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Top insights from the 2018 World Payments Report

Capgemini's 2018 World Payments Report is out, and it has some alarming predictions.

While digital payments are rapidly taking over, there are some exceptions. For those in North America — home to tech hubs such as California's Silicon Valley, Atlanta's Transaction Alley and Toronto's MaRS district — the region's reliance on old payment formats is holding it back on the global stage.

China is a force to be reckoned with in digital payments, spearheaded by Alipay and WeChat Pay. But is this a threat to traditional payment systems, or just the first sign of a transformation that will affect all economies?

Chart: A new, digital world
The world is adopting digital payments at a rapid rate. Capgemini forecasts that between 2018 and 2021, the compound annual growth rate for all digital transaction volume will be about 13 percent, rising to 876 billion from the current estimate for 2018 of 598 billion. Growth is fastest in developing markets, and mature countries are moving at a much slower rate.

Emerging Asian markets lead the pack, with CAGR rates forecast to be about 29 percent over the next four years, followed by the Central Europe, the Middle East and Africa regions, whose CAGR forecast is 20 percent. Mature Asian markets will see a CAGR of about 10 percent over the next four years, followed by Europe at 7 percent and North America at 6 percent, Capgemini estimates.

One unknown is the role fraud could play in slowing growth. Capgemini’s report doesn’t provide estimates for current fraud levels, which some observers say could throw a wrench into current forecasts. “Fraud is very complicated in the digital environment and I sense the industry is thinking that AI will solve for it,” said Patricia Hewitt, an independent payments analyst in Savannah, Ga.
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Digital transaction volume is growing at double-digit rates globally, and transactions via e-wallets from large tech companies like Alipay, WeChat, Apple and Google are driving the fastest-growing category of digital payments, according to Capgemini.

E-wallet transactions account for about 9 percent of all global digital transactions, and the large-tech companies’ share is more than 70 percent. China—which has low card acceptance within its borders—accounts for about half of all e-wallet transactions, primarily via Alipay and WeChat Pay, Capgemini said. Outside of China, millions of merchants have added acceptance for Alipay and WeChat to accommodate the growing number of Chinese world travelers, further accelerating e-wallets’ momentum.

Should banks feel threatened by e-wallets’ growth rate? “This isn’t something to worry about—it’s part of the digital evolution,” said Hewitt, adding: “Financial institutions should be thinking about how they’re consolidating these services on mobile platforms.”

Total global digital transaction volume reached 482.6 billion during the most recent period measured, with 41.8 billion attributed to e-wallets. Digital transactions are seeing the strongest growth in emerging markets across Asia, Central Europe, the Middle East and Africa.
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Payment cards—led by debit—are gaining market share in most global markets. The exception is emerging Asian markets, where e-wallets are growing faster than other payment forms, according to Capgemini. Debit card transaction volume grew almost 15 percent globally in the most recent period measured, followed by credit cards at 11 percent, and bank credit transfers at 7 percent.

As card usage rises, direct debit volume is expected to slow gradually, as consumers adopt in-app and real-time payments in most markets. Direct debits will be used less frequently for paying bills as alternative payments enter the mix, and the U.S. and Europe are rapidly replacing bank credit payments with real-time payments, Capgemini reports.

The U.S. accounts for a stunning 40 percent of global credit card volume, according to Capgemini. Other markets with strong credit card volume include Canada, mature Asian markets and Latin America.
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Digital payments are seeing roaring growth in certain regions because of local factors. Russia leads the world in its digital transaction growth rate, with a recent 37 percent surge in total volume from regulations capping cash payments, new electronic payment options and the National Payment Card System’s introduction, according to Capgemini. China also is seeing strong conversion from cash and other payment forms to digital payments, followed by Australia, which saw a recent 11 percent increase in digital payments transaction volume.

In terms of sheer volume, the U.S. leads with 148 billion digital transactions for the most recent period measured, followed by Europe with 75 billion and China at 48 billion. Despite its rapid growth rate, Russia’s total digital payments transaction volume is around 17 billion.

The U.S. will not hold its lead forever. China will overtake the U.S. in total digital payment transaction volume by 2021, Capgemini predicts, in part because of the U.S.’s relative sluggishness in adopting new payment types.
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The paper check—the most costly and inefficient legacy payment instrument—is quickly vanishing from all regions except North America.

“Checks are becoming a U.S.-only phenomenon,” Capgemini researchers said in the report. The U.S. contributes 74 percent of global check volume, with the bulk going to larger-value bill payments, B2B payments and payroll.

Asia, China, South Korea and Australia have seen dramatic declines in check usage in recent years, with total check volume in the single digits. However, India—with relatively low check volume—recently saw a 10 percent increase in check usage as some citizens shifted back to writing checks in the wake of India’s 2016 demonetization maneuvers, Capgemini reported.

North American check volume has fallen to around 10 percent from 15 percent in 2012, but it’s still the leading global region for checks. Europe has reduced checks to 3 percent of total payments volume from 5 percent in 2012, while checks are less than 1 percent of payment volume in Asia-Pacific regions. Globally, checks account for 5 percent of all payment volume, down from 8 percent in 2012.

Working with BNP Paribas, Capgemini collected data for its annual survey from the Bank for International Settlements, along with the ACB Statistical Data Warehouse, including macroeconomic factors from the World Bank, with an online survey distributed in June 2018 to bank and non-bank financial services institutions around the world.