10th Annual World Payments Report 2014 from Capgemini and The Royal Bank of Scotland

World
Payments
Report2014
WORL
D
PAYMENTS RE
PORT

Introduction
3 Preface
Section 1: World Non-Cash Markets and Trends
5 Key Findings
6 Non-Cash Payments Growth Continues, But at Different Rates Around the Globe
6 Non-Cash Volume Growth Decelerates, Mainly in North America and Europe
8 Debit and Credit Card Use Increases But at a Slower Rate, While Direct Debit Continues to Grow
11 Three Distinct Market Disruptors Will Have an Impact on Non-Cash Growth
11 Power of Developing Markets Likely to Strengthen as They Continue to Record High Growth Rates
12 E- and M-Payments Stories are Converging
13 Hidden/Unreported Payments Continue to Grow, Gaining a Substantial Share of Consumer Spending
15 Estimates for 2013 Predict Continued Global Growth
16 U.S. Market Presents a Mixed Picture of Innovation and ‘Leading from Behind’
18 Banks and Non-Banks Intensify Competition in the Cross-Border Market
19 Conclusion
Section 2: Leveraging Data to More Effectively Manage Increasing Numbers of KRIIs
21 Key Findings
22 KRIIs Are Increasing in Number and in Global Reach While Targeting Innovation and Standardization
22 A Steady Increase in KRIIs is Being Experienced Across the Globe
23 Focus of Many KRIIs Shifts from a Regional to a Global Level
25 Key Regulatory and Industry Initiatives (KRIIs) In Payments, 2014
30 A Holistic Approach will Help Banks to Cope with the Complexity, Scope, and Interplay of KRIIs
31 Data Management is Key for Developing New Services Offerings that Create ROI
33 SEPA Update
Section 3: As Innovation Accelerates, Traditional Payments Processors Are Transforming Infrastructures
35 Key Findings
36 Innovation Continues to Dominate the Agenda of Payments Industry Participants
36 Innovation Accelerates in Customer-Facing Areas but Payments Processing Faces Multiple Challenges
38 Customer Demands are Driving the Need for Payments Processing Transformation and Innovation
38 Traditional Processors Recognize the Need to Transform Processing Infrastructure
40 The Way Forward: A Transformation Journey
40 Firms Need to Reassess the Basics of Incremental Transformation
42 Incremental Transformation can be Executed via Short-Cycle Projects
43 Corporates can Take a Lead in Helping their Payments Partners to Transform Processing
43 Progress Must be Made in the Collaborative Space
44 Lessons from SEPA for Future Community Initiatives
45 Using Data Management to Move from Compliance to Differentiation
Section 4: Continuing to Track the Evolution of the Payments Industry
47 Key Findings
48 Ten Years of World Payments Reports Reveal an Industry in Evolution
48 Five Predicted Major Trends Have Changed the Landscape of the Payments Industry
50 Global Non-Cash Volumes Followed Predicted Trends
51 Not All Predictions Have Evolved in the Way We Anticipated
52 Predictions for the Payments Industry in the Next Ten Years
53 Closing Thoughts
54 Glossary
57 Methodology
Table of Contents

2014 is a landmark year for World Payments Report (WPR) as it reaches its tenth year of publication.
A joint venture between Capgemini and The Royal Bank of Scotland (RBS), WPR tracks the state
and evolution of the global non-cash payments market. Its informed analysis and commentary are
much anticipated and highly valued by payments industry professionals.
Our estimates for 2013 indicate global non-cash transactions will total 365.6 billion, driven by a
20.2% increase in developing markets, while mature markets are expected to grow by 5.6%. Improved
payments infrastructures in developing markets, along with regulatory initiatives to increase non-cash
usage and roll-out of new solutions are helping to drive growth rates in these regions. Although with a
lower growth rate, mature markets still dominate in terms of volume of transactions and growth rates
here will be driven by innovative payments solutions and the rise of mobile payments, particularly as
card acceptance improves in the small and medium enterprise sector.
In analyzing the impact of key regulatory and industry initiatives (KRIIs), we have concluded that a
focus on data management can help banks to increase efficiency and launch new services. This will
help banks to recoup some of the investment they have made in complying with an increasing number
of ever more complex regulations. Banks need to move from ‘silo-based’ approaches to a single data
model in order to improve their effectiveness and efficiency in meeting regulatory requirements. In
Europe, as the migration deadline for the Single Euro Payments Area (SEPA) has passed, we analyze
the achievement of objectives and consider the prospects for future community initiatives.
WPR 2013 focused on innovation in customer-facing areas such as payments acquisition; WPR 2014
examines the need for traditional payments processors to transform their payments processing
operations. These firms are prioritizing processing transformation and are taking an incremental path
to achieve this. But we believe it is time for firms to review the basics of incremental transformation
and to apply agile concepts including short-cycle projects to ensure they can transform their internal
processes. In the collaborative interbank sphere, some projects such as real time, low-value payments,
domestic or cross-border payments, and fraud management, should be launched or accelerated in order
to meet the expectations of regulators and customers, within reasonable deadlines.
For the past decade, we have analyzed and predicted trends in the evolving payments landscape. Our
research, which includes face-to-face interviews with payments executives globally, has revealed the
major forces reshaping the payments world. We have charted the rise of non-bank payment services
providers (PSPs), the increased fragmentation and commoditization of some components of the
payments value chain, and have identified and analyzed the impact of increased regulatory pressure
and changing industry dynamics on business models.
We have also analyzed non-cash transactions volumes, building a global picture of the growth in use
of individual instruments among consumers and corporates. Our analysis and predictions help
payments industry professionals to pinpoint areas of focus and to understand the practicalities of the
evolving payments landscape.
We hope that this, the tenth anniversary edition of World Payments Report, will continue to deliver the
quality insight and analysis that our readers find so useful, and help them to plan their strategies for
the evolving payments landscape.
3
Preface
Jean Lassignardie
Global Head of Sales and Marketing
Global Financial Services
Capgemini
William Higgins
Managing Director of Payments
The Royal Bank of Scotland
WORL
D
PAYMENTS RE
PORT

SECTION TITLE L1
SECTION TITLE L2
5WORLD PAYMENTS REPORT 2014
ƒƒ Global non-cash transactions volume growth decelerated in 2012 to 7.7% from 8.6% in
2011 to reach 334.3 billion transactions, primarily due to slower non-cash transaction
growth in North America and Europe. Non-cash transaction growth was led by developing
markets such as Central Europe, Middle East and Africa (CEMEA) and Emerging Asia.
ƒƒ While non-cash transaction growth rates were slightly lower in 2012 compared to 2011,
the growth rate in all regions is expected to have accelerated in 2013 compared to 2012.
Total non-cash volume is expected to reach 365.6 billion transactions. The developing markets
are expected to grow by 20.2% while mature markets are expected to record 5.6% growth.
ƒƒ Global growth continues to be driven by debit and credit card use, up 13.4% and 9.9%
respectively. Debit card transactions totaled 140.7 billion and credit cards 62.7 billion,
although overall growth was slower compared to 2011.
ƒƒ Developing markets are establishing initiatives and upgrading infrastructure in order to
boost non-cash volumes. This emerging trend is likely to accelerate growth in non-cash
transactions in the developing world and put some countries such as China on a trajectory to
surpass, over the next five years, the present leading non-cash markets of North America and
the Eurozone.
ƒƒ The continued growth in volumes of electronic payments (e-payments) and mobile
payments (m-payments) is putting pressure on all industry stakeholders to rapidly
adopt these channels. M-payments transactions are expected to grow by 60.8% annually
through to 2015. E-payments growth will decelerate to 15.9% growth during the same period.
There is a gradual convergence of e- and m-payments as the distinction between the two
diminishes.
ƒƒ Hidden, or unreported, payments transactions continue to grow as new payments
instruments and solutions proliferate. Unreported payment niches are being formed as
payments move away from the highly regulated banking sphere. Although non-banks continue
to pursue digital innovations and capture more of the payments market, we are yet to witness
any concrete action on improving the collection and reporting of data for the hidden markets.
KEYFINDINGS World Non-Cash
Markets and Trends1
Get the full story at
www.worldpaymentsreport.com

