2020 Foresight: The Role of the Domestic Payment Card Network

Transcription

1 2020 Foresight: The Role of the Domestic Payment Card Network Product Code: VR0936MR Published Date: August

2 TABLE OF CONTENTS TABLE OF CONTENTS 1 Executive Summary Global Landscape of Card Payments Channel Market Dynamics of Card Payments Card transaction framework Global snapshot of domestic networks Snapshot of Card Payments Channel and Competitive Landscape Developed economies Emerging economies Market Potential and Key Challenges for Domestic Networks Key Target Markets Small scale businesses Government payments Traditional markets Analysis of Key Drivers Operational drivers Regulatory drivers Infrastructure drivers Key Challenges for Domestic Networks Operational challenges Technical and regulatory challenges Key Success Factors for Payment Card Networks Best Practices for Domestic Networks Partnerships and collaborations to offer card services in international markets Focus on small financial institutions to increase market share Adoption of innovative technology to lower fraud losses and improve net income Tapping micropayments for growth Using promotions and cross-selling opportunities to generate higher revenues Strategies Adopted by Domestic Networks Expansion in international markets through partnerships and product launches RuPay s low cost strategy for extension of card services in the Indian economy eftpos focus on micropayments and marketing campaigns to protect market share in Australia ACCEL/Exchange s focus on low cost advantage and cross-selling opportunities for expansion Interac s adoption of innovative technology to counter fraud losses Changing Strategies of International Networks Cost and product strategies Expansion strategies Appendix Methodology Background Contact Timetric About Timetric Disclaimer Foresight: The Role of the Domestic Payment Card Network Page 2

3 LIST OF FIGURES LIST OF FIGURES Figure 1: Two-Party Payment Model... 7 Figure 2: Three-Party Payment Model... 8 Figure 3: Four-Party Payment Model... 9 Figure 4: Domestic Payment Card Networks Figure 5: Card Market Size in Developed Economies (Million), Figure 6: Card Transaction Value in Developed Economies (US$ Billion), Figure 7: Card Transaction Volume in Developed Economies (Billion), Figure 8: US Debit Cards Category Share by Scheme (%), Figure 9: Germany Debit Cards Category Share by Scheme (%), Figure 10: Australia Debit Cards Category Share by Scheme (%), Figure 11: US Credit Cards Category Share by Scheme (%), Figure 12: Canada Credit Cards Category Share by Scheme (%), Figure 13: Germany Credit Cards Category Share by Scheme (%), Figure 14: Australia Credit Cards Category Share by Scheme (%), Figure 15: Japan Credit Cards Category Share by Scheme (%), Figure 16: Card Market Size in Emerging Economies (Million), Figure 17: Card Transaction Value in Emerging Economies (US$ Billion), Figure 18: Card Transaction Volume in Emerging Economies (Billion), Figure 19: China Debit Cards Category Share by Scheme (%), Figure 20: India Debit Cards Category Share by Scheme (%), Figure 21: Malaysia Debit Cards Category Share by Scheme (%), Figure 22: Argentina Debit Cards Category Share by Scheme (%), Figure 23: Russia Debit Cards Category Share by Scheme (%), Figure 24: China Credit Cards Category Share by Scheme (%), Figure 25: India Credit Cards Category Share by Scheme (%), Figure 26: Malaysia Credit Cards Category Share by Scheme (%), Figure 27: Argentina Credit Cards Category Share by Scheme (%), Figure 28: Russia Credit Cards Category Share by Scheme (%), Figure 29: Dynamics of Target Markets Figure 30: Dynamics of Key Drivers Figure 31: Average Exchange Rate Movement Per US$ (%), Figure 32: POS Terminals in Developed Economies (Thousand), Figure 33: POS Terminals in Emerging Economies (Thousand), Figure 34: Global MPOS Terminals (Units in Millions), Figure 35: Global MPOS Terminal Penetration (%), Figure 36: Key Success Strategies Figure 37: UnionPay s Emergence in International Market Figure 38: Roadmap for RuPay Figure 39: RuPay s Growth Strategies Figure 40: Card Transactions in Australia on Different Networks, Figure 41: eftpos Promotion Campaign, I am King Figure 42: eftpos Growth Strategies Figure 43: ACCEL/Exchange Growth Strategies Figure 44: Fraud Prevention by Interac Foresight: The Role of the Domestic Payment Card Network Page 3

