africa While Asia-Pacific and the Middle East and Africa – both of which have lower cardholding per adult than the global average – saw double-digit growth in the number of cards in 2013, much more modest growth was witnessed in the regions with higher cardholding (North America, Latin America and western Europe). The fact that the average number of cards per adult in North America is more than twice as high as the global average suggests plenty of potential for further card issuance in the other regions.
Asia-Pacific accounts for 58% of cards in issue and North America for 16%. Each of the other regions comprise less than 10% of the total. Despite it’s large card base, Asia-Pacific’s cardholding per adult of 2.3 is still slightly lower than the global average of 2.5, and its share of cards is forecast to rise to 61% by 2019.
Pay-now cards continue to gain share The research showed that debit and prepaid cards have continued to increase their share of the global card base at the expense of pay-later cards, as more people come into the banking system, and consumers in mature markets increasingly revert to debit cards for better control of spending. Many countries in the developing regions have significant unbanked populations, and the drive to expand access to banking services will lead to continued strong growth in debit card numbers. In some countries (e.g. Russia), a large number of debit cards are issued as part of salary projects, whereby banks issue cards to employees of a commercial client. Issuance of prepaid cards concentrated in a few markets
Prepaid cards continue to be concentrated in certain countries, with six markets accounting for 85%
GLOBAL PAYMENT CARDS
More than 200 billion card
payments worldwide in 2013
Debit and
prepaid cards
have continued
to increase their
share of the
global card base
at the expense of
pay-later cards
Share of payment cards worldwide
By region; 2013 Source: RBR analysis Asia-Pacific 58% MEA 4.4% CEE 4.4% Western Europe 8.8% Latin America 8.7% North America 16% www.rbrlondon.com/globalcards
Global Payment Cards
of such cards worldwide and just two countries (the USA and Iran) representing 60%. In the USA, specialised prepaid issuers cater to various target groups, with the underbanked the main holders of such cards. They are also used for the disbursement of welfare payments and increasingly by banked customers for budgeting purposes. Meanwhile, prepaid gift cards have proved hugely popular in Iran, thanks to real-time issuing and custom card designs.
Pay-later sector makes up less than 20% of cards in three regions
Pay-later cards account for 60% of the card base in North America, 54% in Latin America and 41% in western Europe. In contrast, they make up only 17% of cards in Asia-Pacific, 14% in CEE and 9% in the Middle East and Africa. In Kenya and Nigeria, there is little take-up of pay-later cards owing to the fear of hidden fees on credit cards in the former, and difficulties in providing accurate credit checks and a complex application process in the latter.
Unrelenting growth in Chinese market leads to rise in UnionPay’s global share At scheme level, the continued rapid expansion of the Chinese card base is reflected in UnionPay’s further increase in share in 2013 to 38% of cards worldwide. This equates to 4.1 billion UnionPay cards, more than 99% of which are in China. However, UnionPay’s shares of volume and value of transactions are much lower at 6% and 27% respectively. Visa and MasterCard brands represent 24% and 18% of cards worldwide respectively.
There were 196 million T&E cards in issue at the end of 2013, just 2% of the global card base, with American Express accounting for 52% of these, JCB 40% and Diners Club the remaining 8%. American Express and Diners Club have a much broader geographical distribution than JCB. At 4%, the growth in the number of T&E cards in 2013 was slower than for cards overall (11%), partly as a result of their limited uptake to date in some of the most rapidly expanding markets. Private label sector remains strong in many countries
Private label cards made up 8% of the installed base at the end of 2013. Almost 80% of these are in the Americas. Although the share of private label cards is falling, the total number is continuing to increase, implying that such cards have a future in many markets without being rebranded with an international marque. Many Latin American markets have large retailer-owned banks, which issue their own private label cards, and these remain popular with customers who may not qualify for a bank pay-later card.
