PAYMENTS, A LANDSCAPE IN MOTION - PWC
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Payments, a
landscape in
motion
Report by the PwC and IE
Business School Financial
Sector Centre
Report coordinated by Luis Maldonado, Managing Director of the PwC and IE Business School Financial Sector Centre June 2015
Contents Executive summary 4 The means of payment context 8 A fast moving snapshot History of means of payment (and the economy) 16 Is a world without cash desirable and/or possible? 19 The customer’s point of view 20 Facts and trends Players 28 Tension on stage Bitcoin, somewhere between success and mistrust 38 The wallet war 41 Trends 42 In search of the lost convergence The ideal means of payment 52 Mobile wallets, why? 52 Conditioning factors 54 Regulated (or unregulated) payments and insurance Europe: now and the future 58 Regulation of the much-feared third party providers 60 They still say security is expensive 66 Conclusions 68 References 70
Executive summary
A lot of times, The history of means of payment is In this battle, where business borders
people don’t know what they marked by the success of cash. Since the are blurred, banks start with the
first coins were minted in the 7th advantage of having gained their
want until you show it to them.
century BC, cash has acted as the customers’ trust. Despite the recent
(Steve Jobs) backbone for the exchange of goods and financial crisis and the consequent
services and it is clearly still the erosion of the industry’s reputation,
predominant means of payment in the people still trust “their bank”. However,
world. However, the technological technological advances are revealing
revolution has speeded up the process of many flaws in the payment process,
replacing money with other means of favouring disintermediation and
payment. reduced margins. Ultimately, they are
forcing a change in the traditional
The reality of the sector is business model. In this transformation
geographically very diverse. In process, not only do banks have to
general, there is a directly defend their current business niches
proportional relationship between the (cash, transfers, cards, etc.), but they
development of an economy and the can also attack other almost virgin
use of non-cash means of payment. income territories, such as mobile
The more developed the economy is, payments, electronic wallets and
the greater the use of cards, transfers, electronic invoicing. According to PwC,
direct debits and cheques. Africa, what is at stake in this strategic tug-of-
where cash is used in 99% of war is a market amounting to no less
transactions, and North America, than 20 billion dollars.
where the figure is 51%, are the
regions at each end of the scale.
Mobile predators
The growing proliferation of payments What seems to be beyond question is
over the Internet and, that the mobile phone has its place
above all, the mobile phone is changing amidst this metamorphosis. Since they
the face of the industry everywhere in started to become popular in the 90s,
the world. The current status quo, mobile devices have been digital
dominated by banks, is under threat predators and have replaced to a
from the emergence of powerful new greater or lesser extent cameras,
competitors (tech giants, computers, books, newspapers, music
telecommunications carriers, mobile players, radios, televisions, watches,
phone manufacturers, distribution board games and calculators; they may
companies, and start-ups...), which are end up doing the same with money. But
either calling at the door or have already the truth is that so far, this has not
knocked it down. happened. And not because they
4 Payments, a landscape in motion
haven’t wanted to or because they disadvantages (especially volatility and
haven’t tried. the possibility of fraud), virtual
currencies could become successful
A large number of projects have been beyond the realms of closed digital
launched in recent years, but none have communities and international
really anchored their position or made transfers.
substantial progress in the convergence
process. Apart from a few highly Regulation and security -
specialised niches (such as certain crossover factors
commercial establishments), the only In addition, the future development of
case of massively successful mobile the means of payment system is
payments is that of M-Pesa in Kenya, conditioned by two major crossover
which operates through SMS messages. factors: regulation and security.
The market entry of initiatives such as Regulation, which has a major impact on
Apple Pay and Samsung Pay may change business models, is developed in
the idea that mobile payments still different layers (sector, channel,
haven’t found their feet in the near product, etc.) and, as is easy to imagine,
future. In any case, experience to date is highly fragmented in geographical
shows how difficult it is to match the terms. The United States pioneered the
right technology with the interests of adoption of industry standards (the first
industry, retailers, users and regulators law dates from 1978), but is behind in
to generate a safe and cheap mobile the adoption of certain product
payments solution that suits everyone. regulations. Europe is currently
negotiating the second version of the
Another trend worthy of special mention Payment Service Directive (PSD) and
in the means of payment microcosm is other complementary regulations. The
virtual currencies. The success of main new features are the regulation of
bitcoin, which was the first to be the so-called third-party providers
created, has encouraged the emergence (payment initiators) and the imposition
of many cryptocurrencies (generically of ceilings on certain commissions for
referred to as altcoins, or alternatives to payment card systems.
bitcoin) that are used as a means of
electronic payment. Their ease of use, Security is another key factor and
low transaction cost and perfect involves objective elements (extent to
adaptation to the Internet ecosystem has which transactions are actually secure)
earned them a leading role in the and subjective elements (a true or false
payment system, but they still have very perception of the actual situation). No
little presence in physical stores. If they new means of payment will prosper if
manage to overcome their users are not convinced that their money
Executive Summary 5
is not at risk. In general, transactions What do customers say?
performed with the new means of The end result of this puzzle will be
payment are safer than people think, but determined, as we have seen, by a
the risk does exist. The technological number of factors related to business,
means available to cybercriminals, the regulation, security, technology and
accumulation of sensitive data on even psychology. But the final word
computer servers and the human being’s belongs to the customer, whose
limited capacity for remembering opinion, thanks to the technological
passwords are circumstances that make revolution, has a decisive influence on
digital identity theft and fraud possible. the success of any consumer initiative.
To limit that risk, the most widely used So, what do customers have to say
security methods are tokenisation (an about it all? To find that out, this
encoding system) and biometrics report includes a market research
(identification of a person through their project. These are the main
physical features or behaviour). conclusions:
6 Payments, a landscape in motion
• Respondents believe that, in the 2014), is considered the option with
mid-term, the smartphone will the brightest future.
replace the wallet, since it will be
used on a regular basis for shopping • Banks are the payment agents that
not only online, but also in physical inspire the greatest confidence in
stores. However, they also believe consumers. 80% of respondents
there will be a large variety of new approve of the guarantees offered by
means of payment on offer, which financial institutions.
hinders their widespread use.