6
NON-CASH VOLUME GROWTH DECELERATES,
MAINLY IN NORTH AMERICA AND EUROPE
Annual growth in global non-cash transactions
volumes decelerated in 2012 to 7.7%; reaching a total
of 334.3 billion transactions (see Figure 1.1) which is
very close to the prediction of 333 billion transactions
made in WPR 2013.1
The slowdown in growth was
primarily due to slower non-cash transaction growth
in North America and Europe. The global growth
rate in 2011 was 8.6%.
Developing markets such as CEMEA2
and Emerging
Asia3
led non-cash transaction growth in 2012, each
growing at more than 20%. The remaining
developing market, Latin America,4
grew by 11.0%
compared to the 14.4% non-cash growth in 2011.
Within developing markets, China and Ukraine each
grew by more than 30% while in Russia, non-cash
transactions grew by 26.0% during 2012. China’s
growth was fuelled by increased consumer spending
through cards, a boom in e-commerce, the rising
numbers of middle class citizens, and the global
acceptance of China UnionPay payment cards.
In total, developing markets continued their growth
story during 2012, recording an impressive 18.3%
rise compared with 4.5% in mature markets.5
Although developing markets made up only 25.5%
of the total volume in 2012, they contributed 55.3%
of the global non-cash transaction growth. Total
non-cash transactions in mature markets such as
North America were 127.9 billion and in Europe
reached 87.6 billion whereas in developing markets,
such as Asia, volumes were 23.9 billion and in
CEMEA 28.8 billion.
The mature markets growth of 4.5% was driven by a
number of factors, including:
ƒƒ Economic recovery in countries such as the U.S.
and Japan (which in 2012 recorded 2.8% and 1.4%
GDP growth respectively).6
ƒƒ An appetite for cashless transaction services from
different segments in the market.
ƒƒ The ‘war on cash’ being waged in markets such as
Sweden and the Netherlands, where governments
and banks are discouraging the use of cash for
low-value transactions.
ƒƒ The ongoing promotion of new innovative payment
services adapted to each market and payment
situation.
Growth rates of non-cash transactions in North
America fell from 6.4% in 2011 to 3.2% in 2012. This
significant slowdown for the region was primarily due
to a decline in the U.S. market, where growth is slowly
normalizing after a downturn in 2008-2009 and an
accelerated recovery in 2010-2011. We see that debit
card growth has now returned to a more typical rate of
5.5% in 2012 partly due to the negative impact of new
multilateral interchange fee (MIF) regulations on the
attractiveness of debit cards to banks. Credit card
volumes in the U.S. grew at a more typical rate of 8.0%
in 2012 as consumers, confident in the recovering
economy, became more willing to incur debt.
Among the top ten non-cash markets, China, Russia,
and South Korea continued to lead growth rates, while
other mature markets remained subdued during 2012.
Cashless payments in South Korea, for example,
accounted for 70% of the total value of consumer
payments during 2012.7
The Government has initiated
tax incentives, new rules for electronic payments and a
registration system for electronic bill presentment and
payment (EBPP) services for tax and other bills. These
moves helped to increase the use of debit cards in the
country. In Russia, the increase in non-cash
transactions was driven by improved payment
infrastructure. The number of point-of-sale (POS)
terminals has grown by 23% annually since 2011,
leading to increased card acceptance.
Non-Cash Payments Growth Continues, But at
Different Rates Around the Globe
1
In WPR 2014, we have revised our model with the addition of data from five countries: Slovakia (Eurozone) and Switzerland (non-Eurozone) in
Europe, and Hungary, Romania, and Czech Republic in CEMEA. These countries together contributed about 1.3% to the total global non-cash
transactions in 2012.
2
CEMEA includes Russia, Poland, Ukraine, Hungary, Romania and Czech Republic, Turkey, South Africa, Saudi Arabia, and other Central
European and Middle Eastern markets.
3
Emerging Asia includes India and China as well as Hong Kong and other Asian countries.
4
Latin America includes Brazil, Mexico, and other Latin American countries.
5
Mature markets are: Mature APAC (Asia-Pacific) including Japan, Australia, South Korea, and Singapore; Europe, including Eurozone; and
North America (U.S. and Canada).
6
Economist Intelligence Unit, May 2014.
7
‘Innovations in Retail Payments’, BIS-CPSS, May 2012.

SECTION 1
WORLD NON-CASH MARKETS AND TRENDS
Figure 1.1 Number of Worldwide Non-Cash Transactions by Region (Billion), 2008–2012
0
50
100
150
200
250
300
350
20122011201020092008
CAGR
Global
Emerging Asia
CEMEA
Latin America
Mature
Asia-Pacific
Europe
(including
Eurozone)
North America
(U.S. and
Canada)
DevelopingMature
7.6%
19.3%
25.2%
14.6%
11.0%
4.3%
3.6%
8.6%
18.5%
20.1%
14.4%
11.0%
4.3%
6.4%
’08–’12 ’10–’11
Growth
7.7%
22.8%
23.8%
11.0%
11.1%
4.0%
3.2%
’11–’12
18.3%
4.5%
249.8
111.2
269.4
113.1
286.0
310.4
116.6
124.0
334.3
127.9
74.2 77.2
80.8
84.2
87.6
22.0
26.3
27.2
30.1
33.5
18.9
23.8
25.6
29.3
32.5
11.7
15.3
19.4
23.3
28.8
11.8
13.6
16.4
19.5
23.9
Non-CashTransactions(Billion)
Note: Europe now includes Slovakia in Eurozone and Switzerland in Non-Eurozone; CEMEA (Central Europe, Middle East, Africa) now includes Hungary, Romania and Czech
Republic; Mature APAC (Asia-Pacific) includes Japan, Australia, South Korea and Singapore; LA (Latin America) includes Brazil as well as Mexico and Other LA, Emerging Asia
includes India and China as well as Hong Kong and Other Asian countries, NA (North America) includes the U.S. and Canada, Chart numbers and quoted percentages may
not add up due to rounding; Some numbers may differ form data published in WPR 2013 due to previous year data updated at the source
Source: Capgemini Financial Services Analysis, 2014; ECB Statistical Data Warehouse, 2012 figures released September 2013; Bank for International Settlements Red Book,
2012 figures released December 2013, Country’s Central Bank Annual Reports, 2012

8
DEBIT AND CREDIT CARD USE INCREASES BUT
AT A SLOWER RATE, WHILE DIRECT DEBIT
CONTINUES TO GROW
Across the globe, debit and credit cards usage
increased: debit card transactions grew by 13.4%
during 2012 to 140.8 billion and credit card
transactions rose 9.9%, reaching 62.7 billion
transactions. Combined, card growth was slower
overall compared to 2011, falling to 12.3%; however
cards remained the primary driver of growth of
non-cash transactions.
In 2012, payments cards constituted 60.9% of the total
non-cash transactions conducted globally, up from
58.4% in 2011. Cards have increased their share in the
payments mix across all regions at the expense of the
other non-cash payment instruments (see Figure 1.2).
North America and Europe together contributed
60.7% of the total card transactions conducted
globally during 2012. And although card use slowed
down in the U.S. in 2012, total card transactions in
the country still accounted for 38.3% of global card
transactions. We believe the growth in online
shopping in the U.S., combined with the rise of
wallets and added value payment solutions is likely to
increase the use of debit and credit cards in the U.S.,
at least until immediate payment alternatives are
made available.
Following the 2008 credit crisis in North America
and most parts of Europe the proportion of debit card
transactions increased in part because banks reduced
their focus on the credit card business to avoid an
increase in bad debts. Further, rising unemployment
forced individuals to take greater control of their
spending, resulting in increased use of debit, rather
than credit, cards. During 2012 debit card growth
decelerated across all markets, except Emerging Asia
and CEMEA. At the same time, credit card volumes
grew significantly in Latin America, reaching 5.2
billion transactions compared to 4.4 billion in the
previous year. Consolidating these regional impacts,
global compound annual growth rate (CAGR) of
credit cards fell from 12.2% in 2011 to 9.9% in 2012
whereas global CAGR of debit cards fell from 15.3%
in 2011 to 13.4% in 2012.
Compared to other non-cash instruments, direct debit
was the only non-cash instrument to grow at a faster
rate than in 2011. The growth rate of this instrument
increased to 4.1% in 2012, compared to 3.8% in 2011
reaching 44.7 billion non-cash transactions. Europe is
the biggest market in terms of transactions, reaching
22.5 billion direct debits in 2012, compared to 13.7
billion in North America. In the most mature
European countries direct debit remained the most
popular method for settling regular bill payments.
The complex migration of the direct debit instrument
in SEPA may have hindered its transaction growth in
the Eurozone. In other mature markets, particularly
Singapore and South Korea, adoption increased
during 2012. In South Korea, for example, growth
was 10.7%, reaching 1.6 billion transactions. Direct
debit remains an instrument of choice in mature
markets, with its adoption limited and declining in
developing markets.
Growth in direct debit in mature markets can be
attributed to an improved economy and easing of
credit flows compared to 2008. In this improved
environment, it is possible that consumers are less
cautious about the timing of their payments and are
willing to pay periodic monthly bills directly from
their accounts.
Compared to 2011, the growth in credit transfer
transactions decelerated in all markets except North
America and Emerging Asia. The U.S. drove growth
in North America, with transactions increasing by
6.6% in that country to reach 8.6 billion
transactions. Credit transfers are mainly used by
businesses and public sector organizations for payroll
processing; hence credit transfer volumes are very
closely linked to the employment situation. New
payment offerings in the retail sector and the rise in
immediate payment adoption will contribute to the
growth of credit transfers.
Globally, check volumes contracted by 9.6% in 2012 to
reach 28.1 billion transactions. This decline continues
despite innovations such as digital imaging of checks
and remote deposit capture, suggesting increasing
competition from other digital payments methods. In
Europe, check use is in steady decline on a small base,
falling from 7.8% in 2008 to 4.8% in 2012 as a
proportion of total non-cash transactions. However,
the instrument remains popular in the U.S., which
recorded 18.3 billion check transactions in 2012, a
substantial 65.1% of the global check transactions.
Similarly, check transactions are also popular in
certain developing markets such as India where over
45% of non-cash payments are made by check.

Figure 1.2 Comparison of Non-Cash Transactions (Billion) and Change in Payments’ Mix (%), by Region,
2008, 2011–2012
100%
80%
60%
40%
20%
0%
38%
42% 43%
58%
65% 67%
60%
69% 71% 70%
78%
81%
42%
46%
49%
73%
68%
63%
8% 5% 5% 24% 17% 15% 8% 3% 3% 19% 11% 9% 13% 7% 6%
27%
26% 26%
7%
7%
8% 23%
20%
19%
7%
8%
8%
40%
33%
32%
23%
28%
35%
27%
26%
26%
11%
11%
11%
9%
7%
7%
3%
2%
2%
5%
14%
14%
4%
4%
2%
PaymentServicesMix
(%)
0.4%0.4% 0.3%
■ Cards ■ Direct Debits ■ Credit Transfers ■ Checks
0
40
80
120
160
Europe
2008
2008
2011
2011
2012
2012
North America
2008
2008
2011
2011
2012
2012
Mature APAC
2008
2008
2011
2011
2012
2012
Latin America
2008
2008
2011
2011
2012
2012
Emerging Asia
2008
2008
2011
2011
2012
2012
CEMEA
2008
2008
2011
2011
2012
2012
Non-CashTransactions
(Billion)
74.2
84.2 87.6
111.2
22.0
30.1 33.5
11.8
19.5 23.9
18.9
29.3 32.5
11.7
23.3
28.8
124.0 127.9
CAGR
4.3%
CAGR
3.6%
CAGR
11.0%
CAGR
19.3%
CAGR
14.6%
CAGR
25.2%
4.3% 4.0%
3.7%
11.0%
18.1%
15.8% 11.0%
25.7% 23.8%
22.8%
11.1%
3.2%
Note: Ukraine and Hong Kong data for checks for all years not available; Singapore, France, Ukraine and South Africa credit card data for all years not available; Japan,
Ukraine, Turkey and Hong Kong data for direct debits for all years not available; Ukraine and Hong Kong credit transfer data for all years not available; Chart numbers and
quoted percentages may not add up due to rounding; Some numbers may differ form data published in WPR 2013 due to previous year data updated at the source
SECTION 1