Domestic scheme card numbers soar in India and Brazil
Various domestic schemes have made further significant progress in 2013, notably RuPay in India and ELO in Brazil. The number of RuPay cards increased in the year to 13 million, up from just 200,000 at the end of 2012. The scheme offers lower processing costs than international schemes. Meanwhile the number of ELO cards tripled to reach 37 million cards. ELO is a joint venture between three of the leading Brazilian banks (Banco do Brasil, Bradesco and Caixa Econômica Federal) and is targeted at low-income customers and people claiming benefits.
In Iran, all payment cards are domestic-only, owing to the international sanctions against the country. Following a change in government and political talks between Iran and the UN Security Council, some within the industry are hopeful of seeing internationally branded cards enter the Iranian market within the next five years. Other domestic schemes that have seen success include CMI in Morocco and DinaCard in Serbia – both of which have benefited from low transaction fees – and Verve in Nigeria and Carnet in Mexico.
The continued
rapid expansion of
the Chinese card
base is reflected
in UnionPay’s
further increase
in share in 2013
to 38% of cards
worldwide
Various domestic
schemes have
made significant
progress in 2013,
notably RuPay in
India and ELO in
Brazil
Number of cards worldwide
In billions, by type of card
Source: RBR analysis 0 6 10 16 2 4 8 12 14
Prepaid Debit Charge Credit
4
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August 2014|
Banking Automation B U L L E T I N www.rbrlondon.com/bulletinTotal global
card purchase
expenditure
amounted to
$17 trillion
in 2013
Rise in payment volumes outpaces increase in card numbers
A total of 205 billion card payments were made worldwide in 2013, a 13% rise on 2012. This was slightly faster than the increase in card numbers (11%) and in EFTPOS terminals (12%) during the year. As in the case of card numbers, the increase in volume was higher in CEE, Middle East and Africa and Asia-Pacific. Cards in western Europe and North America continue to be used twice as frequently as in any other region, and these two regions together account for 63% of the global volume, compared to 25% of cards.
Despite accounting for more than half of cards, Asia-Pacific represents only 21% of card payments, and has the lowest average volume of any region at just eight. Nevertheless, there is a huge variation in average volume per country, from just one payment per card per year in Vietnam to 126 in New Zealand.
The volume of card payments is forecast to increase at a CAGR of 8% between 2013 and 2019 to number 323 billion payments in 2019. This compares to a forecast CAGR of 5% for card numbers over the same period. The rise in average volume is being encouraged by contactless cards in several markets, increased acceptance and evolving consumer payment habits towards a greater use of cards for lower-value payments.
As with card numbers, debit cards gained share of purchases in 2013, indicating an increasing use of cards for everyday purposes and a greater sense of caution towards credit. Pay-later cards continue to
be used at POS more frequently than debit cards in several countries in Asia-Pacific and Middle East and Africa, where debit cards have yet to displace cash for low-value purchases. It should nevertheless be remembered that, unlike in North America and western Europe, pay-later cards represent a low proportion of total cards in some of the other regions and those that are issued are often held by more affluent individuals who have sophisticated payment habits.
Asia-Pacific region has highest card expenditure
Total global card purchase expenditure amounted to $17 trillion in 2013. This is a 20% increase on the $15 trillion spent in 2012 and a higher rate of growth than the volume of payments (13%). However, the figures are strongly influenced by the Chinese market. If China were excluded, the rise in value would be just 8% compared to a 12% rise in volume.
Asia-Pacific is the largest region for card expenditure with 42% of the global value in 2013. This is because of the high average value of a card payment in this region ($165), which is almost double the global average ($84). The Middle East and Africa also stands out as a region where the average value of a card purchase is high, at $132. Cards are not usually used as frequently for low-value payments in these regions as in the others.
