More than 420 billion non-cash payments are expected to have been made in 2015 representing a 10 per cent increase on the 387.3 billion in 2014, according to the 2016 World Payments Report by Cap Gemini and BNP Paribas. Much of the growth is expected to have come from “emerging Asia”, Central Europe, the Middle East and Africa as well as the “mature Asia Pacific” markets.
These numbers are staggering and demonstrate that the world is witnessing a revolution in the way we make payments. We are now financially connected within seconds. The positive impact of this growth in non-cash payments on emerging markets is particularly phenomenal. For instance, a staggering 43 per cent of Kenya’s GDP representing 237 million person-to-person transactions flowed through M-Pesa, Kenya’s mobile payment system. M-Pesa has allowed individuals who might not have access to a traditional bank account to take part in the world economy as a result of technical innovation.
Advances in technology have without doubt provided consumers around the world with a vast array of non-cash options when making a payment. However, individuals making payments are not the only beneficiaries of innovation. Corporate treasurers and finance managers are equally spoilt for choice as innovative systems connect them financially within seconds to other parts of the world. Immediate and direct responses are now possible through mobile technology. While we take this for granted today, it was not always the case.
The payment industry certainly has developed since I began my career. Back in the early 1990s, I was training in an international banking department. Desktop computers were just being introduced, memos were still typed on IBM electric typewriters and telex machines were still very much in use. We didn’t have laptops, mobile phones were bulky and expensive, and nobody had ever heard of an app!
Since then, the introduction of innovative solutions and systems have allowed more and more transactions to be processed electronically and on the go. Paper-based instruments, such as cheques, are diminishing rapidly in volume with card payments, particularly debit cards, contributing significantly to volume growth. At the same time, new technology – often considered disruptive to the status quo – is changing the way we view, process, settle, and use information associated with payments to make sound financial decisions about our money.
Back then, few would have envisioned the transformation we see today – a world where new entrants to the payment industry can now offer similar services to banks through mobile app-only offerings built with open APIs available to all. Equally who would have thought that regulators in a certain jurisdiction would seek to facilitate the entrance of third parties, such as ‘Payment Initiation Service Providers’ and ‘Account Information Service Providers’ to the payment process. While the aim of this is to level the playing field between established payment service providers and new entrants while creating areas of growth for small businesses through increased efficiency, it raises other issues. For example, it highlights the ever-present need to ensure appropriate measures are taken to protect data. Consumers must be confident that their data will be protected by service providers and that any technology used is secure.
Proposed regulatory changes to ensure that relevant parties are responsible for protecting data continues to be debated by central bankers, regulators, trade bodies, standard setters and businesses. While the potential benefits to consumers and businesses in the form of increased competition cannot be denied, potential compromises to privacy and information security cannot be ignored and must be addressed.
At the same time, technology continues to blur the lines between what were clearly distinct types and processes before and payment professionals would do well to stay informed and understand the principles behind the way transactions are processed; to stop and think as the payment revolution gains momentum. Does one size fit all? What is the impact of change? Can we help shape the future?
Our Principles of Payments qualification offers insight into how various regions process payments differently, with some being more efficient than others. Using a global lens, we aim not to focus on any one part of the world, but rather to explain commonly accepted practices globally, highlighting where specific differences exist in areas such as regulation, technology, or market practice. In some topics, there is an emphasis on clearing practices in the US, UK, and Europe because of the prevalence of the US dollar, British pound, and Euro in markets today.
Michael Aragona is the Head of Global Solutions Sales, Americas, Mizuho Bank, Ltd, and the primary author of the Principles of Payments qualification.