IMPACT OF THE FINANCIAL CRISIS ON VOLUME?
Financial Institutions are facing increasing demand to deliver efficient and effective payment solutions. In parallel and even during the financial crisis the number of payment transactions has continued to grow. As an example and for the total EU zone 86.7 billion payment transactions are processed annually. The European Central Bank reports for 2010 a volume increase of 4.33% for all payments compared to 3.17% growth during 2009 (Euro area).
The Belgian market is slightly below this average growth with an increase of 4.23% in number of transactions. The two main payment products used in Belgium are still the card, representing 44.71%, and the Credit Transfer 42.13%. (Source: ECB).
FACING THE NEW EUROPEAN REGULATION
Each European national market has its specificity and historical situation. Actually, the payment landscape of each country is different according to local customer habits and existing payment scheme, products & services proposed.
Therefore, the current situation and constraints of each domestic market makes the effort different to move forward in order to comply with the Single European Payment Area (SEPA) and the Payment Services Directive (PSD).
We can acknowledge within EU the success of the SEPA Credit Transfer (SCT) reaching in average almost 90% of the total value of transactions in 2010 (Source: ECB). But following the SEPA standardization, some country specifics remain with local differences in usage of the different SEPA products. Particularly the SEPA Direct Debit (SDD) usage remains different per country, representing in Belgium only 10% of total number of transactions compared to UK and France respectively at 19.52% and 20%.
Both the financial crisis and the standardization have accelerated the cost pressure.
The standardization across the payment industry is actually leading for change in payments management systems and for an increase of competition. The payment landscape has less and less domestic specificities creating progressively a wider market. Amongst payment actors, this situation is driving for consolidation of payment management systems. This helps to absorb the standardization investment cost and to capture more volume.
Therefore and particularly in the Euro zone, the payment industry including banks and Payment Service Providers pursues the development of cross country payment shared service centers. The consolidation of volumes will allow optimizing operations and being more competitive.
Meanwhile the completion of such transformation programs is mobilizing resources and budget giving until know less space for innovation and new services.
REVENUE GROWTH FOCUS
Another business pressure is coming from several angles with new social behaviors, new business models and new technologies. This is creating an even more complex payment landscape with threats and opportunities in which all actors have to position themselves. As example, in 2012, the on-line payment is now a global phenomenon and future impact is still unknown for existing payment schemes.
Payments actors have to engage by taking decision and positioning themselves in the payment value chain. They are facing new entrants and investors in the digital world who want to benefit from e-business revenue growth. A huge number of initiatives including acquisition are taking place in the e-business field. Focus is on best market differentiators with the development of new added value services in order to grow market share and profit.
RISKS OF DESINTERMEDIATION
Coming from several axes or a combination of those (new customer behaviors, new payment products and services, new entrants), the disintermediation of current payment actors and or existing schemes is certainly not effective but clearly identified as a possible risks in the future to come.
Particularly in the digital world where some new products like digital wallet, mobile applications, online banking, e-SEPA might be proposed avoiding classic actors and or payment transaction schemes. Understand consumer and business needs are key success factors for growth and financial institutions that need to rebuild their image after the financial crisis, have clearly a strong advantage. They urgently have to refocus on their retail and corporate customer relationship in order to renew with growth while other industries might take advantage of the situation.
MAIN ISSUES FOR PAYMENT ACTORS
Facing the above business payment context, the challenge for European banks proposing payment services is still to adapt their existing payment processes and systems, innovate with new services and products answering evolving retail and corporate client needs while decreasing their cost per transaction.
There is therefore a need to confirm position in the payment value chain and to shape a digital payment and e-services strategy.