• Opinions on new means of payment are
• Among the new means of payment, more positive among those who use
PayPal is the best known and most them, which suggests their use needs to
highly valued, while Apple Pay, be encouraged if they are to become
which is yet to reach Europe popular, especially among women,
(launched in the US in October which use them far less than men.
Executive Summary 7
The means of payment
context
A fast moving snapshot
Cash is by far the most widely used were minted in the kingdom of Lydia, see
means of payment in the world. page 16) has withstood the test of time
According to rough estimates, 85% of and technological progress superbly well.
transactions and 60% of their value
correspond to hard cash. These However, the durability of the habit of
percentages are surprisingly high, given paying in cash does not point to a
the wide variety of existing means of stagnant market. Not at all. Not only do
payment on the market, and they go to consumers tend to pay less and less in
show that what was invented in the 7th cash, but also 15% of the market that
century BC (the first gold and silver coins involves cashless transactions is subject to
Figure 1. Traditional means of payment in the world
Global North America
Cash Cash
48%
85% Cards
Cards 38,8%
Direct debits/
Transfers
9,1%
Direct debits/ 9,8%
Transfers
Cheques
4,6% 7,8%
Cheques
1,2%
Latin America
Cash
91%
Cards
Direct debits/ 7,2%
Transfers
0,9%
Cheques
0,8%
Source: McKinsey Global Payments Map 2011, Capgemini WPR 2014
8 Payments, a landscape in motion
potentially significant fluctuations and common means of payment. Only in the This snapshot is moving. The strong
can radically change the current world United States is it still used with any increase in electronic payments (i.e. those
payments map. regularity and its recent evolution is a made over the Internet), especially on
prelude to it’s possible disappearance in mobile phones (i.e. those that use a mobile
In that piece of the pie, credit and debit the mid-term. Transfers and direct phone or another mobile device) is forcing
cards are the most widely used, debits have remained stable at around all the players involved (especially banks)
accounting for 9% of total transactions. 5% of the total, despite the fact that to adapt to new channels or digital
In addition, their weight has grown in technological and operational advances business models or risk being engulfed by
recent years due to the progressive have simplified and facilitated this new competitors, such as native Internet
disappearance of the cheque as a means of payment. companies, telecom operators, device
Europe Asia-Pacific (developed countries)
Cash Cash
66% 65%
Cards Cards
Direct debits/ 12,7% Direct debits/ 24,8%
Transfers Transfers
18,7% 9,1%
Cheques Cheques
1,5% 1%
Africa Asia-Pacific (emerging countries)
Cash Cash
99% 98%
Other Cards
1% Direct debits/ 0,9%
Transfers
0,9%
Cheques
0,1%
The situation of means payment 9
manufacturers and other middle-men.
Figure 2. Estimated percentage of payment transactions done
Special attention needs to be given to
using non-cash methods
companies that base their business on
social networks. If they are able to
Singapore 61%
mobilise their huge volume of customers,
Netherlands 60% their entry into the means of payment
France 59% business could be highly disruptive.
Sweden 59% The picture is even more complicated
Canada 57% when you consider that the lines that
Belgium 56%
separate the new channels tend to blur.
There is a gradual convergence between
United Kingdom 52% electronic and mobile payments, with a
USA 45% growing preference among consumers for
Australia
the latter, given the ease of use of
35%
smartphones in comparison with
Germany 33% computers.
Korea 29%
Spain
Paradoxically, these new trends in means
16%
of payment threaten the card business in
Brazil 15% particular, which is precisely the fastest
Japan 14% growing format worldwide. As seen in
Figure 3, card transactions have
China 10%
increased in importance in all regions in
UAE 8% recent years. In Latin America, the
Taiwan 6% mature markets of Asia and the region of
Central Europe, the Middle East and
Italy 6%
Africa, the percentage of card
South Africa 6% transactions over total digital payments
Poland 5% rose ten points or more between 2008
and 2012. However, industry experts
Russia 4%
believe they are precisely the means that
Mexico 4% are the most exposed to competition
Greece 2% from electronic and mobile payments
and, in the mid-term therefore run the
Colombia 2%
risk of being replaced as one of users’
India 2% priorities.
Kenya 2%
In any case, one of the fundamental
Thailand 2%
features of means of payment in the
Malaysia 2% world is geographic diversity. For a wide
Saudi Arabia 1%
variety of reasons (economic, cultural,
technological, infrastructure...) the map
Peru 1% differs greatly in developed and
Egypt 1% emerging countries. In many countries
Indonesia 0%
with a low level of development, cash is
almost the only means of payment.
Nigeria 0% Meanwhile, in the West and in Japan
(also in Singapore, which is curiously the
country where consumers make more
Source: Analysis by MasterCard Advisors, 2013 / BIS CPSS, 2011 / McKinsey Global Payments map, 2008 / digital transactions, i.e. 61% of the total)
World Bank, 2011. payments are much more balanced,
10 Payments, a landscape in motionFigure 3. Comparison of non-cash transactions (billions) and change in payments’ mix (%) by region,
2008, 2011-2012
124,0 127,9
Non-cash 111,2
transactions
84,2 87,5
(Billions) 74,2
30,1 33,5 23,9 29,3 32,5 28,6
22,0 19,5 18,9 23,3
11,8 11,7
2008 2011 2012 2008 2011 2012 2008 2011 2012 2008 2011 2012 2008 2011 2012 2008 2011 2012
North Asia-Pacific Latin Asia-Pacific
Europe CEMEA*
America developed countries America emerging countries
2008 2011 2012 2008 2011 2012 2008 2011 2012 2008 2011 2012 2008 2011 2012 2008 2011 2012
38%
43% 58% 42%
58% 46% 49%
60%
63%
65% 69% 71% 68% 73%
67%
70%
78% 5%
81%
Payments 27% 14%
26% 11% 14%
services mix
11% 9% 2%
40%
11% 4%
7% 11% 7% 3%
7% 4%
7% 33% 32%
27% 2%
7% 23% 35%
26% 7% 8% 2% 28%
20% 8%
19% 8% 23%
8% 5% 24% 24% 17% 15% 8% 3% 3% 19% 11% 9% 13% 7% 6%
0,4% 0,4% 0,3%
Cards Direct debits Credit transfers Cheques
* Central Europe, Middle East and Africa.