10
In terms of the number of non-cash transactions
made per inhabitant (see Figure 1.3), a mixed picture
emerges. Finland, with 448 transactions per
inhabitant during 2012 continues to be a clear leader
and recorded growth of 10.6% during 2012, which
also outstripped other nations in Europe and North
America. The U.S. has the next highest number of
transactions per inhabitant, at 376, but grew by only
2.6% during the year.
Sweden was another strong performer in terms of
growth in this category. Non-cash transactions per
inhabitant leapt by 8.3% during 2011-2012 to reach
308 transactions. In both Finland and Sweden creative
and innovative supply-side markets are complemented
by strong demand from consumers, a combination that
has driven digital opportunities. A positive economic
outlook in Finland combined with growth in the retail
industry, an improved regulatory framework for
non-cash instruments, and growing online and mobile
commerce markets are fuelling growth. The 2012
growth in Sweden can be partly attributed to an effort
on the part of three of the four main Swedish banks,
which moved to stop accepting and paying out cash.
For example, 200 of 300 Nordea Bank branches in the
country were designated as cashless.8
Some countries experienced a decline in the number
of non-cash transactions per inhabitant during the
period. Non-cash transactions declined in Canada by
0.1%, in Belgium by 1%, in Ireland by 0.6%, in
Slovenia by 7.2%, and in Greece by 0.3%. Poor
economic conditions, particularly in Ireland and
Greece, are contributors to the downturn, along with
decreases in consumer spending as people seek to
manage their budgets more effectively. There is
opportunity for an improvement in Canada, where
the Task Force for the Payments Systems Review
published its final report in March 2012, urging a
transition to a digital economy as “critical for Canada
and will require collaboration and cooperation among
all stakeholders”.9
8
‘Sweden’s War on Cash Runs Into a Wall–and a Heroic Bank’, Ludvig Von Mises Institute, December 2012.
9
‘Moving Canada into the Digital Age’, Task Force for the Payments Systems Review, March 2012.
Figure 1.3 Number of Non-Cash Transactions per Inhabitant in the Top 10 Non-Cash Payments Markets,
2008–2012
0
100
200
300
400
500 Finland
US
Netherlands
Australia
20122011201020092008
CAGR Growth
’08−’11 ’11−’12
4.6% 6.1%
11.4% 12.6%
2.8% 3.7%
5.1% 8.0%
2.4% 1.6%
3.6% 2.3%
4.2% 4.9%
4.1% (1.0%)
5.8% 4.9%
(1.4%) (0.6%)
1.7% (7.2%)
1.2% 3.8%
1.2% 3.8%
12.0% 10.1%
12.4% 10.9%
18.6% 24.6%
4.8% 4.6%
5.7% 10.6%
2.2% (0.3%)
24.6% 31.5%
2.5% 2.9%
2.2% (0.1%)
4.7% 3.1%
5.5% 8.3%
5.2% 2.7%
2.9% 2.6%
Denmark
Luxembourg
Sweden
South Korea
United Kingdom
France
Canada
Austria
Germany
Belgium
Switzerland
Portugal
Ireland
Slovenia
Spain
Brazil
Slovakia
Japan
Italy
Russia
Greece
China
Non-CashTransactionsperInhabitant
Top 10 Non-Cash Payments Marketsa
Note: France credit card data not available for all years. France debit card data from 2008 to 2012 has been estimated (data not available); Netherlands check data not
available from 2008 to 2012; Chart numbers and quoted percentages may not add up due to rounding; Some numbers may differ from data published in WPR 2013 due to
previous year data updated at the source-level
a. The Eurozone has not been highlighted as a leading key market as most of its individual members have been displayed on the chart

UnionPay and Alipay. Increased internet penetration
in the country and growing consumer preference
towards non-cash transactions are also fuelling growth.
If China manages to equal the non-cash penetration
levels of Brazil, it will put itself on a trajectory to pass
the current leading non-cash markets, the U.S. and
Eurozone within the next five years.
A clear picture is emerging of the China growth
story. During 2011 and 2012, the number of debit
cards in China grew by more than 20% while the
number of POS terminals grew by over 40%. In
2012, shipments by China’s top ten POS terminal
companies totaled more than 6 million units, or
about 31% of global POS terminal shipments.12
The
total number of cards in circulation in China already
exceeds the cards that are in circulation in all the
mature markets combined.
From a consumer perspective, one in five people in the
world using mobile banking lives in China.13
Chinese
e-commerce shoppers spent $213 billion online in
2013, which represented 70% annual growth since
2009. The spending on online shopping is expected to
reach $543 billion by 2015.14
Also, China UnionPay,
which operates a virtual monopoly in China, has
become the world’s largest card brand with 3.53 billion
cards in circulation.15
These factors helped non-cash
transactions in China to grow from 9 billion in 2011
to 12 billion in 2012, a growth rate of 32.4%.
Transactions per inhabitant for the period grew from 7
to 9, which also represented an overall growth rate of
31.5%. This helped China to become the sixth largest
non-cash transaction market in the world.
In WPR 2014, we have analyzed trends that could
act as market disruptors to the non-cash payments
market. Three trends are prevalent from our analysis,
representing a mix of well-known and emerging
factors. These trends: developing markets growth,
e- and m-payments,10
and hidden payments are
examined below.
POWER OF DEVELOPING MARKETS LIKELY TO
STRENGTHEN AS THEY CONTINUE TO RECORD
HIGH GROWTH RATES
While the global picture of non-cash transaction
growth does not show substantial shifts year over
year, an emerging trend might arise in developing
markets, with some countries setting up their own
schemes and upgrading their infrastructure in order
to boost the use of non-cash instruments.
In 2012, developing markets constituted 25.5% of the
total non-cash transactions, but the envisaged
disruptive trend could change this position. If we
forecast the non-cash transaction numbers for mature
and developing markets at their respective 2008-2012
CAGR, we notice that developing markets would
surpass mature markets by 2021.11
Although China has low penetration of non-cash
transactions at present there is a possibility of major
growth in this market. This is due to the size of
China’s population and also the efforts by the Chinese
Government to encourage the establishment of
domestic non-cash payment schemes, such as China
Three Distinct Market Disruptors Will Have an Impact
on Non-Cash Growth
10
E-payments are defined as digital payments that are made over the internet for e-commerce activities. M-payments are defined as a form of
payment where the mobile phone is used as a payment mode–not just as an alternative channel to send the payment instruction–and the
payment information flow takes place in real time.
11
Mature markets are: Mature APAC, Europe, including Eurozone, and North America. Developing markets are: Emerging Asia, Latin America,
and Central Europe, Middle East and Africa (CEMEA).
12
‘Global and Chinese Financial POS Terminal Industry Report, 2013-16’, Research and Markets, January 2014.
13
‘China–A New Paradigm in Branchless Banking’, CGAP, March 2014.
14
National Bureau of Statistics China.
15
‘Coming to a store near you: UnionPay, the world’s biggest bankcard’, Reuters, 2014.
SECTION 1

12
The slight slowdown in e-payments growth (from
19.2% in 2012 to 15.4% in 2013, a total of 29.3
billion transactions) has been due to a shift towards
m-payments use, driven by increased penetration of
smart phones and the internet, advances in
technology, and innovative products and services. As
the total number of e- and m-payments is increasing,
we believe the shift from e- to m-payments indicates
a convergence between the two modes.
However, going forward, e-payment transactions are
expected to grow in Europe as progress is made on
the European Union’s revised Payments Services
Directive (PSD II). In particular, the ‘access to the
payment account’ concept18
could open the payments
market to new entrants and enable third-party
providers to initiate payments. Other drivers of
e-payment growth will be the migration of more
retail brands to online marketplaces (as they seek to
grow revenues), and global legislation to improve
online security, which will boost consumer
confidence in e-commerce. Increased levels of
e-commerce will fuel further growth of e-payments.
M-payments are increasing at a rapid pace with
non-banks slowly increasing their share of the
transactions. In the period 2011-2015, m-payments
are expected to grow by 60.8% to 47.0 billion
transactions. Non-banks will increase their share of
transactions from 1.1 billion in 2012 to 7.0 billion in
2015. Banks will, however, have the lion’s share,
E- AND M-PAYMENTS STORIES ARE
CONVERGING
Growth continues in the e- and m-payments
markets, along with convergence between the two
modes, as some e-payments transactions migrate
towards m-payments due to increased use of tablets
and smartphones. M-payments are expected to grow
annually by 60.8% through 2015 while e-payments
growth will decelerate to an annual growth of
15.9%.16
(See Figures 1.4 and 1.5)
We have retained our definitions of the e- and
m-payments market, as detailed in WPR 2013. We
define e-payments as digital payments that are made
over the internet for e-commerce activities.
Due to a lack of industry definition of e-payments,
we have analyzed the e-commerce market which
includes retail and travel sales; digital downloads
purchased via any digital channel, and sales from
businesses that occur over primarily consumer-to-
consumer (C2C) platforms such as eBay.
We define m-payments as a form of payment where
the mobile phone is used as a payment method–not
just as an alternative channel to send the payment
instruction – and the payment information flow takes
place in real-time.17
16
Estimates derived from various industry and analyst reports. Please refer to Methodology for more details.
17
Examples of such payments include mobile transactions in peer-to-peer (P2P) money transfers, mobile online payments such as those made on
eBay, or ringtone purchases etc.
18
Please refer to KRII #3 on page 25.
Figure 1.4 Number of Global E-Commerce Transactions (Billion), 2011–2015F
0
10
20
30
40
2015F2014F2013F20122011
2014 Industry Estimates
2011–’15F CAGR
21.3
25.4
29.3
34.1
38.5
Total 15.9%
E-CommerceTransactions(Billion)
Note: E-commerce includes retail sales, travel sales, digital downloads purchased via any digital channel and sales from businesses that occur over primarily C2C platforms
such as eBay
Source: Capgemini Financial Services Analysis, 2014