4 LIST OF TABLES LIST OF TABLES Table 1: Participant Incentives in a Card Transaction Framework... 9 Table 2: Card Market Size in Developed Economies (Million), Table 3: Card Transaction Value in Developed Economies (US$ Billion), Table 4: Card Transaction Volume in Developed Economies (Billion), Table 5: Card Market Size in Emerging Economies (Million), Table 6: Card Transaction Value in Emerging Economies (US$ Billion), Table 7: Card Transaction Volume in Emerging Economies (Billion), Table 8: Access to Banking Facilities in India Table 9: POS Terminals in Developed Economies (Thousand), Table 10: POS Terminals in Emerging Economies (Thousand), Table 11: Number of MPOS Terminals and Penetration, Table 12: Examples of Financial Institutions Switching to ACCEL/Exchange Network Foresight: The Role of the Domestic Payment Card Network Page 4

5 EXECUTIVE SUMMARY 1 Executive Summary Domestic payment card networks have existed for a long time, yet the global landscape of the card payment channel continues to be dominated by international payment card networks. Among international networks, Visa and MasterCard enjoy the majority of the global market share, enabling them to control pricing in their favor, leading to high transaction and settlement costs for the overall card payment channel. This is in contrast to emerging markets where governments are making efforts to shift their economies from cash to cashless. Owing to this, the idea of government backed domestic networks has started to gain momentum in these markets. The success of China s UnionPay and India s RuPay are expected to fuel the trend. The emergence of government-backed networks is expected to play a crucial role in the redistribution of market share; they are predicted to lower the cost of transactions and help in the growth of card services to a larger market through increased competition. Current landscape of domestic networks is skewed towards debit card networks While companies such as UnionPay, JCB and Tarjeta Naranja focus on credit card networks, the majority of domestic networks focus on debit card networks. Domestic debit card networks in countries such as Canada, Australia, Singapore, China and Germany have emerged as market leaders due to their current regulatory frameworks and preference for domestic schemes. The analysis indicates that growth in card and payments channels in developed economies will be relatively slower than emerging economies over the next five years. This trend is likely to emerge due to high saturation levels in developed markets in comparison to relatively low levels of card penetration in emerging economies. New domestic networks are therefore more likely to emerge in emerging markets. Increasing focus on untapped markets to drive growth International networks have lagged behind in exploiting business opportunities in certain market segments such as micropayments, social benefit programs, and the reliance of the rural population on small financial institutions. These relatively unexplored markets are becoming the primary focus of domestic networks to expand their businesses and increase revenues. Over the next five years, domestic networks are expected to concentrate on small enterprises that do not currently accept card payments. This move will be aided by the availability of technologies such as mobile point of sale (MPOS) solutions, which will make acceptance of card payments feasible for small merchants. Low cost advantage to act as key growth driver The ability to provide transaction facilities for up to 40% cheaper than international networks is expected to be the key growth driver for domestic networks, especially in emerging markets. A large number of banks and financial institutions in these markets run on very thin margins due to their priority of expanding banking services to the unbanked population rather than making large profits. The small profit margin makes it impractical for many financial institutions to include payment cards in their product portfolio. However, due to low cost structures, domestic networks can tap into this market segment. Domestic networks help to save critical foreign exchange reserves as they usually require fee settlements in local currencies. Other factors such as regulatory changes that support competition and improvement in technical infrastructure are expected to aid the growth of domestic networks. Huge investments and limitations in creating brand visibility will inhibit growth The success of domestic networks will depend largely on their ability to invest in the market and create brand visibility. Setting up an operational infrastructure that can compete with established international networks will require huge investments, something which may not be feasible for small competitors. The capital investments need to be supported by a market share that makes operations feasible and sustainable. Given that international networks such as Visa and MasterCard already own the majority of the market, this could prove to be a difficult task Foresight: The Role of the Domestic Payment Card Network Page 5

6 EXECUTIVE SUMMARY Growth of domestic networks to alter strategies of international networks Rising competition from domestic networks is expected to bring significant changes to the current operational model of international networks. International networks are expected to look for options that will reduce their cost structure. This may include installation of domestic processing units and cutting costs on inactive cards. An increase in activities such as market consolidations along with partnerships and increased focus on the niche consumer segment are also expected. This increased competition is expected to act as a catalyst for product innovation in the global cards and payments industry Foresight: The Role of the Domestic Payment Card Network Page 6