Source: McKinsey Global Payments Map 2011, Capgemini WPR 2014.
especially thanks to the importance of technologically advanced means of transactions and one that reached its
card transactions. payment. Moreover, governments in less peak in popularity in the nineties.
developed countries tend to encourage However, since then its use has declined
This distribution is changing, albeit their use because they facilitate financial and it is now far behind card
slowly. In many developing countries, inclusion. Here are the main features of transactions, a more convenient and
which have a very high level of cash the market by region: secure system that adds certainty to the
payments, non-cash transactions are transaction, compared with the risk of a
growing at a double-digit annual rate. North America cheque that could bounce. Cards are also
This is due partly to improvements in the In the US and Canada, one characteristic beginning to be used for small payments
infrastructures necessary for the use of has been the intensive use of cheques, a and the process is expected to gain
certain channels, and the growth of the means of payment highly appreciated momentum at the end of 2015 with the
middle classes, more likely to use thanks to their ease of use in large deployment of the EMV standard
The situation of means payment 11Figure 4. Traditional means of payment in the North
America
45% 9% 10% 36%
Cash Cheques Direct debits/ Cards
tranfers
Source: Red book USA 2013.
(Europay, MasterCard and Visa, the cards and debit cards grow at an
companies that have launched the idea), annual rate of 10% and transfers and
based on the use of chips to offer greater direct debits grow at half that rate.
security. In addition, certain large chains Cheques are clearly in decline and
are realising that it is better for them to electronic payments are starting to
accept even small card payments because appear in European statistics, albeit
they spend less time than when dealing at low volumes but with annual
in cash. The United States is also a fertile growth rates of over 20%. There are
market for new means of payment. To no figures for mobile payments
give a few figures to support this trend, in because most transactions are carried
2013, e-commerce accounted for 6.4% of out on credit cards and counted as
the total; 86% of North American POS such. There are significant
will accept NFC payments by 2017 and differences between the various
the Starbucks application processes six areas. The southern countries
million transactions each week. (Greece, Italy and Spain), where there
is a predominance of the informal
Europe economy, are at the fore in the use of
Europe is clearly a mature market. In cash, with percentages clearly in
non-cash payments, there is a excess of 80%, while Nordic and
reasonable balance between transfers Central European countries are much
and cards, though perhaps not for more inclined to digital payment. The
long if we take into account the UK is one of the most developed
different rates of development in markets in online shopping, which
recent years. Transactions with credit accounts for 11% of total retail trade.
12 Payments, a landscape in motionFigure 5. Traditional means of payment in Spain
84% 1% 8% 7%
Cash Cheques Direct debits/ Cards
tranfers
Source: Bank of Spain.
Spain (60% of mobile phones are smart), which
Cash payments prevail (84% of total can be key for developing new means of
transactions) for economic reasons payment, also points to a leap forward in
(influence of the underground economy) the near future. Banks are launching
and convenience of use (wide network of various virtual wallet solutions and small
ATMs). In non-cash payments, cards and mobile payment applications (taxis,
transfers share the market, while cheques metered parking in towns and cities...)
have all but disappeared. In the case of have also appeared on the market.
credit and debit cards, the number of
transactions per inhabitant and year (52) Latin America
has more than doubled so far this Cash is the mass means of payment.
century; however, it remains well below 95% of transactions are completed with
the average for the European Union (79) physical money. In many countries, it is
and falls far short of the levels of use in almost the only means of payment: in
Nordic countries (over 200 transactions Peru, it accounts for 99% of
per year). In new means of payment, transactions; in Colombia, 98%; and in
Spain is still at the starting line (in 2013, Mexico, 96%. The main reason is that
the value of online trade accounted for only a small percentage of the
less than 1% of the total); however, there population have bank accounts. 61% of
is high potential for growth. After more Latin Americans are alien to financial
or less overcoming the economic crisis, institutions. Only Brazil has a non-cash
which froze consumption, the rate of payments index similar to the level of
annual increase in Internet transactions some Western countries, i.e. 15% of the
is high, with figures close to 30%. The total. That effective monopoly is
generalisation of high-end mobile devices changing, but it is still not conspicuous
The situation of means payment 13in large numbers. The different types of services. It is the largest card issuer in
cash transaction are growing at a Chile and Peru.
