The payments industry is going through a period of continuous innovation as established players try to defend and grow their existing business, while new market entrants aim to grab a share of the market for themselves. Indeed, the essential currency for payments now seems to be innovation, with the vast majority of players subscribing to the ‘innovate or die’ philosophy. However, it is quite difficult to get a clear and consistent view of how innovation is influencing the evolution of the global payments industry.
The Global Payments Innovation Jury was set up to address this challenge. Published every two years and comprising the views of 70 payments executives from 37 countries, this not-for-profit report considers many aspects of the worldwide industry and gives its considered view on how innovation is occurring and changes the industry.
The 2017 report revealed that, while innovation is steadily increasing across the globe, the direction it takes varies significantly from region to region. The following paragraphs will pursue this idea.
Asia’s fintech boom
By a very substantial margin, the Jury rated Asia as the home to most payments innovation over the next two years. A position that it has held since the inaugural 2008 Jury. However, the 2017 Jury sees the innovation leadership position of Asia as being stronger and more entrenched than before.
It is important to stress here that payment innovation in Asia goes beyond the ‘China effect’. Many other countries in the Asia region are modernising their payments infrastructures and creating environments that support innovation. For example, smaller markets such as Hong Kong, Malaysia and Singapore are rapidly modernising their payments infrastructures and are aiming to be significant players in fintech, with Singapore showing the way.
Moreover, the opportunities in the region are widespread due to the rapid population growth, high willingness to accept new technologies and the sheer size of the market opportunity to convert from cash to digital payments in economies where the reach of traditional banks is limited. The value of mobile payments in China alone in 2016 was estimated at USD 5.5 trillion USD 1 – 50 times more than the value of mobile payments made in the US.
The profit potential of B2C payments
The majority of jurors believe that B2B payments companies tend to deliver a service for which it is easier to build a profit margin. This is because business customers are more used to being charged for payment services and because, to date, there has been less intense competition in the B2B payments market.
However, the Jury did uncover some regional differences. Jurors in Asia, for example, believe that consumer payments provide the biggest opportunities in their markets.
Consumer payments are a major opportunity in this region because there is much potential to put financial services and payments instruments into the hands of unbanked consumers for the first time, facilitated by an increasing use of mobile phones and broadband penetration.
Indeed, innovators in Asian markets may find the path to B2C profitability smoother than in more developed markets because they are not trying to build on top of, or work around ageing legacy systems.
The future of payments growth
When it comes to considering where to base their next payments venture, the abundance of opportunities available in Asia had a clear positive impact on the jurors’ decisions. Almost half (47%) state that, irrespective of where they are currently based, Asia would be their preferred location if they were starting a payments business today.
With success stories from bKash in Bangladesh, Alipay in China and Paytm in India, and the commitment of central banks to the modernisation of payments infrastructures, Asia is not surprisingly seen as the most attractive market.
The Jury ratings and comments suggest that much of the effort in the fintech hubs in Europe and the US is being directed towards opportunities in markets like Asia and Africa. Entrepreneurs in Europe and the US are very active in payments innovation but it seems that they are not so convinced that the best business opportunities lie within their own geographies.
Ultimately, although operating margins are under pressure, the payments sector remains attractive because the market continues to expand and there is opportunity to secure a share of gross transaction value for many players. Given the opportunities on offer, it is more important than ever to understand how payments is changing and evolving across the globe.
About John Chaplin
John Chaplin has been highly influential in the development of retail payments for more than 30 years. He works with several industry players and earlier stage companies and has advised national payment schemes in five continents. John served three years as a Market Expert advising the European Commission on card payments. He is the organiser of the Global Payments Innovation Jury, a group of 70 industry leading CEO’s, that convenes every two years to look at the state of innovation in the payments sector.
About Payments Innovation Jury
The Payments Innovation Jury, organised by John Chaplin, comprises 70 of the most successful industry leaders worldwide. They give a unique insider’s view into how innovation is driving change in payments globally.
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