Unsurprisingly, debit cards account for a smaller proportion of value (52%) than volume (56%) worldwide as they are typically used for low-value purchases. Nevertheless, there are some exceptions. In China, Hong Kong and Japan, debit cards are used less frequently than credit cards for purchases and more often for higher values. EC regulation may impact spending on pay-later cards in Europe
Pay-later cards are likely to continue to lose share of value as increased debit card issuance and usage will have a knock-on effect on spending patterns. The European Commission regulation which caps interchange fees is expected to have a greater impact on the pay-later sector than the pay-now sector in the countries affected. Issuers may scale back benefits associated with pay-later spending to compensate for the lost interchange revenue, and this may in turn cause cardholders to use debit cards more frequently.
A total of 205
billion card
payments were
made worldwide
in 2013
Share of payment cards
By scheme, 2013 Source: RBR analysis 9.8% UnionPay 38% Visa 24% American Express 0.9% MasterCard 18% Domestic Private label 7.9% Discover/Diners Club 0.7% JCB 0.7%
The share of
cards among
cashless payments
increased from
45% in 2008 to
50% in 2012
13 billion
e-commerce card
payments worth
$1.6 trillion were
made in 2013
The value of card payments worldwide is forecast to increase at a CAGR of 9% between 2013 and 2019, the effect of the high average payment value in China causing this to be somewhat higher than the projected rise in the volume.
E-commerce rising more rapidly than face-to-face payments
13 billion e-commerce card payments worth $1.6 trillion were made in 2013, accounting for 6% of the volume and 9% of the value of all card payments. The volume and value of e-commerce payments are continuing to rise more rapidly than those of card payments overall at 24% and 29% respectively, compared to 13% and 20%. As internet penetration rises not only at PCs, but increasingly at smartphones and tablets, the usage of cards for e-commerce purchases will continue to grow rapidly. Furthermore, the number of e-commerce merchants is increasing at a faster rate than that of physical merchants.
Online purchases of travel and accommodation are widespread. In more mature markets, it is also increasingly common for consumer goods, groceries, and app and music downloads to be purchased by this channel.
A perceived lack of security in the internet as a payment channel, as well as alternative means of payment such as PayPal, cash on delivery and transfer-based methods, continue to inhibit e-commerce in some markets. Wider adoption of 3D-Secure protocols should persuade consumers that they can make online card payments more securely. Cash on delivery remains popular, notably in several CEE countries, as some consumers consider it to be more secure, while others do not wish to pay before inspecting the quality of the goods they are purchasing.
Credit cards tend to be preferred for e-commerce payments, as such purchases are insured and certain debit cards in some countries are not accepted for payments by this channel. The use of prepaid cards for e-commerce is also becoming more common as the value of any fraud committed is limited.
The volume and value of e-commerce card payments are forecast to almost treble to 34 billion transactions worth $3.8 trillion by 2019, by which time they are projected to account for 11% of the total card purchase volume and 13% of the value.
Half of cashless payments are card purchases The share of cards among cashless payments increased from 45% in 2008 to 50% in 2012, but they represent a much lower proportion of the value as credit transfers are frequently used for high-value business transactions.
The fact that cards represent half of cashless payments compared to 45% five years ago shows how they are increasingly being favoured for certain kinds of payments. Cards’ share of the volume ranges between 38% in Asia-Pacific and 64% in North America and is increasing in all regions. Cheques still make up 8% of cashless payments worldwide, implying ample scope for cards to gain further share.
Low card usage in some regions points to enormous future potential
2013 saw the volume of card payments surpass 200 billion for the first time, an achievement all the more remarkable given the low usage of cards for purchases in some of the most populous countries, including China and India. Although the introduction of certain regulations and alternative means of payment may impact the use of cards in certain markets, rising acceptance in both the physical and virtual environments, coupled with a greater use of cards for low-value payments will bring up the volume further. If average usage per card worldwide were to reach the levels currently seen in North America and western Europe, half a trillion payments in a year would be attained, even with no increase in card numbers. This may well be seen sooner rather than later.
Share of cashless payment volumes
By instrument type Source: RBR analysis 0% 20% 40% 80% 100% 2008 2012 60%