healthy pace. Between 2008 and 2012,
the average annual rate reached almost Asia-Pacific
20%. The channel with the greatest The means of payment market is divided
potential is that of credit and debit into two distinct areas. The developed
cards; they are taking the place of countries in the region (Japan, South
cheques and now account for 81% of Korea, Singapore, Australia...) follow
non-cash payments, compared to 70% patterns similar to those of the West, with
in 2000. In Brazil, for example, the cash use levels of between 40 and 86%,
number of card transactions nearly and an average of 62%. However,
doubled between 2009 and 2013. developing countries (China, India,
E-commerce is emerging and certain Malaysia, Taiwan, etc.) are more in line
non-bank players have entered the with Latin America and cash is used in
market. Take, for example, the case of 96% of transactions. The most dynamic
Falabella, a Chilean retailer operating and exciting market is China, owing to
in six Latin American countries and the volume of its transactions and its
offering a wide range of financial evolution. In China, there is a significant
14 Payments, a landscape in motionincrease in non-cash payments , which Africa development of various non-cash
now account for 10% of the total. The This is the least advanced market, with means of payment, in Africa they are
growth of its middle class is leading to a an overwhelming predominance of hardly ever used. In some countries,
greater use of cards (there has been cash (in many countries, the rate is citizens have chosen to skip this option
widespread deployment of terminals in almost 100%) and the continued use of and have moved directly over to mobile
stores in recent years). There has also primitive means of payment, such as payments, which do not necessarily
been a boom in e-commerce transactions, barter. In addition, only 25% of the require a banking infrastructure. The
accounting for 6% of the sector. The adult population have bank accounts, numbers are surprising: 52% of
popularity of payment systems such as although there are significant payments via mobile phones around the
Alipay is part of the boom. Alipay, which differences between the north (more world originate from Africa and 16% of
is the payment service offered by the developed) and sub-Saharan Africa, adults have paid, sent or received
online store giant Alibaba, processes 80 which has the highest rate of poverty in money via mobile at least once in their
million transactions every day and more the world. The most striking feature of lives; in the rest of the world, the
than half of them are through mobile the African means of payment market is percentage stands at 5%. It is what
devices. By contrast, physical mobile that it has leapfrogged its way forward might be called the ‘M-Pesa effect’: the
payments are still on the runway because in terms of technological development. mobile phone payment system created
traders do not have the NFC technology Unlike Latin America, where credit and in Kenya and exported to other
necessary for processing. debit cards play a central role in the countries in the region.
The situation of means payment 15History of means of payment
(and the economy)
The history of financial innovations and, commercial revolution of the
in particular, means of payment, is Renaissance and later centuries.
intrinsically related to economic
progress. The relationship is a two-way The most distant predecessor of means of
thing: the improvement of payment payment we know is barter, which is the
systems has historically favoured most primitive form of trade. However,
economic development and has also barter had many drawbacks (the largest
produced a reverse link such that it being that the two parties to the
has been the economy that has transaction had to want what the other
forced the modernisation of offered) and to solve that problem, first of
payment systems. all, in the year 9000 BC, we used salt,
cocoa beans and shells, and later, in the
One obvious example of that 7th century BC, coins. They were a
relationship was the mixture of gold and silver and they were
generalisation in the 17th century invented in Lydia, a kingdom located in
in Europe of the bill of exchange, what is now Turkey. Its ruler was King
a document that is both means Croesus, who has gone down in history
of payment and credit thanks to his immense fortune.
instrument. Their negotiable
character, recognised in Italy Another breakthrough was the cheque,
since the 16th century and which completely changed the concept of
gradually accepted in other means of payment. It was created by the
countries, was instrumental Romans and brought an element of trust
in mobilising financial into the transaction, since it is not a
resources internationally means of payment using physical value
and continuing the
Success stories in the fog • P
ayPal. This is the oldest of the new
The future of means of payment is means of payment and has become an
uncertain. It seems clear that the use of important benchmark for the industry.
cash and cards, which is what prevails in It is a payment and transfers system
general, will tend to decline; what is not that uses the Internet. Much of its
known is which products or services will success lies in its simplicity. Users don’t
eventually replace them, certainly in have to share financial data: to pay for
part, in the mid and long term. But in the a purchase, all they need is an email
fog there are many successful and a password. First of all, you have
experiences at global or regional level to associate the PayPal account with a
that knowingly combine the use of new bank card or account, which is where
technologies, customer experience and the money comes from. Payment can
security and they offer us clues as to also be made via a mobile phone
where things might go in the future. Let’s application. Everything is easy and
look at some of them in detail. seemingly safe thanks to an advanced
automatic encryption system. The
seller’s commissions are usually higher
than with other means of payment.
16 Payments, a landscape in motion(such as coins made of precious metal), It took the invention several centuries to True or not, the fact is that it planted the
but rather a document through which the reach Europe. The first Western bank to seed for the great consumer revolution in
trader assumes he will receive the agreed issue state-backed banknotes was the the US in the 50s and 60s.
amount. In addition, its appearance Swedish Riksbank, which did so in 1661.
generates the need for an intermediary to The emergence of the Internet in the 90s
pay the trader on the customer’s behalf. The next leap in technology and concept was also a radical breakthrough in
in the history of means of payment was payment habits, insofar as it made it
The role of necessity the emergence of the credit card. In 1914, possible, for the first time, to complete all
Banknotes, or paper money, were also General Petroleum Corporation, a kinds of transactions from your own
born of economic necessity. In seventh- network of service stations in California living room. The emergence of virtual
century China, the explosion of the (United States), launched a metal card so currencies (especially bitcoin) is also a
demand for money caused by economic that its employees and customers could potential break-off from traditional
growth made it more and more buy petrol and pay for repairs to their means of payment. But that’s not history
dangerous and expensive to transport, so vehicles in its establishments. anymore. It is the present and the future
traders began to use money orders made of means of payment.
out to the bearer that could be cashed in There were later attempts, but the final
another city. When these documents consecration of plastic money came in
became popular, they started to be 1950, when Diners Club launched a card
printed and that was how banknotes that could be used to pay in shops and
appeared, later issued on behalf of the restaurants. Legend has it that the idea
emperor himself, a circumstance came when its founders were dining at a
recorded by Marco Polo in some of his New York restaurant and discovered they
chronicles from the 13th century. didn’t have enough cash to pay the bill.
