In 2014, payment players continued to search for new markets and new revenue streams through various initiatives aimed at targeting the unbanked and underserved populations.
Overriding trends, such as the continual shift from paper to plastic and the rise of urbanization, continued to drive card payment growth as well.
But this particular year will likely go down as the one in which many realized mobile payments were here to stay as the industry saw the arrival of products, such as Apples Apple Pay, place mobile payments into the mainstream consciousness. More so than any year prior, mobile payments took on a life of their own in 2014.
From card payments to mobile payments, here are the global trends that have impacted the payments industry the most in 2014:
Tapping into the untapped market. Some of the overriding obstacles in bringing new customers into the financial mainstream, include a misunderstanding of financial products, a distrust of the established financial system and a longstanding cultural traditional of paying with paper. As a result, new products and innovations from financial service providers often focus on solving these pain points in order to tap into these untapped markets.
Over the last five years, Egypt has made the greatest strides in terms of bringing more individuals into the mainstream financial fold through both financial literacy efforts and greater infrastructure deployment. Between 2009 and 2014, the percentage of the Egyptian population that is considered banked jumped 26 percentage points from 10% to 36%, according to data from Euromonitor International. Euromonitor defines someone as being banked when the individual has a formal relationship with a financial institution, which may include a checking account, savings account, a credit card or some combination of the above.
The shift from paper to plastic. Eastern Europe is most representative of the trend encompassing the continual shift from paper to plastic. As of 2014, Eastern Europe was the most cash dependent region after only the Middle East and Africa, according to data from Euromonitor. The debit card, in particular, has made inroads into this region due to the introduction of salary card programmes. Even so, it is still common for programme participants to withdrawal their paycheck immediately in the form of cash rather than to use the debit card later on for payment at a POS terminal.
Governments continue to take action to combat paper payments by addressing the persistent fear of fraud, the unfamiliarity with using cards and inconsistent POS terminal penetration. Russias government, for example, is actively promoting non-cash payments as it seeks to address tax evasion and the size of the black market. As a result, the government bans the payment of wages in the form of cash. The only exception would be businesses employing fewer than 35 individuals. In other moves meant to encourage non-cash transactions, the government also has pushed for continued expansion of POS terminal insfrastructure.
Consumers in motion. Simply put, the more that consumers are in the motion, the greater the likelihood of card spend. One aspect of consumers being in motion would be those consumers that travel. Thats because travel and tourism often necessitate having a card in order to book arrangements, such as flights, hotels and general excursions. Travelers, in general, also tend to opt for cards over other payment methods when on a trip.
Another consumer trend driving card spend is greater urbanization. Euromonitor is projecting a rise in the urban population in the next five years as the global population is expected to grow 10%. That equates to 384 million more people living in urban environments by 2018. In general, the rise of urbanization encourages greater uptake of plastic cards as urbanization often ushers in a new modern retail format, which often gives away to more electronic POS infrastructure.
Mobile, mobile, mobile. No conversation of trends in the payments industry would be complete without at least one mention of the mobile phone. The introduction of Apples iPhone to market in 2007 ushered in a smartphone revolution. Since then, other mobile phone manufacturers have followed suit to make smartphones one of the most popular consumer devices on the planet. As a result of the proliferation of mobile phonesnamely smartphonesmoney is going mobile. That means that the race is on to control the flow of cash across billions of smartphones and at millions of online and physical locations.
Mobile is unleashing generational changes in a number of industries, including payments. In the 46 markets research by Euromonitor, mobile commerce is expected to reach almost US$300 billion in 2014. Most impressively, it is expected to expand nearly four-fold in the next five years to finally eclipse US$1 trillion payments made on tablets and mobile phones in 2019. That will amount to 4% of all card payment volume in 2019, according to Euromonitor forecasts.
Undoubtedly, mobile will continue to rewrite the commerce playbook, of which the payment transaction is a component. Thats because the mobile phone is the most disruptive force yet unleashed on the once relatively linear path to purchase. As a result, mobile is creating fundamental shifts in the way consumers think, shop and interact with brands. While brands have long realized that they need to reach consumers where they are, the location has shifted to the mobile device.
Payment entrants: Friend or foe? As more money goes mobile, more and more companies are vying to play a role in the fast-expanding mobile payments landscape, too. Traditional payment companies, such as Visa Inc. and MasterCard International Inc., now find themselves competing against unconventional payment players, such as mobile phone operators, retailers, tech titans and tech startups. The arrival of payment entrants to the payments party now has traditional payment providers wondering whether these new players should be viewed as friends or foes.
Ultimately, friendship in the payment industry is about money. In particular, it is about the card processing fees a payment provider might win or lose based on a competitors entry into the market. In the mobile payment industry, in particular, friendship teeters on the platforms funding mechanism. While many alternative payment systems have been introduced to the market, most platforms to date layer over the traditional payment rails and thus do not siphon revenues away from card issuers and operators.
That being said, these payment disruptors should not be discounted as a potential threat moving forward, especially if they can successfully circumnavigate the card payment rails. One of the greatest threats to the traditional card payment players would be a mobile wallet in which the payment is funded over the lower-cost EFT network. Many aspiring mobile wallet providers, including Zapp in the UK and CurrentC in the US, are considering this alternative network as a potential funding mechanism in order to save money on card network fees. Of course, if this tactic were to shift a significant amount of processing volume to the EFT networks, fee structures associated with both the card and EFT networks may change as a result.
Michelle Evans is an analyst covering financial cards and the payments industry at Euromonitor International. Follow her on Twitter @mevans14.