Highlights from “The Payments Innovation Jury Report 2013”

The Global Innovation Jury convenes a large panel of payments industry leaders from around the world every two years. For 2013, the jury included 25 leaders in the payments sector from 13 countries and 5 continents. Members of this select group have all held leadership roles at major organisations in payments such as global banks, major processors, international card schemes and technology firms. The vast majority have lived and worked in multiple countries and as such have a comprehensive understanding of the global payments market. All are still directly involved with payments innovation. Below are the highlights and my commentary on the jurist’s consensus.

Which type of organisatIon is best at driving payments innovation?

Card schemes (4%), Retail banks (4%), Technology vendors (12%), New market entrants (72%), Other (8%), Processors (0%)

The clear consensus of the Jury is that new market entrants are best at driving payments innovation, with nearly 70% of respondents holding this view. “New market entrants” includes new banks with novel business models as well as companies that focus on specific niches within financial services such as Zopa for consumer P2P loans or Square for mobile-based card acquiring.

The market share of “new market entrants” is still tiny in comparison to that of the incumbents… however, they are growing rapidly and are able to respond to consumer demand for service personalisation a lot more effectively that the incumbents. Identifying the future leaders with which to partner is going to be the critical challenge for most banks.

Which region will show the most payments innovation in the next 24 months?

Asia (3.9), Africa (3.5), North America (3.5), Latin America (3.4), Western Europe (2.9), Central/ Eastern Europe (2.8)

The Jury sees the emerging economies as the hotbeds for payments innovation over the next two years with Asia in top place followed closely by Africa, North America and Latin America.

It is my assertion that over the medium horizon (3-5 years) the African region will show the most payments innovation. It is for this reason that I believe that African banks should continue to balance the sponsorship of global and standards based payment solutions with the adoption of domestically or regionally developed payment innovations.

What is the biggest technology trend that is driving innovation in payments?

Contactless technology (4%), Cloud Computing (8%), Widespread adoption of smartphones and tablets (52%), Availability of open APIs (36%), Rise of big data and data analytics (0%), Other (0%)

The adoption of smartphone and tablet technology is seen to be the biggest driver for innovation in payments with nearly half of the Jury considering this to be the most important technology trend.

It is not common knowledge that the mobile phone has had a liberalising effect on accessibility to basic financial services in emerging economies, such as in Africa. Beyond Payments believes that the smartphone will have an equally democratising effect on electronic payments on the continent.

Which payment types will see greatest investment in innovation over the next fIve years?

Prepaid/prefunded accounts (4.1), Commercial/B2B (3.2), Credit/lending (2.9), Current account/debit (2.9)

The jurists believe that prepaid accounts will see the greatest investment in innovation out of all payments types in the next five years. Prepaid instruments – both physical and virtual – have seen an explosion in use by both consumers and businesses in the last few years and this trend is set to continue.

In South Africa, some regulatory accommodation is necessary before we can see a similar ascendancy of prepaid payment instruments in the market… that and a revision of most bank’s obsession with opening a bank account for everyone that just wants a simple and efficient place to keep their money with easy electronic and physical access to it whenever they need to make a payment.

Which new payments solutions wIll be the most profitable over the next five years?

Cross border remittance services (3.6), Digital wallets (3.0), Domestic market peer-to-peer payments (2.6), Virtual/online payments (2.4), Contactless technology (2.4)

The jury believes that virtual and online payments are capable of generating the most profit over the next five years, although cross-border remittance services come a close second. Cross-border remittance, in particular, is an area of payments in which banks and the traditional money transfer organisations are considered not to offer consumers or small businesses a good service and therefore new providers have the potential to make good profits.

At Standard Bank we are currently operating an in-house developed cross border remittance service in partnership with OK Zimbabwe. The pilot is an attempt at tapping into some of the “good profits” referred to by the payments innovation jurists by experimenting with different pricing, execution and distribution models that would not be possible through the franchise agreements the Bank has with the “traditional money transfer organisations”

How big a long-term threat do mobile network operators present to the success of traditional players in the payments Industry?

Serious threat (4%), Significant threat (24%), Some threat (64%), Little to no threat at all (8%)

The advent of mobile payments has resulted in many MNOs positioning themselves to muscle into the space and take a slice of the revenue. However, their lack of experience in payments is seen by the Jury to be a serious disadvantage compared to banks, card schemes and processors.

I share the jurists view on the threat posed by mobile network operators… Rather than offering some protection to incumbent banks, card schemes and processors, the financial regulatory environment within which they compete poses serious challenges to the assumptions made by mobile network operators on their ability to be competitive in the provision of mobile payment services as deposit taking institutions.

Which of the following parties wIll succeed in being profitable in the e-wallet market?

Google (61.9%), Apple (57.1%), Amazon (47.6%), Existing specialist payment companies (28.6%), Banks (28.6%), Card schemes (28.6%), Telecoms companies (23.8%)

The emerging e-wallet market is currently a fast-moving battleground with many large players fighting for position. The Jury expressed only a lukewarm belief in the profitability potential of digital wallets.

The jury’s views on this question were probably canvased before the recently announced reorganisation by Google which will see the Commerce group (which includes Google Checkout/ Wallet) folded into Advertising, reporting to SVP Susan Wojcicki. This is widely seen as a graceful retreat from from retail payments in lieu of redirecting its payments use case towards something that more resembles the “iTunes equivalent” for Google Play and Adwords. Hardly the all out full blown e- wallet payments strategy that the jurists believe has the highest likelihood of becoming profitable. While I concede that Google remains the party with the greatest capacity to execute on an e-wallet strategy; it is my assertion that Apple probably has the highest likelihood of driving consumer and merchant adoption of whatever it chooses to come up with as an e-wallet solution.