PayPal’s business strategy is also $7,904 million, 19% more than in 2013.
interesting. It was created in 2000 as a In 2015, PayPal is expected to split
system to facilitate payments between from eBay.
individuals and its business
skyrocketed when it joined the virtual • M
-Pesa. This is a payment system
gateway in eBay, the Internet auction via mobile phone successfully
company, which finally bought the launched in Kenya in 2007. In a sense,
business in 2002. In less than fifteen it is the reverse of PayPal: it is
years, PayPal changed from losing a lot directed at non-banking customers
of money (when it started up, it had to (in Kenya only 19% of the adult
offer a $10 bonus for new users and in population use formal financial
18 months, it recorded a loss of $137 services) in a market in an emerging
million) to what is now a thriving country and a population with a low
business. level of income. To send money
through M-Pesa (an acronym that
In 2014, it had 162 million active comes from the English term mobile
accounts, was present in more than 200 and the Swahili weight, i.e. money),
countries and generated revenues of the procedure is as follows: you
The situation of means payment 17deposit cash in an agency on the The launch of Apple Pay, which
network, you send an SMS to the occurred in the United States in
recipient on your mobile phone and October 2014, had an immediate
he goes to an agent in his area, or impact on the mobile payments
even an ATM, to receive the money market. Four months after its
upon presentation of an identification release, 750 financial institutions
code. Both the sender and the had joined the system and it could be
recipient pay a small fee for the used in more than 200,000 vending
service, which is used mainly to send machines (kiosks, launderettes, pay
money to rural areas of the country. machines at car parks and other
self-service terminals). It is still early
M-Pesa was launched by Safaricom, a to see it as a winning standard, but
Kenyan company owned by Vodafone, according to data from Apple, two
which had to invest heavily to create a out of three contactless transactions
network of agents (there are more made in the United States are now
than 80,000 money deposit and made through Apple Pay. The system
withdrawal points) and finance a is to be implemented in Europe
technology platform adapted to the throughout 2015.
most basic mobile phone handsets.
Today, the service is used by more
than 18 million Kenyans, i.e. more
than two thirds of the adult
population.
The model is considered a role model
in developing countries and imitators
have emerged in other parts of the
world, especially in Africa. Vodafone
itself has replicated the project, with
mixed success, in Tanzania,
Democratic Republic of Congo, South
Africa, India and Romania.
• A
pple Pay. This is a mobile means
of payment in physical stores linked
to the credit card. It works with
contactless technology, which uses
an NFC (Near Field Communication)
chip to connect the mobile phone to
the Point of Sale (POS). It is suffice
to place the mobile phone near the
scanner at the store to pay instantly
through a credit card. The
technology is widely used by various
agents, including Google Wallet,
PayPal or, in Spain, major financial
institutions. The main new feature of
Apple Pay is that the identification
process is done through the user’s
fingerprint, which adds extra
security to the procedure.
18 Payments, a landscape in motionIs a world without cash
desirable and/or possible?
In 2014, The Economist magazine opened the debate: Wouldn’t it be
better to abolish cash? The question was not asked without some
thought. Renowned economists such as Kenneth Rogoff, former
chief economist of the International Monetary Fund, think it would
be a good move. The disappearance of cash would bring counterfeit
money to a sudden death, limit tax evasion and make it possible to
monitor illegal or irregular financial transactions.
In this way, governments could collect more taxes and fight
against organised crime. There are also experts who argue that
the decision would enable the development of a more efficient
monetary policy, especially in times of economic crisis.
The debate on the elimination of cash is not just theory.
Governments are beginning to actually take steps in that
direction. Israel, for example, has announced severe legal
limitations for commercial transactions made in cash to
combat tax evasion, which is deeply set in the country’s
economy. In Sweden, the initiative has been taken by
financial institutions and stores. Many bars and shops no
longer accept cash and some bank branches do not process
it. Not surprisingly, the number of bank robberies and
attacks on security vehicles has fallen dramatically in the
country.
The benefits are clear, but the abolition of cash also
involves many difficulties and contraindications, not
just in emerging countries, where electronic payments
are usually rare for economic, cultural or
technological reasons. In many developed countries,
the habit of paying in cash is deeply rooted among
citizens, who use only cash, especially in their
day-to-day transactions.
The disappearance of banknotes and coins also
involves a potential conflict for the loss of privacy.
The situation of means payment 19The customer’s point
of view
Facts and trends
The customer is the boss. This statement Qualitative analysis
has become a mantra in the modern
business world. In fact, the consumer is Current situation and recent
no longer a passive player; he has taken developments. Participants in the
the reins of the relationship with study consider that means of payment
companies and has a great deal of control that at some point might have had a
over it. specific weight in transactions in Spain,
such as cheques or promissory notes,
This change is influenced by many have been superseded. Their perception
factors, but the genuine catalyst has been of the current situation is based on the
the Internet, which allows customers to cash-card-electronic/mobile payments
be better informed, share experiences, triangle:
compare, have their say before large
audiences, demand and, ultimately, • Cash. Their experience tells them that
influence the goods and services they are it is still commonly used, but less so
offered. and for smaller operations.
This is true of almost every business and • Credit cards and debit cards. Their use
is especially applicable to means of is a revolution in terms of security
payment, an industry in which the because the fear of theft is limited
intersection between new technologies, (“you no longer have to hold on to your
ease of use and the perception of security bag when you have to make a large
are key to development. Therefore, the payment,” says one of the participants)
trends and future of means of payment and if it is stolen, they pay you your
are set by customer preferences (their money back; however, the fear of
needs, inclinations and wishes). someone copying your card appears.
They are used more and more,
In this context, we have seen fit to although not yet in everyday
conduct market research that provides us transactions: “Not to pay for a drink in
with the user’s view of the conclusions of a bar yet, because it makes you feel a
this report. These are the results. bit strange, but...”.
• Electronic and mobile payments. The
general impression is that the
phenomenon is at a very early stage
and is beginning to replace cash, but
not cards. There are many options and
people don’t really know where they
20 Payments, a landscape in motionstand. Participants do not distinguish 1. Backed by major banks. Trust and
between technologies, products, convenience, especially if it comes
applications and systems. Their from your bank, because you don’t
memories are associated with a have to move your money around to
particular experience or service make payments.