HIDDEN/UNREPORTED PAYMENTS CONTINUE
TO GROW, GAINING A SUBSTANTIAL SHARE OF
CONSUMER SPENDING
A third key disruptive trend we have uncovered in our
analysis is that of hidden, or unreported, payments
instruments and solutions. As these continue to grow
and gain a substantial share of consumer spending in
some markets, it is possible that some of the
estimated growth in non-cash transactions could be
included in these types of transactions.
This dilemma was first identified in WPR 2013,
when we highlighted the growing importance of
accurate statistical data collection. A lack of clarity in
reporting standards for e- and m-payments makes it
difficult to confidently estimate the true market size
of these payment modes. As a result, there is a risk
that industry analysts may over- or under-estimate
transaction volumes of e- and m-payments.
The increasing convergence between e- and
m-payments also presents challenges in estimating
market size as there is a partial overlap between the
two modes as well as with traditional instruments
such as cards, which are often used when making an
e- or m-payment.
reaching 39.9 billion transactions in 2015. The
mobile payments space is increasingly competitive,
with banks and non-banks striving for insightful
data, market dominance and consumer loyalty.
Smartphones and tablets have become common
devices for shopping online: 79.4 million U.S.
consumers, amounting to 51.0% of U.S. digital
buyers, are expected to make purchases using a
mobile device.19
This potential rise in m-payments
has encouraged many banks to launch their own
smartphone and tablet apps as well as dedicated
mobile sites in order to gain a competitive advantage.
Despite this, non-banks are expected to grow at a
faster pace than banks: PayPal,20
for example, has
processed more than $27 billion in mobile payments
in 2013, around 15% of its total payments volumes.21
The adoption of near field communications (NFC)
across all markets continues to be disappointing.
Penetration of NFC-enabled mobile phones as well
as contactless readers at the point of sale is limited,
although Apple is expected to integrate NFC in its
upcoming smartphone.22
The high growth in
m-payments predicted by many industry analysts
may be premised on the unproven potential of
contactless payments as well as the underlying
hypothesis that a yet to be launched innovation will
drive large scale adoption of contactless technologies
in mature markets.
Figure 1.5 Number of Global M-Payments Transactions (Billion), 2011–2015F
0
10
20
30
40
50
2015F2014F201320122011
6.4
10.0
15.8
25.4
39.9
7.0 0.6
11.1 1.1
18.0
2.2
29.2
47.0
3.8
7.0
M-PaymentTransactions(Billion)
2014 Industry Estimates
2011–’15F CAGR
Total
Non-Banks
60.8%
82.7%
Banks 58.1%
Note: Mobile payments or m-payments are defined as a form of payment where the mobile phone is used as a payment mode – not just as an alternative channel to send the
payment instruction-and the payment information flow takes place in real-time; Chart numbers and quoted percentages may not add up due to rounding
Source: Capgemini Financial Services Analysis, 2014
19
‘Smartphones, Tablets Drive Faster Growth in Ecommerce Sales’, eMarketer, April 2013.
20
Although Paypal (EU) is a bank licensed in Luxembourg, it does not accept deposits. Additionally, Paypal (U.S.) has been termed as a non-bank
by the Federal Deposit Insurance Corporation (FDIC) as they did not meet the federal definition of an entity accepting deposits as a bank, hold
any physical money or have a bank charter.
21
www.paypal-media.com/about.
22
‘Apple iPhone6 to Feature NFC Technology Integration’, Business Times, May 2014.
SECTION 1

14
checkouts. The program is now used by 10 million
customers who make nearly 5 million transactions
per week, translating to nearly 250 million
transactions in 2013. This was more than double the
100 million transactions made in 2012.28
While the
loading transaction of a prepaid wallet is recorded in
industry statistics, the payments conducted thereafter
using this stored value are not recorded and therefore
are part of the hidden market.
ƒƒ Payment aggregators: Payment aggregators such
as PayPal, Google Checkout, and Amazon
Payments enable merchants to accept credit card
and bank transfers without having to set up a
merchant account with a bank or card association.
Among these, some players such as PayPal, which
processed more than $180 billion in payments in
2013,29
make use of stored value accounts.
Consumers can make future purchases, which
results in unreported payments.30
ƒƒ Worker remittances (other than mobile network
operators): Worker remittances are being sent
primarily by money transfer operators (MTOs)
wherein a sender presents the funds to be transferred
along with the recipient’s details. The MTO then
provides a money transfer control number to the
sender which the recipient must provide to the
receiving MTO before collecting the money. As
money is transferred through private, rather than
open, payment networks they remain unreported.
The above non-bank players are pursuing digital
innovations and capturing more and more of the
payments value chain, thereby contributing to the
increase of unreported payments. There has not been
any concrete action to date from regulatory agencies
to improve the collection of statistics on all payments
from these market players, despite the fact that
volumes are growing rapidly in this segment. As
reported in WPR 2013, the unreported nature of
these sectors poses a market risk, leading to
misleading analysis based on incorrect or incomplete
representation of actual market size for new,
innovative non-cash payments instruments. It also
affects the future payments strategies of corporates.
There are five major elements to the hidden
payments market:
ƒƒ Closed/Restricted loop prepaid retail/gift cards:
Wal-Mart, along with American Express,
launched a prepaid card in 2012, with features
similar to a debit account. More than 1 million
customers have signed up for the card in the first
year.23
Features such as no credit rating checks, the
ability to withdraw cash from millions of
automated teller machines (ATMs) and reload
value, superior safety to cash and enticing loyalty
programs are attracting consumers.
ƒƒ Virtual currency: The most high-profile of the
virtual currencies, Bitcoin, although still small in
terms of volume, has gained traction globally. At
the end of 2012 bitcoins were being used in an
average of 35,000 transactions per day and by the
end of 2013, had reached 60,000 transactions per
day.24
Similar to Bitcoin, the peer-to-peer (P2P)
payment system Ripple also has its own currency,
‘ripples’, which enables users to send and receive
payments in any other currency or to create their
own to enable users to send money to anyone,
anywhere in the world. Unlike Bitcoin, Ripple
enables users to send and receive payments in any
other currency or create their own.25
Virtual
currencies are at a nascent stage, with regulations
evolving across the globe. For example, in the U.S.,
the Internal Revenue Service (IRS) has declared it
will treat them as property, not currency, for tax
purposes.26
On the other hand, Brazil, through
Law No 12,865, has created the possibility for the
normalization of mobile payment systems and the
creation of electronic currencies.27
The law allows
Brazil to regulate bitcoin, other crypto-currencies,
and any future electronic currency. It is via such
regulations that we expect virtual currencies to
continue to grow in the future.
ƒƒ Prepaid mobile wallets: Mobile wallets have been
launched by many retailers and other organizations
including Google, and Starbucks. The U.S. coffee
chain’s Starbucks Card Mobile App connects
iPhone, Android, and BlackBerry devices to
Starbucks Card accounts to enable barcode-based
23
‘American Express expands its Serve Prepaid Card to Walmart’, Forbes, April 2014.
24
‘Top 10 Bitcoin Statistics’, Forbes, July 2012.
25
‘Bitcoin rival Ripple looks to make waves’, ComputerWorld, April 2013.
26
‘Why Bitcoin Entrepreneurs Are Begging for More Regulation’, Harvard Business Review, March 2014.
27
Law No 12,865, Federal Revenue of Brazil, 9 October, 2013.
28
‘Licensing its mobile-payments system may be on Starbucks’ menu’, MarketWatch, March 2014.
29
30

In mature markets, the U.S. and the U.K. are expected
to have driven growth in 2013, by 5.0% and 6.2%
respectively. Drivers in the U.S. are the proliferation of
innovative payments solutions and the rise of mobile
payments. Also, improved acceptability of cards among
small and medium sized merchants is being driven by
increased adoption of m-payments acceptance
aggregators such as Square. In the U.K., non-cash
transactions are expected to have grown because of an
increase in online shopping and a stronger economy,
and an increase in alternative payments instruments.
We believe that the convergence as well as penetration
of online and mobile technologies coupled with the
rise of faster payments schemes based on debit and
real-time payments will primarily drive the global
non-cash payments industry in the short term.
While 2012 experienced slightly lower performance
than 2011, with economic recovery in select mature and
developing markets, the overall growth rate is expected
to have accelerated in 2013 compared to 2012, with the
non-cash transactions volume reaching 365.6 billion.
For 2013, the developing markets are expected to
grow by 20.2% whereas mature markets are expected
to grow by 5.6% (see Figure 1.6). The growth in
developing markets is driven by CEMEA (25.9%)
and Emerging Asia (23.9%) where improved
payments infrastructure in China and in India,
coupled with regulatory initiatives to increase
non-cash usage and roll-out of new solutions might
have helped the growth rates in these regions.
Estimates for 2013 Predict Continued Global Growth
Figure 1.6 Number of Worldwide Non-Cash Transactions (Billion), by Region, 2009–2013E
0
50
100
150
200
250
300
400
350
2013E2012201120102009
CAGR
Global
Emerging Asia
CEMEA
Latin America
Mature
Asia-Pacific
Europe
(including
Eurozone)
North America
(U.S. and
Canada)
Developing
Mature
7.5%
20.6%
23.5%
11.0%
8.3%
4.3%
4.2%
9.4%
23.9%
25.9%
12.5%
12.0%
4.3%
4.9%
’09–’12 ’12–’13E
Growth Growth
20.2%
5.6%
’12–’13E
269.4
113.1
77.2
26.3
23.8
15.3
13.6
286.0
310.4
116.6
80.8
27.2
25.6
19.4
16.4
124.0
84.2
30.1
29.3
23.3
19.5
334.3
127.9
87.6
33.5
32.5
28.8
23.9
365.6
134.2
91.4
37.5
36.6
36.3
29.6
Note: Europe now includes Slovakia in Eurozone and Switzerland in Non-Eurozone; CEMEA (Central Europe, Middle East, Africa) now includes Hungary, Romania and Czech
Republic; Mature APAC (Asia-Pacific) includes Japan, Australia, South Korea and Singapore; LA (Latin America) includes Brazil as well as Mexico and Other LA, Emerging Asia
includes India and China as well as Hong Kong and Other Asian countries, NA (North America) includes the US and Canada, Chart numbers and quoted percentages may not
add up due to rounding; Some numbers may differ form data published in WPR 2013 due to previous year data updated at the source
SECTION 1