7 APPENDIX 2 Appendix 2.1 Methodology All Timetric foresight reports are created by following a comprehensive, four-stage methodology. This includes market study, research, analysis and quality control. 1) Market Study A. Standardization Definitions are specified using recognized industry classifications. The same definition is used for every country. Annual average currency exchange rates are used for the latest completed year. These are then applied across both the review and forecast data to remove exchange rate fluctuations. B. Internal audit Review of in-house databases to gather existing data: Historic market databases and reports Company database C. Trend monitoring Review of the latest companies and industry trends 2) Research A. Sources Collection of the latest market-specific data from a wide variety of industry sources: Government statistics Industry associations Company filings International organizations Regulatory agencies B. Expert opinion Collation of opinion taken from leading industry experts Analysis of third-party opinion and forecasts: Broker reports Media Official government sources C. Data consolidation and verification Consolidation of data and opinion to create Review datasets Creation of models to benchmark data across sectors and regions 3) Analysis A. Market forecasts Feeding forecast data into market models: Macroeconomic indicators Industry-specific drivers Analysis of industry database to identify trends: Latest trends Key drivers of the industry B. Report writing Analysis of market data Discussion of company and industry trends and issues Review of financial deals and trends 2020 Foresight: The Role of the Domestic Payment Card Network Page 7

8 APPENDIX 4) Quality Control A. Templates Detailed process manuals Standardized report templates and accompanying style guides Complex forecasting tool used to ensure forecast methodologies are consistently applied Quality-control checklists B. Quality control process Peer review Senior-level QC Random spot checks on data integrity Benchmark checks across databases Market data cross-checked for consistency with accumulated data from: Company filings Government sources. 2.2 Background Timetric s dedicated research and analysis teams consist of experienced professionals with an industry background in marketing, market research, consulting and advanced statistical expertise. Timetric adheres to the Codes of Practice of the Market Research Society ( and the Society of Competitive Intelligence Professionals ( All Timetric databases are continuously updated and revised. 2.3 Contact Timetric If you have any queries about this report, or would like any further information, please contact info@timetric.com. 2.4 About Timetric Timetric is an independent economic and business research firm that provides critical intelligence on emerging economies and key global industries. The company offers detailed economic and sector intelligence, business insights and independent and authoritative commentary. Underpinning all Timetric s research services is a belief that data if gained following the right technologies and analytic frameworks can provide unique and powerful economic and business insights. The Timetric economic and industry intelligence centers are premium decision tools that provide access to comprehensive research, data and expert analysis. They provide invaluable decision support, presented in an easily digestible format and grounded in rich, proprietary data and data analysis frameworks. Each year, Timetric produces hundreds of high-quality research reports across countries, industries and companies. These reports draw on in-depth primary and secondary research, proprietary data and highquality modeling and analysis to give its readers a deep insight into global market dynamics and economic trends. Timetric helps its clients to: Gain an unbiased, expert insight from a genuinely independent and trusted source Save time in researching, visualizing and comparing economic and industry data Access the latest and most useful data sets, indices and forecasts Gain access to a unique methodology for understanding economic trends Forecast and predict trends more accurately 2020 Foresight: The Role of the Domestic Payment Card Network Page 8

9 APPENDIX Economic Research Services Timetric s economic research services are founded on three key goals: 1. To provide the strongest base data: The most accurate data The most timely and frequently updated data sets The best data curation methodologies and standardizations Unique data sets and forward-looking indicators Industry-specific, premium data sets 2. To develop the best data analysis frameworks: Unique economic indices and data analysis frameworks Forward-looking indicators Proprietary indices and surveys Data analysis frameworks, scorecards and models 3. To provide authoritative independent economic insights: To give a uniquely local perspective on developing markets Truly expert, independent economic analysis and commentary Proprietary analysis techniques and frameworks Unique forecasts Timetric believes that world-class content delivery should be the enabling factor across all it does. All its research services follow the principle that data and research should be easy to access, visualize and consume. All economic research products are built on the Timetric economic research software platform, which has four layers: 1. Unique, proprietary aggregation and curation software for pulling together the world s data 2. A cloud time-series database filled with top-quality statistics from across the globe 3. Web-delivered search, discovery and research software to allow customized data searches 4. World-class browser-based display to visualize the data searched 2.5 Disclaimer All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Timetric. The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions and recommendations that Timetric delivers will be based on information gathered in good faith from both primary and secondary sources, the accuracy of which Timetric is not always in a position to guarantee. Timetric will accept no liability whatsoever for actions taken based on any information that may subsequently prove to be incorrect Foresight: The Role of the Domestic Payment Card Network Page 9