(PayPal, application for paying the taxi
or the car park...), not a type of 2. A quick (no complicated passwords)
payment. and secure (fully protected against
theft of the device and impersonation)
Future expectations. Forecasts identification system.
suggest that cash will tend to disappear
and physical (plastic) cards will also lose 3. Versatility. In other words, it can be
out to cards stored on mobile used in all kinds of (physical and
smartphones. The new means of payment virtual) stores.
will gradually replace conventional
means and there will come a time when With these guidelines, the general feeling
almost all transactions take place online, among respondents is that the method of
especially through mobile devices. The payment with more potential, despite its
smartphone will be our wallet. It will recent introduction (at the time of
replace the computer in online shopping writing, it has not even reached Europe)
and do away with physical cards for store is Apple Pay (see information in Chapter
operations. It is a radical and inevitable 1). Participants also see a future for
change, similar to that brought about by applications for small payments and
the appearance of cards, but it will be PayPal. However, they are wary of
carried out more gradually. Partly systems based on wearable devices such
because new means of payment suffer as watches and other accessories, as they
from dispersion, insufficient information, are seen as too futuristic. Nor do they
lack of incentives for use and lack of believe in wallets specific to certain
leadership of the agents. banks, which in their opinion will
eventually be absorbed by more universal
The winning profile. Research systems, nor in virtual currencies such as
participants believe that the winning bitcoin because of its high volatility.
means of payment will have three
characteristics:
The customer’s point of view 21Quantitative analysis
Awareness. The survey investigates cards, mobile applications, contactless
the level of awareness of means of cards and wallet payments vary in a
payment. Given that traditional wide range of around 50%. The levels
channels are well known, it is of awareness of Iupay (a virtual
especially interesting to hear what payment system promoted by Spanish
participants say about the new means banks) and Yaap Money (an application
of payment. In this respect, the level of for sending money between
awareness of PayPal, with 88%, is individuals), which were launched in
worthy of particular note. Virtual 2014, are 20 and 16%, respectively.
Figure 6. Awareness of new means of payment in Spain
88,4% 59,2%
PayPal Virtual cards
53,8%
Mobile apps 52,4%
Contactless cards
48,2%
Mobile payment 20,2%
(Wallet) IUPAY
16,4%
Yaap Money
Source: Survey: The future of means of payment in Spain, by PwC and IE Business School.
22 Payments, a landscape in motionUse. The use of cash is universal. It is With one exception: the debit card, example, two out of three respondents
used by all citizens, regardless of sex which is used more by women. between 25 and 34 years have used
or age. The second most popular Differences in terms of sex increase in PayPal, while one in five over 55s have
means of payment is the debit card, new means of payment, which are done so.
with more than 90%. Among new used much more by men. In the case of
means of payment, PayPal is the most PayPal, the gap between men and
widely used. Over 50% of respondents women spans twenty percentage
say they have used it at some point (far points (63% vs. 43%). There are also
in excess of traditional channels, such significant differences in terms of age.
as the cheque). In terms of sex, men The new means of payment are clearly
make more use of means of payment. used more by young people. For
Figure 7. Means of payment used in Spain
Edad
25-34 35-44 45-54 55-65
Cash 100% 100% 100% 100% 100%
Debit Card 90,8% 89,2% 90,6% 92,4% 89,9%
Payment by transfer 85,8% 82,9% 89,1% 87,8% 79,7%
Credit Card 76,6% 66,7% 80,4% 77,3% 82,3%
PayPal 52,2% 66,7% 53,6% 55,8% 21,5%
Cheque 38,8% 20,7% 35,5% 53,5% 38,0%
Charge to phone bill 25,0% 33,3% 26,8% 23,8% 12,7%
Virtual cards 18,0% 18,0% 17,4% 23,3% 7,6%
Contacless 15,2% 14,4% 15,2% 15,7% 15,2%
Mobile apps 4,4% 8,1% 5,8% 2,9% 0,0%
Mobile payment (wallet) 2,4% 4,5% 2,9% 1,2% 1,3%
IUPAY 1,4% 2,7% 1,4% 0,6% 1,3%
Yaap Money 0,8% 0,0% 1,4% 1,2% 0,0%
Traditional means of payment In red, significant differences between categories.
New means of payment
Source: The future of means of payment in Spain, by PwC and IE Business School.
The customer’s point of view 23Frequency. In order to hear citizens’ week), although it should be noted that
views on means of payment, it is also this high rate corresponds to the group of
important to know how often they use people who have this means of payment,
them. Cash is used daily by more than not the total number of respondents.
60% of survey participants. No other
medium comes close. As far as new
means are concerned, it is surprising to
see that contactless cards, which are
relatively little known, are frequently
used (38% use them at least once a
Figure 8. Frequency of different means of payment use in Spain
Approximately, how often have you used the following means of payment in the last six months?
97,8%
Cash
58,3% 17,4% 24%
Debit Card
34,5% 23,5% 41,8%
Credit Card
8% 10,4% 81,6%
Charge to phone bill
6,1% 21,4% 72,3%
Payment by transfer
2,1% 6,7% 6,7%
Cheque
38,1% 23,7% 38,2%
Contacless
9,6% 23,8 23,8
PayPal
5,5% 20% 74,4%
Virtual cards
At least once Twice or three times Once a month
a week a month or less
Source: The future of means of payment in Spain, by PwC and IE Business School.
24 Payments, a landscape in motionAttributes. In this section of the survey assessment of users is higher than
we ask the respondents for their opinions non-users, meaning that one of the
on usefulness, convenience, security and challenges facing the new means is to
guarantees of each of the new means of encourage user experience.
payments. PayPal excels in all areas (with
scores of between 7 and 8 out of 10) and
it is the means of payment most highly
rated among respondents. Contactless
cards and virtual cards come second in
citizens’ minds. In general, the
Figura 9. What do users value most in the different means of payment?