16
Although non-cash transactions growth decelerated in the
U.S. from 6.5% in 2011 to 3.4% in 2012, reaching 118 billion
transactions (see Figure 1.7), the market represents about
35.3% of the global total. The slowdown can be attributed
primarily to lower debit card transaction growth (5.5%) as
well as the moves by large banks to focus on other
non-cash instruments as new debit card regulations
capping interchange fees came into effect, which lowered
their debit card revenues. The decline of check usage has
further accelerated from 9.0% in 2011 to 10.0% in 2012
despite a recent uptick in check digitization. In contrast to
this reduction, credit card volumes grew in the U.S. by an
impressive 8.0% during 2012, in part driven by the
economic recovery and slowdown in debit cards.
The U.S. market continues to harness payments innovation,
with many initiatives under way in different areas of the
payments value chain. This includes the large number of
start-ups that are entering the payments market, inspired by
success stories such as Square. While many of these
fledgling companies could fail, they nonetheless open the
way for others to play a bigger role in payments. This is
causing the overall payments industry to fragment.
Figure 1.7 Number of U.S. Non-Cash Transactions by Payment Instrument (Billion), by Region, 2008–2012
0
20
40
60
80
100
120
20122011201020092008
CAGR
Total
Credit Transfer
Direct Debit
Checks
Credit Card
Debit Card
3.6%
5.5%
3.9%
(8.4%)
2.3%
10.9%
6.5%
5.0%
4.7%
(9.0%)
13.2%
11.9%
’08–’12 ’10–’11
Growth
3.4%
6.6%
5.7%
(10.0%)
8.0%
5.5%
’11–’12
102.3
34.2
104.0
38.5
107.1
114.1
43.8
49.0
118.0
51.7
23.9
22.4
21.4
24.3
26.2
26.1
24.5
22.4
20.4
18.3
11.2
11.4
11.8
12.4
13.1
7.0
7.3
7.7
8.1
8.6
Note: Chart numbers and quoted percentages may not add up due to rounding; Some numbers may differ form data published in WPR 2013 due to previous year data
updated at the source
Source: Capgemini Financial Services Analysis, 2014; Bank for International Settlements Red Book, 2012 figures released December 2013
U.S. MARKET PRESENTS A MIXED PICTURE OF
INNOVATION AND ‘LEADING FROM BEHIND’

Many of the innovative products being developed leverage
smartphone technology. U.S. proximity mobile
transactions31
are expected to have reached $1 billion in
value in 2013, a growth of 93.4% on 2012.32
Among those
innovating are non-banks, which have invested significant
resources into the development of mobile payment systems
that operate as digital wallets. For example, a group of
retailers are planning to introduce the Merchant Customer
Exchange, a mobile payment option that includes more
than 70 brands.33
Despite these advances, the U.S. market generally lags the
rest of the world in certain other payments trends. Checks
are still in high use, there is no real-time retail payment
clearing and settlement system, and adoption of the EMV
technology has been slow. One of the reasons for this
scenario is the absence of a platform for banks to collaborate
effectively, which makes it difficult for the industry to adapt or
innovate quickly. Moreover banks in the U.S. often tend to be
very focused on the cards business because it delivers
relatively high net interest margins and fee income.
There is a paradoxical phenomenon at work when it comes
to check use: the innovation of check imaging and remote
deposit capture using mobile phone cameras is inhibiting
the removal of checks and is helping the U.S. to retain its
position as the country with the highest number of check
transactions. Although in 2012 check transactions fell by
10.0% to 18.3 billion, they still constituted 15.5% of total
U.S. non-cash transactions, the highest among the mature
markets and 65.1% of global check transactions.34
Check
imaging initiatives such as Mobile Remote Deposit Capture
(MRDC) which are low cost in nature, combined with
convenient and relatively fast existing processes give little
incentive to U.S. consumers to change their behaviors.35
There are signs, however, that the U.S. has started
‘leading from behind’ through initiatives involving EMV and
commercial cards. A number of pilot projects based on
EMV technology have been established and the U.S.
industry has also established an EMV Migration Forum
which represents all quarters of the industry.36
Until 2011
financial institutions (FIs) in the U.S. had been reluctant to
implement EMV because of its cost and impact on
interchange fees.37
However, the U.S. is the only country
with consistently rising counterfeit card fraud, the type of
fraud most easily addressed by EMV. This increase in
fraud, combined with implementation milestones
announced by major card brands and decreased
profitability on debit portfolios, prompted many U.S.
issuers to prioritize EMV planning in 2013. Additionally,
global interoperability and card acceptance were factors
that began to influence U.S. issuers.
A number of milestones were met in 2013, such as the
announcement of liability shift and acquirer processor
support for EMV transactions. These moves prompted
activity from other industry participants. While the EMV
liability shift target date of October 2015 looks ambitious, it
is unlikely to change.
On the corporate front, progress is also occurring in the
commercial cards sector, which is expected to grow at a
rapid pace, driven by the improving economy and the
promise of cost-savings and control. Many small U.S. banks
are looking to build their commercial cash management
business through the commercial cards business. They are
collaborating with their corporate clients to build up the
base of accepting suppliers. The small and medium sized
business sector in the U.S. represents a huge opportunity
for issuers in the commercial cards business as these
companies are now demanding the sophistication earlier
reserved for large corporates. Although it is more difficult to
set up a commercial cards business compared to a retail
cards business because of the more onerous data and
reporting requirements, we are seeing several interesting
innovations geared towards the corporate sector in
commercial cards in the U.S. such as automated receipt
matching, virtual accounts, and cloud invoice management.
Similarly, the U.S. has also initiated a move towards
immediate payments by releasing a consultation paper in
2013 on payment system improvement, which was
focused on real-time payments.38
Immediate payments,
which offer real-time payments across various channels,
are a source of competitive advantage for corporates.
Such advantages can be realized through offerings
including last minute payroll services, cash concentration,
tax payments, and many others.39
In addition, corporate treasurers increasingly require
consolidated information, improved automation, and
enhanced solution usability across multiple channels. This
means that banks need to consider providing more
innovative cash management offerings.40
31
U.S. proximity mobile transactions are defined as transactions for goods or services made by scanning, tapping, swiping or checking-in with a
smart phone at the point of sale.
32
‘U.S. Mobile Payments to Top $1 billion in 2013’, eMarketer, July 2013.
33
www.mcx.com.
34
Capgemini financial services analysis 2014.
35
‘Achieving the elusive “10x Factor” in Payments Innovation’, ngenuity journal, May 2014.
36
www.emv-connection.com/emv-migration-forum/faq/.
37
‘EMV compliance in the U.S.’, Capgemini, 2012.
38
‘Payment System Improvement–Public Consultation Paper’, Federal Reserve Financial Services, September 2013.
39
‘The Real-Time Payments Revolution’ Bank Systems and Technology, March 2014.
40
‘2014 Evaluation of Leading U.S. Cash Management Providers’, Aite Group, 2014.

9
Industry analysts have amended their forecasts for e-payments noticeably, and for m-payments significantly in the last year, so estimates vary
tangibly from those reported in WPR 2011.
10
Gartner Says Worldwide Mobile Payment Users to Reach 141 Million in 2011, Gartner, published, July 21, 2011,
http://www.gartner.com/it/page.jsp?id=1749114
Cross-border payments41
represent a significant market and
one in which banks and non-banks are increasingly
competing. Such payments occur in the corporate sector,
where payments are made for the global trade of goods and
services and in capital markets transactions, and the retail
sector, which encompasses remittances (made by
expatriates) and business-to-consumer (B2C) transactions.
Banks are competing with a large number of non-banks
that are using their proprietary networks and have been
able to capture a material share of the market, mainly in the
consumer retail space.
There are four distinct cross-border markets: global trade,
financial markets, B2C, and remittances.
ƒƒ Global trade: Banks are dominant in global trade
payments: in 2012, global trade accounted for $22.6
trillion, of which $18.3 trillion were merchandise exports
and $4.3 trillion commercial services exports.42
In a
dynamic economy and open trade environment,
developing countries are likely to outpace developed
countries in terms of both export and GDP growth by a
factor of two to three in future decades. In 2011,
developed countries contributed 53% of world
merchandise exports compared to 66% in 1980.43
ƒƒ Financial markets: Banks meet almost the entire
cross-border transactions needs in the financial markets,
which include cross-border transactions such as foreign
exchange transactions and cross-border financing.
SWIFT FIN44
securities-related messages reached nearly
2 billion in total in 2012, growth of just 1.6% on the back
of low stock exchange trading volumes.45
We expect to
see a rising proportion of trading taking place between
counterparties in the same financial center, although
they could be headquartered elsewhere thus providing
banks a cross-border market which is poised to expand.
ƒƒ B2C: Certain segments in the cross-border space, such
as B2C cards transactions and remittances, are growing
much more rapidly than domestic non-cash payments.
Cross-border volume for Visa and MasterCard payments
has been consistently growing during the past six
quarters by 11.0% and 17.4% growth in Q2 2013
respectively.46
Credit card payments remain the
preferred payment method to purchase goods and
services abroad due to factors such as convenience,
security post-EMV migration, and costs, accounting for
74% of all non-cash payments transactions worldwide.47
ƒƒ Remittances: Global remittances volumes are
estimated to have reached $529 billion in 2012 and are
expected to increase by 5.6% to $559 billion in 2013.48
Despite the growth in remittance flows to developing
countries, the continuing global economic downturn is
dampening remittance flows to the European Union,
Central Asia, and Africa. Also, mobile remittances are yet
to pick up despite the skyrocketing use of mobile
phones in the developing world. This is due primarily to
central bank regulations, which in some cases deliver an
advantage to less regulated (compared to banks)
payment institutions such as Western Union or
Moneygram. However, the remittance market represents
a significant opportunity for banks and should not be left
unaddressed by them.
As commoditization of the domestic payments business,
driven by price competition and standardization continues,
the same does not hold true of cross-border payments.
In addition to tailoring their offerings for clients, banks
should revisit the balance of risk and convenience within
their product mix to further increase their overall share in the
cross-border payments space.
Finally, banks are offering a common, single process to
execute a cross-border transaction, irrespective of its
value. This process was designed to optimize risk
management. In order to boost market share in the
cross-border payments space, banks should take
advantage of the opportunities offered by new
technologies and real-time market infrastructures, to
redesign and customize their offerings and processes for
users of low-value, cross-border payments.
41
We define cross-border payments as non-cash transactions that involve individuals, corporations, settlement institutions or central banks and
that touch the payment systems of at least two countries but do not include SEPA transactions.
42
‘World Trade Report’, WTO 2013.
43
‘World Trade Report’, WTO 2013.
44
FIN is the Society for Worldwide Interbank Financial Telecommunication’s (SWIFT’s) core store-and-forward messaging service, which enables
over 8,300 financial institutions in more than 200 countries to exchange financial data securely, cost effectively and reliably.
45
‘SWIFT Annual Report’, SWIFT 2012.
46
‘Visa and MasterCard Quarterly Cross-Border Volume Growth’, PaymentsSource.com.
47
‘Key Business Drivers & Opportunities in Cross-Border eCommerce’, PayVision, 2013.
48
‘Migration and Development Brief’, World Bank, April 2013.
18
BANKS AND NON-BANKS INTENSIFY COMPETITION
IN THE CROSS-BORDER MARKET

