FX International Payments
By Samuel Greengard
According to a new report from market research firm RBR, acceptance of physical and virtual cards is projected to grow by 40 percent to 85 million outlets worldwide by 2022.1 A 2016 Moody's Analytics report noted: "Payment cards are not just convenient but also play a crucial role in stimulating economic growth in countries around the world."2
The experts say this enormous growth in global payment solutions can be attributed to a few key factors: growing financial literacy worldwide, changes in regulations to support worldwide payment systems, alongside greater scrutiny of cash transactions and growing adoption of digital tools, particularly smartphones and apps that accommodate electronic transactions.
In the U.S., credit card payments grew 10.2 percent to 37.3 billion transactions in 2017 (with a total value of $3.27 trillion), compared to an annual growth rate of 8.1 percent over the previous three years, according to the Federal Reserve's annual payments study.3 The RBR study also reported double-digit growth of global payment solutions across Asia-Pacific, Central and Eastern Europe, and the Middle East and Africa.
The growing body of payments research shows that while cash payments remain a powerful force, global payment solutions are redefining business and consumer behavior. Moreover, the use of physical cards is diminishing while adoption of virtual cards is accelerating. This includes everything from borrowing money and purchasing goods at a garage sale to buying items at open-air markets and at vending machines. As the Moody's report stated: "All of this reduces friction in the overall economy."4
Governments are also promoting electronic global payment solutions. For example, the EU has capped merchant interchange fees in an attempt to shift cash transactions to electronic payments. Part of the motivation is to crack down on illicit activities that involve cash, including drug sales, counterfeiting and tax evasion.5 A well-known example is the Indian government's 2016 announcement that it would eliminate 500 and 1,000-rupee banknotes (approximately $7.50 and $15.00) to thwart the so-called shadow economy and reduce crime and corruption.6 The initiative fueled a boom in fintechs offering brokerage and payment services, and dramatic growth of mobile payment services.7
Although financial dynamics and use cases vary, the common denominator is higher levels of consumer spending and greater economic growth. In a study of 70 countries, Moody's Analytics found that each 1 percent increase in usage of electronic payments produces, on average, an annual increase of approximately $104 billion in the consumption of goods and services, or a 0.04 percent increase in GDP. From 2011 to 2015, the move from cash to electronic payments ($296 billion in real dollars) across the 70 countries studied created the equivalent of 2.6 million jobs over the period.8
The global payments industry is rapidly redefining both the consumer and B2B spaces, ushering in innovation and new products and services. An October 2017 report from consulting firm McKinsey & Company noted that in 2016, the global payments industry accounted for 34 percent of all banking revenues – up from 27 percent just five years earlier.9 What's more, all global regions are experiencing high levels of growth in electronic payments. "This rosy scenario also lays the groundwork for significant disruption likely to alter the dynamics between financial institutions and fintechs," according to the McKinsey report.
The growth of global payment solutions isn't likely to subside soon. Younger consumers with smartphones find apps and electronic transfers convenient and attractive. As a result, financial services firms are now tailoring products specifically for millennials and other young consumers. In China, for example, this includes special discounts and loyalty programs tied to cafés, popular dining spots, entertainment venues and shopping centers.10 It also includes co-branded cards that target specific groups of potential consumers. These payment solutions extend to a growing array of third party players and merchants.
The challenge for the global payment solutions industry is to develop compelling and easy-to-use products and services within an increasingly crowded marketplace. "A sustainable payments system is not just about technology, but about driving incentives for others to participate in it and derive value from doing so," Moody's said in its report. "Encouraging the growth of electronic payments gives consumers and merchants a choice and increases competition. When countries allow for competition and a level playing field, banks and consumers benefit."
The global payment solutions industry is undergoing a fundamental transformation – along with continued growth. Consumers, while continuing to use existing payment cards, are turning to an array of new products and services. They increasingly rely on their smartphones to transact in both the C2C and B2C markets. Business also find the technology appealing because it offers new and compelling ways to connect with customers and forge deeper brand relationships. Finally, governments support the use of electronic payment systems because they introduce greater transparency and auditing capabilities. This makes it easier to thwart crime and collect taxes. As Moody's Analytics stated: "Increased use of electronic payments makes the economy more efficient."12
Samuel Greengard is a veteran journalist who has contributed to many business and technology publications. He is also the author of two books: The Internet of Things (MIT Press, 2015) and the AARP Crash Course in Finding the Work You Love: The Essential Guide to Reinventing Your Life (Sterling, 2008).
1. “Payment card acceptance set to serve by 40% to 85 million outlets worldwide by 2022,” RBR; https://www.rbrlondon.com/wp-content/uploads/2018/03/GC22_Press_Release_150318.pdf
2. The Impact of Electronic Payments on Economic Growth, Moody’s Analytics; https://usa.visa.com/dam/VCOM/download/visa-everywhere/global-impact/impact-of-electronic-payments-on-economic-growth.pdf
3. “Federal Reserve payments study supplement points to accelerated credit card use,” Board of Governors of the Federal Reserve System; https://www.federalreserve.gov/newsevents/pressreleases/bcreg20171221b.htm
4. The Impact of Electronic Payments on Economic Growth, Moody’s Analytics; https://usa.visa.com/dam/VCOM/download/visa-everywhere/global-impact/impact-of-electronic-payments-on-economic-growth.pdf
5. Financial Cards and Payments in Western Europe, Euromonitor International; http://www.euromonitor.com/financial-cards-and-payments-in-western-europe/report
6. “Mobile Money in India: Does Digitalization Follow Demonetization?,” Knowledge@Warton; http://knowledge.wharton.upenn.edu/article/mobile-money-india-digitalization-follow-demonetization/
7. “Mobile wallets see a soaring growth post-demonetisation,” Hindustan Times; https://www.hindustantimes.com/business-news/mobile-wallets-see-a-soaring-growth-post-demonetisation/story-zwdBi3UGqG1qZD92AEF9GK.html
8. The Impact of Electronic Payments on Economic Growth, Moody’s Analytics; https://usa.visa.com/dam/VCOM/download/visa-everywhere/global-impact/impact-of-electronic-payments-on-economic-growth.pdf
9. Global payments 2017: Amid rapid change, an upward trajectory, McKinsey & Company; https://www.mckinsey.com/industries/financial-services/our-insights/global-payments-2017-amid-rapid-change-an-upward-trajectory
10. Financial Cards and Payments in China, Euromonitor International; http://www.euromonitor.com/financial-cards-and-payments-in-china/report
12. The Impact of Electronic Payments on Economic Growth, Moody’s Analytics; https://usa.visa.com/dam/VCOM/download/visa-everywhere/global-impact/impact-of-electronic-payments-on-economic-growth.pdf