0 1 2 3 4 5 6 7 8 9 10
Mobile payment (wallet)
PayPal
Contactless cards
Payment by mobile applications
Virtual cards
IUPAY
YAAP Money
0 1 2 3 4 5 6 7 8 9 10
No al all Very
Usefulne Convenience Security Guarantees
Source: Survey: The future of means of payment in Spain, by PwC and IE Business School.
The customer’s point of view 25Amounts. Respondents expressed their logical, the higher the amount and this is
preferences on the amounts of the particularly evident in the case of cash
payments they make. There are no major and charges to the phone bill, where 51
differences among the different means of and 82% of respondents, respectively,
payment evaluated (cash, credit card, would not pay a high amount. In the case
debit card, cheque, transfer, mobile bill, of new means of payment, the least
PayPal, contactless card and virtual trusted for high amounts is the
card). In all cases, a large majority of the contactless card.
participants are willing to pay any
amount (between €10 and no limit).
However, resistance to operating with a
given means of payment increases, as is
Figure 10. Amount of money users are willing to pay depending on the payment
How much are you willing to pay in order to use the following means of payment?
Transfer Cheque
98% 97% 97% 94% 89% 82% 93% 92% 91% 90% 86% 77%
Any 20€ 50€ 100€ 300€ Any
10€ 20€ 50€ 100€ 300€ 10€ amount
amount
Credit cards Debit cards
97% 96% 96% 93% 85% 70% 99% 98% 96% 93% 82% 69%
Any Any
10€ 20€ 50€ 100€ 300€ 10€ 20€ 50€ 100€ 300€ amount
amount
Cash Mobile bill
100% 96% 87% 71% 66% 49% 98% 59% 46% 31% 22% 18%
20€ 50€ 100€ 300€ Any Any
10€ 10€ 20€ 50€ 100€ 300€ amount
amount
Source: Survey: The future of means of payment in Spain, by PwC and IE Business School.
26 Payments, a landscape in motionGuarantees. The survey also invites The information on users’ views given in this report is only an excerpt from a more
participants to comment on the trust thorough investigation, as follows:
inspired by the companies that develop
mobile means of payment when choosing Methodology. A qualitative structured. Approximate duration of
one or the other. Banks are rated highest. assessment was made, based on a 15 minutes online and 10 minutes
Over 80% of respondents approve of the group meeting that lasted two on the telephone. Participants aged
guarantees they offer. Technology hours. Participants aged between between 25 and 55 years for online
companies (Google, Amazon, Apple, etc.) 30 and 40 years (men and women). and between 25 and 65 for offline.
are backed by two out of three, while Field Work: 5 November 2014. Smartphone users and banking.
telephone companies are approved by Quantitative sample: 200 online Fieldwork: between 26 November
just over half of the survey participants. interviews and 300 telephone and 2 December 2014. Statistical
interviews. Sampling error: for a analysis: simple tabulation and
trust level of 95.5% and under usual frequency crossover with the
sampling conditions (p=q=50%), Barbwin (including test of
the margin of error for the total significance) and SPSS programs.
unsegmented sample is 4.46%.
Type of questionnaire: semi-
Figure 11. Maximum amount users are willing to pay depending on the payment
How much are you willing to pay using the following means of payment?
PayPal 99,2% 99,2%
93,1%
Virtual Card 97,8% 95,6%
79,3%
Contactless 97,3% 97,3%
64,7%
86,7% 55,9%
74,5%
71,0%
53,2% 56,7%
45,6%
47,4%
42,1%
20€ 50€ 100€ 300€ Any
10€ amount
Source: Survey: The future of means of payment in Spain, by PwC and IE Business School.
Figure 12. Guarantees and future of payments
When making use of a means of payment, do the following types of companies generate trust? Use a scale of 0-10, where 0 means no trust and 10 means
maximum trust.
Passes Fails
81,6% 64,6% 53,8%
1,0% 3,2% Technology 2,6%
Banks Telephone
Companies Companies
17,4%
32,2%
43,6%
Average: Banks: 6.65. Technology companies: 5.19. Telephone companies: 4.33.
Source: Survey: The future of means of payment in Spain, by PwC and IE Business School.
The customer’s point of view 27Players
Tension on stage
The means of payment system has been With these figures, it is not surprising
subject to much negative tension for the that mobility has become the key factor
last 15 years, following the of the market and all players want their
democratisation of the Internet. share in this new paradigm.
Technological advances have led to a
situation where traditional players Furthermore, financial institutions,
(basically, the financial industry) see which have traditionally been driven by
their position threatened by newcomers inertia when there are changes in the
who are claiming a piece of the business: market, are making great efforts not to
technology companies, mobile be left out of the new trends. The effort is
manufacturers, software providers, well justified. According to a PwC report
telecommunications operators, on the sector, the alteration of the means
distribution companies, etc. The pace of of payment ecosystem by the emergence
change has accelerated in the sector of mobile payments accounts for
with the widespread use of mobile approximately $20,000 million for the
phones. It is estimated that there are financial services sector. 13.000 million
now more mobile phones than people in of that figure correspond to new
the world. According to the GSMA opportunities to generate income and the
Intelligence analysis firm, in October remaining 7,000 million to a reduction of
2014 the figure reached 7,220 million potential losses.
compared to a world population of 7.200
million. If we consider that the first The changes occurring in the sector are
phones started to be sold in the mid-80s, not only technological, economic or
there is no record in history of such a market-based; they go further and affect
quick and explosive expansion of a the very essence of the payment system.
man-made device.