A mixed picture of non-cash transaction growth
emerged during 2012, with overall volumes
decelerating in growth from 8.6% in 2011 to 7.7% in
2012. The total of 334 billion transactions reflected
slower growth in North America and Europe, but
faster growth in developing markets such as
CEMEA and Emerging Asia. This deceleration is
likely to be temporary, however, as we predict that
non-cash rates will accelerate in 2013 to reach a
global total of 366 billion transactions. The
developing markets are expected to grow by 20.2%
and mature markets by 5.6%.
The growth in developing markets is one of three
distinct market disruptors we have identified in this
year’s report. This, along with the other two–m- and
e-payments, and hidden payments–could have a
significant impact on the non-cash payments market.
Emerging markets are setting up their own initiatives
and upgrading infrastructures to boost non-cash
volumes. China, for example, is on a trajectory to
surpass the present leading non-cash markets of
North America and the Eurozone. M-payments
continue to grow at a rapid pace–60%–and are
grabbing market share from e-payments. Finally, the
hidden or unreported payments transactions we first
identified in WPR 2013 continue to grow as new
payments instruments and solutions proliferate.
There are two significant areas of opportunity for
banks in the non-cash market: the U.S. and cross-
border transactions, where they can leverage the
benefits of new technologies and real-time payments
infrastructures. The belated move to EMV
technology in the U.S. and the commercial cards
sector will both help to stimulate non-cash growth in
that country. Finally, while the domestic payments
business continues to become commoditized due to
competition and improved standardization, the
cross-border payments world gives many
opportunities for banks to tailor offerings and
balance risk and convenience in their product mix.
In Section 2, we will examine how banks can
leverage data management to better manage the
increasing number of KRIIs they face in the
payments world. We also consider the prospects for
future pan-European initiatives following the
migration to SEPA. In Section 3, the need for
payments processors to transform their processing
infrastructures in order to support customer-facing
innovations is examined. And in this, our 10th
anniversary issue, we reflect in Section 4 on the
changes that have taken place in the payments
industry over that time and what may happen next.
CONCLUSION
SECTION 1

SECTION TITLE L1
SECTION TITLE L2
ƒƒ Since the launch of WPR 2013, there has been a steady increase in new KRIIs, primarily
focused on reducing risk, driving innovation, and facilitating standardization. In Europe,
most KRIIs are focused on reducing risk, encouraging competition, and standardizing regulations
across the region. In emerging markets,49
regulators are focused on enabling digital payments
and financial inclusion through mobile payments. In North America, new KRIIs aim to improve
market stability.
ƒƒ With the increase in the number, complexity, and interplay between KRIIs, the
understanding of the 3C model introduced in WPR 2013 is becoming critical for effective
implementation of initiatives.50
The cascading and complementary effects of KRIIs would
benefit from increased levels of co-ordination among regulators to mitigate conflicts. Also,
support must be provided to banks and their clients to enable them to more easily cope with the
impact of the regulatory landscape.
ƒƒ As regulatory activity increases and becomes more complex, a focus on data management
can help banks to achieve some return on investment in compliance through increased
efficiency and new services. Banks need to shift from ‘silo-based’ approaches to single data
models to improve their effectiveness and efficiency. In order to shift to a single data model
approach, stakeholders need to develop roadmaps and a data management strategy for a
streamlined transition process.
ƒƒ Due to a lack of full harmonization, the majority of players—with some exceptions—are yet
to reap the intended benefits of SEPA. Only large corporates with multi-country operations
have been able to streamline their processes, with SEPA acting as the catalyst for this change.
ƒƒ In order to reap the full benefits of SEPA as a harmonization platform, the industry should
work towards participation on a pan-European scale. Four initiatives have the potential to help
foster the development of an integrated, innovative, and competitive market for retail payments in
Europe: the Euro Retail Payments Board (ERPB), the extension of SEPA into e- and m-payments,
SEPA for Cards, and the provisions within PSD II. In addition to pursuing a pure payments agenda,
European regulators could initiate parallel programs that will reinforce an innovation agenda.
ƒƒ Further progress towards fostering innovation can be made through a number of
measures, including stabilization of the regulatory and legal expectations around
competition, creating the conditions for cooperation across the payment industry, and
expediting a move to digital technologies.
KEYFINDINGS Leveraging Data to More
Effectively Manage Increasing
Numbers of KRIIs
2
49
Emerging Markets refers to Asia-Pacific, Middle East, and Latin America.
50
The 3C model, introduced in WPR 2013, takes into account cascading effects across geographies, complementary reinforcement, and
competing effects. Considering KRIIs in clusters–based on our 3C model–can help forms to understand the impact KRIIs have on each other.

22
A STEADY INCREASE IN KRIIs IS BEING
EXPERIENCED ACROSS THE GLOBE
In the year since publication of WPR 2013 there has
been a steady increase in the number of new KRIIs
across the globe, most of which have been focused on
risk reduction, driving innovation, and facilitating
standardization (see Figure 2.1). At the global level,
there has been a significant push towards making
cross-border, low-value payments more efficient and
transparent, and enabling secure mobile payments
through cards. In addition, regulators are increasing
their focus on managing risks arising from new
initiatives such as virtual currencies (#26)51
and the
digital financial supply chain in global trade, such as
the Bank Payment Obligation (BPO, #29).
Europe’s harmonization efforts of the past few years
have continued, with the focus on risk reduction,
increased competition, and standardization.
Initiatives such as third-party access to accounts
within PSD II, and mobile payments security will be
key to the payments industry transformation during
2015. In North America, fewer new KRIIs are
coming on stream compared to Europe, but there is a
continued focus on risk reduction through measures
such as the capital rules for foreign banks in the U.S.
(#27). The thrust in emerging markets has been
towards driving financial inclusion through
innovation and mobile payments initiatives, as
evidenced by the United Arab Emirates (UAE)
Wallet initiative (#33), for example.
51
Please refer to the KRII table beginning on page 25 for the serial numbers for each KRII.
KRIIs are Increasing in Number and in Global Reach
While Targeting Innovation and Standardization
Figure 2.1 Key Regulatory and Industry Initiatives (KRIIs) Drive Four Key Industry Transformation Trends (ITTs), 2014
FIGURE 2.1. Key Regulatory and Industry Initiatives (KRIIs) Drive Five Key Industry Transformation Trends (ITTs), 2014
Basel III Capital Norms
U.S. Foreign Account Tax Compliance Act (FATCA)
Basel and Intraday Liquidity Norms
Capital Rules for Foreign Banks in U.S.
AML/ATF
CPSS-IOSCO
Mobile Payments Security in Europe
EMV Adoption in U.S.
Internet Payments Security in Europe
Financial Transaction Tax
Bank Payment Obligation
Virtual Currency Regulations
SEPA for Cards
SEPA / eSEPA
ISO
20022 Standards in Payments
Electronic Identification and Trusted Services
Cybersecurity Directive
National Paym
ents Corporation
of India
Data
Privacy and
Paym
ents
Access
to
Clearing
Large
Value
Paym
entSystem
s
Upgrades
RealTim
e
RetailPaym
ents
TokenizationforCards
PrepaidPaymentProductsRegulationsinNorthAmerica
PaymentsGovernance
PressureonCardInterchangeFees
UAEWallet
FinancialInclusionAccesstoAccounts(PSDII)
Cross-BorderLowValuePaymentsProcessing
ContactlessCards/NFCMobilePayments
e-Invoicing
e-Government
EuropeanCurrentAccountSwitching
2014 >2020
From
2018 to 2019
From
2015 to 20172013
Risk Reduction
Standardization
Competition and
Transparency
Intermediate point / milestone
End of the initiative / regulation
Elapsed time
Innovation
KRIIs cited in previous WPRs
KRIIs introduced in WPR 2014
Note: Timelines have been provided for regulations where they are specified, no timelines are specified for industry-trend KRIIs. Please refer to glossary on Page 54 for full
name of initiatives. While some of the KRIIs may not be entirely new to the industry, they have been included this year as they become more evident
Source: Capgemini Financial Services Analysis, 2014; World Payments Report, 2011, 2012, and 2013

SECTION 2
LEVERAGING DATA TO MORE EFFECTIVELY MANAGE INCREASING NUMBERS OF KRIIs
countries has attracted attention globally. Downward
pressure on card interchange fees (#7) has similarly
become a global issue.
The KRII ‘heat map’ (see Figure 2.2) provides a
pictorial representation of KRIIs across different
regions and their impact on payments. The heat map
indicates the emergence of new KRIIs and that the
majority of KRIIs now exist at the global level.
FOCUS OF MANY KRIIs SHIFTS FROM A
REGIONAL TO A GLOBAL LEVEL
In comparison with last year, there has been
acceleration in the shift of focus of many KRIIs from
a regional level to a more global one. This shift
indicates the predominance of the cascading effect–
identified in WPR 2013–whereby KRIIs initiated in
a particular country are replicated in other countries
to address similar concerns. This can be
demonstrated in the case of real-time retail payments
initiatives (#10), the success of which in individual
Figure 2.2 Heat Map of Key Regulatory and Industry Initiatives (KRIIs), Global and Regional, 2014
Note: Emerging Markets refers to Asia-Pacific, Middle East, and Latin America
* Asian Payments Network has already been covered under Cross-Border Low Value Payments Processing and hence will not be specifically mentioned in other figures
Europe
■ Access to Accounts (PSD II)
■ European Current Account Switching
■ Large Value Payment Systems Upgrades
■ SEPA/e-SEPA
■ SEPA for Cards
■ Mobile Payments Security in Europe
■ Cybersecurity Directive
■ Electronic Identification and Trusted Services
■ Internet Payments Security in Europe
■ Financial Transaction Tax
HIGH HIGH
LOW
North America
■ EMV Adoption in the U.S.
■ Prepaid Payment Products Regulations
in North America
■ Capital Rules for Foreign Banks in U.S.
Emerging Markets*
■ Asian Payments Network*
■ Financial Inclusion
■ UAE Wallet
■ National Payments
Corporation of India
HIGH
LOW
HIGH
IMPACT
IMPACT ON
PAYMENTS
LOW
IMPACT
Global
■ Basel III Capital Norms
■ Basel and Intraday Liquidity Norms
■ Real Time Retail Payments
■ Pressure on Card Interchange Fee
■ Contactless Cards/NFC
■ Cross-Border Low Value Payments Processing
■ Payments Governance
■ Mobile Payments
■ Tokenization for Cards
■ e-Invoicing
■ ISO 20022 Standards in Payments
■ AML/ATF
■ Data Privacy and Payments
■ e-Government
■ Access to Clearing
■ Virtual Currency Regulations
■ U.S. Foreign Account Tax Compliance Act (FATCA)
■ Bank Payment Obligation
■ CPSS-IOSCO
■ KRIIs cited in previous WPRs ■ KRIIs introduced in WPR 2014
LOW
HIGH
LOW

24
As can be seen in Figure 2.3, the purpose and end
objectives of KRIIs such as the access to the
payment account provisions of the PSD II (#3)
overlap with both the innovation and competition
and transparency categories in the ITT definitions.
Other new KRIIs introduced since WPR 2013
include the tokenization of cards,53
which falls into
risk reduction, innovation, and standardization.
There is a considerable degree of overlap between
KRIIs when they are analyzed and mapped based
on the industry transformation trends (ITTs) of risk
reduction, innovation, standardization, and
competition and transparency.52
More than 50% of
the KRIIs fall into the innovation box, this is true
of the new KRIIs noted for the first time in this
year’s report.
52
A change of nomenclature has been applied to the ITTs in WPR 2014. Risk reduction: with the proliferation of new KRIIs, the industry is moving
beyond systematic risk reduction and control, hence the need to make a change in nomenclature to risk reduction–as with the proliferation
of new KRIIs, the industry is moving beyond systematic risk reduction and control, hence the need to make a change in nomenclature to risk
reduction. Competition and transparency: while last year there had not been an overt push to increase competition in the payments market,
this year with the introduction of KRIIs such as access to accounts, regulators are becoming vocal about increasing competition. This has
necessitated the change from transparency of services to competition and transparency.
53
Tokenization protects card data by substituting a card’s primary account number with a unique, randomly generated sequence of numbers,
alphanumeric characters, or a combination of a truncated PAN and a random alphanumeric sequence. ‘Banks push for tokenization standard
to secure credit card payments’, ComputerWorld, 12 February 2014.
Figure 2.3 Overlapping Impact of Key Regulatory and Industry Initiatives (KRIIs) on Industry Transformation
Trends (ITTs)
KRII
1a. Basel III Capital Norms
1b. Basel and Intraday Liquidity Norms
2. Cross-Border Low Value Payments
Processing
3. Access to Accounts (PSD II)
4. FATCA
5. AML/AFT
6. SEPA/e-SEPA
7. Pressure on Card Interchange Fees
8. Prepaid Payment Products
Regulations in North America
9. Large Value Payment Systems
Upgrades
10. Real Time Retail Payments
11. European Current Account Switching
12. EMV Adoption in the U.S.
13. Internet Payment Security in Europe
14. Data Privacy and Payments
15. Payments Governance
16. ISO 20022 Standards in Payments
17. Mobile Payments
18. Contactless Cards / NFC
19. SEPA for Cards
20. e-Invoicing
21. e-Government
22. National Payments Corporation of India
23. CPSS-IOSCO
24. Access to Clearing
25. Mobile Payments Security in Europe
26. Virtual Currency Regulations
27. Capital Rules for Foreign Banks in U.S.
28. Financial Transaction Tax
29. Bank Payment Obligation
30. Cybersecurity Directive
31. Electronic Identification and Trusted
Services
32. Tokenization for Cards
33. UAE Wallet
34. Financial Inclusion
Risk Reduction
1a 1b 5
13
29
Competition and
Transparency
7
Innovation
26
25
12
8
33
28
23
34
3132
27
Standardization
3 19
2
15
20 16
30
6
10
21
14
4
11
9
HIGH
LOW
IMPACT ON PAYMENTS
■ KRIIs cited in previous WPRs ■ KRIIs introduced in WPR 2014
22
24
17 18

Key Regulatory and Industry Initiatives (KRIIs)
in Payments, 2014
Key # KRII Brief Description/ Update
KRIIs added to WPR 2014 have been presented in brown text in the table below.
1a Basel III Capital Norms
Australia, Brazil, Canada, China, Hong Kong, India, Japan, Mexico, Saudi Arabia,
Singapore, South Africa, and Switzerland have adopted Basel III capital norms. The
European Union’s Capital Requirements Regulation (CRR), which is part of the Capital
Requirements Directive (CRD IV), has been in force since 27 June 2013. In the U.S., the
phase-in period began in January 2014 for large institutions, with smaller institutions
being phased in from January 2015. Recently, the Reserve Bank of India extended the
transitional period to 31 March 2019 as banks need to raise additional capital.
1b
Basel and Intraday
Liquidity Norms
The Basel III deadline for the Liquidity Coverage Ratio (LCR) has been extended from 1
January 2015 to 1 January 2019. Banks need to meet only 60% of the LCR obligation by 2015,
which will be gradually increased by 10% every year until full compliance is required in 2019.
In the U.S., the transition period for LCR will begin on 1 January 2015 full compliance will
be required by 1 January 2017.
The Australian Prudential Authority’s rules on Basel III liquidity reforms came into effect from
1 January 2014. On 30 May 2014, the Office of the Superintendent of Financial Institutions in
Canada issued its final guidelines setting the framework for the Basel III norms.
Following a consultation in 2012 the Basel Committee on Banking Supervision (BCBS)
issued its final paper on monitoring tools for intraday liquidity management in April 2013. The
paper defines a set of seven measures of banks’ intraday liquidity usage which banks will be
expected to report on a monthly basis from January 2015. Intraday compliance will be
implemented via national supervisors who will determine the detailed reporting requirements.
2
Cross-Border, Low-Value
Payments Processing
Efficiency and transparency of cross-border, low-value payments is addressed by KRIIs
across all regions. The Asian Payment Network (APN), formed in 2006, has been steadily
gaining traction in Asia-Pacific. Its overall mandate is to create a cross-border, retail
settlement mechanism in the region. By the end of 2013 standards for cross-border
balance enquiry, fund transfers, and ATM withdrawals had been established.
In the U.S. Dodd Frank Section 1073 came into effect on 28 October 2013. This is likely to
push up the cost of compliance for low-value payments as banks need to disclose the
amount and time final funds will be received. In Europe, similar requirements to Section
1073 are being considered in PSD II.
3
Access to the Payment
Account (PSD II)
The draft PSD II proposes opening payments account information to third parties for
initiation of payments. The objective is to increase competition and drive innovation.
However, given the sensitive nature of the information which will be accessed by third
parties, security, technical, and legal issues may arise.
4
U.S. Foreign Account Tax
Compliance Act (FATCA)
On 14 February 2014, amendments to U.S. rules covering information reporting by
foreign financial institutions and withholding on certain payments to foreign financial
institutions and other foreign entities were proposed. While FATCA implementation is
effective from 1 July 2014, the U.S. Internal Revenue Service (IRS) announced that
calendar years 2014 and 2015 will be regarded as a transition period for purposes of
enforcement and administration with respect to the implementation of FATCA by
withholding agents, foreign financial institutions, and other entities.54
5
Anti-money laundering
(AML)/Anti-terrorism
financing
In March 2014, the European Parliament made amendments to the new regulation
‘Information accompanying transfers of funds’. The regulation is in line with the
recommendation of the Financial Action Task Force (FATF) and among other provisions
requires verification of the beneficiary of payments originating outside of the EU for
transactions of more than €1000. At its June 2014 Plenary, FATF adopted a report defining
the potential risks of virtual currencies, which will form the foundation of future policy
developments. The Basel Committee on Banking Supervision has issued a set of
guidelines, ‘Sound management of risks related to money laundering and financing of
terrorism’, which outlines how banks should manage risks related to money laundering and
terrorism financing.
54
‘“Further Guidance on the Implementation of FATCA and Related Withholding Provisions”, Notice 2014-33, IRS, 2014.