As shown in Figure 13, the traditional
Forecasts for the next few years system is product-oriented: the customer
confirm the huge impact of mobile is just another part of the transaction
technology. It is expected that the flow. Card payments and transfers or
number of owners of smartphones direct debits are regulated in such a way
(smart mobile phones, i.e. with that banks are critically important at
features similar to those of a computer, every stage of the process and are thus
especially access to the Internet) will able to generate significant revenue for
surpass a penetration level of 50% their participation in it.
among the adult population in 2017 to
reach 3,500 million in 2019, according This operating system is under review.
to Forrester. Now, the customer is the centre of
28 Payments, a landscape in motioneverything. He has more options, more start with an advantage, as they have provides opportunities to offer other
information, is able to influence the been providing the service so far and services on an equal footing, lowers
decisions of his peers and demands therefore have earned a certain amount margins and ultimately suggests that
more. As a result, all the players revolve of trust. However, the new system business models will have to change
around his needs. On this new playing leaves many gaps for disintermediation, completely if they are to adapt to the
field, traditional financial institutions opens the door to new competitors, sector’s new context.
Figure 13. From product to customer
Product driven Customer driven
Banking
Banking
Cards
Virtual Cards
Currencies
Product Technology Customer
companies Phone
operators
Retailers
Mobile
Retailers manufacturers
Customer
Source: Prepared in-house.
The players 29The change taking place in the sector can Figure 16 completes the cycle of
also be explained by means of a triple transformation of the means of payment
graph. Figure 14 describes the traditional sector. Here we see not only the
means of payment system (cash, cheques, traditional business areas that are in
cards, transfers, etc.) in its various dispute, but also that a new area of
interactions or relationships between income has been created (what is called
consumers and companies. In this ‘emerging digital’ in the graph), offering
scheme, the hegemony of banks is very opportunities for all. It is clear therefore
clear. that the financial industry not only has to
defend its traditional business
In Figure 15, the new competitors come strongholds (cash, cards, cheques,
into play. We can see, on an orange transfers,...) but can also extend its
background, which areas of the business influence to new digital businesses
traditionally controlled by banks are (mobile payments, alternative networks,
under attack from the newcomers. This electronic billing and payments, wallets,
does not mean that in these business etc.) and benefit from this emerging
segments financial institutions are losing source of income, though it will not be
the battle, but there is a certain risk of easy to deal with competitors who are
that happening in the short and mid-term more agile and flexible.
(i.e. in a very short time, because in the
world of technology terms are
particularly short).
Figure 14. Traditional landscape of payments
C2B B2C B2B P2P
Cash
Paper
Cheque
Wire transfer
Online and offline debit Online and offline debit
Traditional
electronic Retail/Private label card
Prepaid
Credit and charge cards
Commercial/
Purchasing
Banks Bank providers
Source: PwC report, The Electronification of Payments 2013.
30 Payments, a landscape in motionFigure 15. Transition scenario of payments
C2B B2C B2B P2P
Cash
Paper
Cheque
Wire transfer
Online and offline debit Online and offline debit
Traditional
electronic Retail/Private label card
Prepaid
Credit and charge cards
Commercial/
Purchasing
Banks Bank providers Newcomers
Source: PwC report, The Electronification of Payments 2013.
Figure 16. Current scenario of payments
C2B B2C B2B P2P
Cash
Paper
Cheque
Wire transfer
Online and offline debit Online and offline debit
Traditional Retail/Private label card
electronic
Prepaid
Credit and charge cards
Commercial/
Purchasing
Mobile payments
Alternative payment networks
Mobile Merchant
Emerging POS
digital Contactless
payments
Electronic payment and billing
e Wallets e Wallets
Banks Bank providers Newcomers
Source: PwC report, The Electronification of Payments 2013.
The players 31The key players: strategies for new means of payment, especially
the melting pot mobile payments, is key to
understanding citizens’ shopping
Changes in technology, changes in the habits and developing marketing and
scheme of operation, changes in the product development strategies.
concept, changes in competition and in Examples of this awareness are
the perimeter of the sector, reduced HSBC’s investments to be present in
margins... The means of payment the social media, the acquisition of the
industry is a melting pot. Now let’s look US digital bank Smile by BBVA or the
in detail at the main protagonists of the agreement of five British institutions
means of payment system and how they (including Banco Santander) to
are behaving in the light of the support Zapp, a mobile payments
transformations that are occurring in the system
market:
• C
ard companies. Some well-known
• B
anks. They are the traditional brands, such as Visa and MasterCard,
players and benefit from their were in their early days non-profit
experience in the sector. They inspire entities created by different banks to
trust among customers (more than any manage the card business. Today, they
other agent) and have the advantage are both listed on the stock market.
that the vast majority of paid workers, Their revenues are linked to card
at least in developed countries, receive issuance and the processing of
their salaries through bank channels. payment transactions. The brands
They also process payments between themselves are responsible for
companies. They are trying to exploit establishing and enforcing a code of
this situation to their advantage in operation for the card market, which
traditional means of payment to gives them a great deal of influence on
become advisors (purchasing the global means of payment system.
suggestions, crossed sales or They are vulnerable to innovations
comparisons for the home, consumer based on alternative channels, which
goods or transport), provide value- directly attack their source of income,
added (coupons, loyalty programmes, but so far most of the new means of
tools for managing and understanding payment are based on the use of the
personal finance) and supplying third cards, which provide coverage for
parties (insurance, travel, events, e-commerce transactions and
home, etc.). operations with mobile devices.
Regarding the new means of payment Part of the strategy of card issuers
that threaten their hegemony, banks focuses on promoting standards and
have launched a few initiatives or good practices for digital payments.
trials, individually and on Accordingly, the major companies in
collaborative platforms with other the sector (Visa, MasterCard,
entities or agents. Until recently, their American Express, JBC and Discover)
strategy was, in general, to wait and have developed a global standard
see, hoping that the market will framework known by its initials in
choose a winning standard. Now, English, PCI DSS (Payment Card
there is a certain urgency for joining Industry Data Security Standards), to
new projects so as not to miss the improve security. The main new
industry’s revolutionary train. The feature of these criteria is the use of
financial industry is aware that tokens (encrypted security codes) for
participation in the consolidation of each transaction, which eliminates
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