26
Key #
Key Regulatory and
Industry Initiatives (KRIIs)
Brief Description/Update
6 SEPA/e-SEPA
As of June 2014, SEPA credit transfers (SCTs) represented 97.6% of all credit transfers
in the Eurozone, with total volumes of 753.5 million transactions. At the same time,
SEPA direct debits (SDDs) represented 95.1% of all direct debits, with volumes of 768.9
million transactions. In February 2014, the EC allowed non-SEPA compliant
participants in the Eurozone an additional transition window of six months to be fully
compliant.
7
Pressure on Card
Interchange Fees
In a draft regulation under review by the European Parliament and Council, the EC has
proposed capping MIF fees to 0.3% for credit card transactions and 0.2% for debit cards.
The proposal is applicable for both cross-border and domestic payments. Recently, Visa
agreed to reduce its MIF by 40-60% to 0.3%. In Canada, after a competition tribunal found
credit card network practices had an adverse impact on competition, work is under way to
reduce acceptance fees.
8
Prepaid Payment
Products Regulations in
North America
Canada’s Prepaid Payment Product Regulation came into effect on 1 May 2014. It covers
all prepaid payment products issued by federally regulated financial institutions. Provisions
include a requirement to prominently display fees on the external packaging of a product,
and providing information about where to access the terms and conditions of the product.
In the U.S., the Consumer Financial Protection Bureau has issued a notice for proposed
rulemaking around Regulation E. However, at the same time, Senator Mark Warner
introduced the Prepaid Cards Disclosure Act of 2014. If passed it will amend the Electronic
Fund Transfer Act.
9
Large Value Payment
Systems Upgrades
Target2 is the largest high-value payments system in Euros with a market share of 59% by
volume and 91% by value. On an average, 367,375 transactions worth Euro 1,986 billion were
settled by Target2 on a daily basis during H1 2013. In November 2013, system release 7.0
was implemented, with changes related to Target2 Securities (T2S). However, the T2S
changes will not be made live until the scheduled launch of the system in June 2015.
10
Real-Time Retail
Payments
Mexico, the U.K., Sweden, Poland, and Singapore are at the forefront of real-time
payments initiatives. In September 2013, the U.S. Federal Reserve banks released a
consultation paper on improving payment system clearing, with a preference for real-
time payments.
The Reserve Bank of Australia (RBA) has set timelines for implementation and hopes
real-time payments will be introduced by 2016. Singapore’s Fast and Secure Transfers
(FAST) electronic transfer scheme was launched on 17 March 2014. In the first two days
of operation it processed over 33,000 transactions worth more than $64 million.
11
European Current
Account Switching
The U.K. launched a domestic current account switching program in September 2013;
more than 600,000 switches occurred in the first six months of the program. This was a
14% increase in the number of switches compared to the previous year.
Banks have raised issues with the proposed EU Bank Account Directive as there are
significant costs in providing cross-border account switching. The proposed law
mandates PSPs to complete the switching process within 15 days (or 30 days if the
service providers are located in a different EU country from the account holder) without
any extra charge to customers. PSPs also will be obliged to provide the charges in a
standardized format along with supporting information.
12 EMV Adoption in the U.S.
Migration to EMV in the U.S. has gathered momentum following the April 2013 deadline for
acquirer processors to be compliant. Following a recent data breach at a prominent retailer,
Visa and MasterCard have created a cross-industry group focused on promoting EMV
adoption. The group comprises POS manufacturers, acquirers, banks, retailers, credit
unions and industry trade groups.55
In March 2014, EMVCo released technical specifications
for payment tokenization solutions which are interoperable and industry aligned.
13
Internet Payment Security
in Europe
The Governing Council of the European Central Bank (ECB) has endorsed the ‘Assessment
Guide for the Security of Internet Payments’ developed by SecuRe Pay. The objective is to
facilitate efficient, harmonized, and comparable assessments conducted by oversight or
supervisory authorities with the EU and European Economic Area (EEA). The guide will
also assist payment scheme governance authorities and internet payment service
providers to implement the recommendations with the deadline of 1 February 2015.
55
‘Visa and MasterCard launch cross-industry effort to push US adoption of EMV’, Finextra, March 2014 http://www.finextra.com/news/fullstory.
aspx?newsitemid=25819.

Key #
Key Regulatory and
14
Data Privacy and
Payments
On 12 March 2014, the European Parliament voted in favor of the data protection regulations
prepared by the Civil Liberties, Justice, and Home Affairs Committee. The report is in
negotiations with the EU Council. Recommendations include a uniform law across the
continent, single supervisory authority, and uniform rules for all companies. On the consumer
side, provisions include the right to be forgotten, which enables the consumer to decide when
data is deleted in order to prevent others from tracing them.
15 Payments Governance
The ERPB was launched on 19 December 2013 and replaces the SEPA Council. Its intention
is to help to develop a competitive, innovative, and integrated market for Euro denominated
retail payments in the EU. In the U.K., HM Treasury tabled amendments to the Banking
Reform Bill in February 2014 to create the Payment Systems Regulator. It is expected to be
fully functional by the end of April 2015 and is charged with increasing payments market
competition and innovation. The RBA and Australian Payments Clearing Association (APCA)
have proposed an Australian Payments Council to better coordinate the country’s payment
system and foster innovation.
16
ISO 20022 Standards in
Payments
A number of high-value payment clearing and settlement systems around the world are
discussing ISO 20022 message standards; timelines for adoption range from 2015 to 2017. In
Australia, APCA has developed a voluntary ISO 20022 schema for payments. A concept paper for
full implementation of a New Payments Platform (NPP) through to 2016 has been developed. The
Eurosystem is contemplating migration from Target2 to ISO 20022 compliant messages by 2017.
17 Mobile Payments
The mobile payments industry is heading towards major consolidation. Payments app
developers, niche technology providers, and small payments start-ups are witnessing significant
growth and helping to push forward innovation. Forrester predicts spending in the U.S. mobile
payment market will reach $90 billion in 2017, up from $12.8 billion in 2012. In the U.K., the Centre
for Economic and Business Research predicts that mobile payments will represent 1.4% of total
consumer spending by 2020.
18
Contactless Cards/Near
Field Communication
(NFC)
Contactless cards are being rolled out across multiple regions, particularly in developed
markets. Research has found that nearly 250 million cards will be used for contactless
payments by the end of 2014, with Australia, Canada, Poland, and the U.K. leading the way.56
NFC technology received a boost from MasterCard and Visa support for Host Card Emulation
(HCE).57
MasterCard worked with Capital One on its initial HCE pilot and with Spain’s Banco
Sabadell on a European pilot.58
HCE will remove the reliance of banks on mobile network
operators for rolling out NFC payments. Along with NFC, Bluetooth Low Energy technology is
gaining ground with Apple and PayPal adopting it.
19 SEPA for Cards
On 7 January 2014, the European Payments Council (EPC) and Cards Stakeholders Group
published version 7.0 of the SEPA cards standardization volume. It defines a standard set of
requirements for scalable and interoperable terminal and card infrastructure across SEPA. All
the parties participating in the SEPA cards domain will be encouraged (but not forced) to roll
out products and services based on this version and from 2017, card present transactions are
expected to meet the requirements for new terminals and cards.
20 e-Invoicing
In the U.S., all official Treasury bureaus were mandated to implement the Internet Payment
Platform (IPP) by end 2012. From 2013 all commercial vendors must submit their invoices
using the platform. The U.S. e-invoicing market is worth $280 million and is set to grow at
CAGR of 13%. In Latin America Brazil, Chile, and Mexico are market leaders followed by
Uruguay, where the market penetration is expected to jump to 70% by the end of 2015. The
European Parliament, in March 2014, backed an EC proposal to modernize EU rules related to
e-invoicing in public procurement. This will help to ensure interoperability between e-invoicing
systems in different countries, and will reduce the complexity and cost associated with public
procurement in Europe.59
21 e-Government
Countries throughout the world have been pushing e-government initiatives. Singapore, for
example, will be one of the first countries to ensure that every citizen has an electronic health
record. The UAE My Gov portal provides single window access for citizens to communicate
with all government entities. Also, the EU and U.S. are working on the automation of public
service initiatives.
56
http://www.globaltelecomsbusiness.com/article/3297474/Mobile-phone-companies-challenge-card-firms-in-battle-to-win-contactless-payment-
business.html#.U7UZavmSz5M.
57
http://contactlessintelligence.com/2014/02/20/mastercard-visa-adopt-host-card-emulation-hce-for-nfc-based-mobile-payments/.
58
http://newsroom.mastercard.com/press-releases/mastercard-to-use-host-card-emulation-hce-for-nfc-based-mobile-payments/.
59
http://europa.eu/rapid/press-release_STATEMENT-14-62en.htm.

28
Key #
Key Regulatory and
22
National Payments
Corporation of India
(NPCI)
The NPCI has taken a series of measures to improve the payment infrastructure in
India. These include a target to almost double the number of domestic RuPay cards in
circulation (from 14 million to 25 million), a partnership with Prizm Payments to launch
Money Spot, a white label ATM service, and collaboration with Axis Bank on a know
your customer program for account opening in rural and semi-urban areas
23 CPSS-IOSCO
In August 2013, Committee on Payment and Settlement Systems and International
Organization of Securities Commissions (CPSS-IOSCO) published an assessment report
of 28 jurisdictions and their legal capacity to implement the Principles for Financial
Market Infrastructures laid out in April 2012. In December 2013, it published a
consultative report of assessment methodology for the oversight expectations applicable
to critical service providers.
24 Access to Clearing
As highlighted in WPR 2013, there is a growing trend of encouraging direct participation in
payment systems from all payment suppliers. In Europe, Article 29 of PSD II places a
strong focus on standardization with the need for developing appropriate rules for
providing access to payment systems to new payment institutions and to foster
competition. Recommendations of the Canadian task force for payment systems and a
recent report from Reserve Bank of Australia indicate a similar trend. In the U.K., five
international banks which had been indirect participants in the clearing system are
preparing to become direct participants in the CHAPS high-value payment system. The
number of direct participants in CHAPS is expected to increase to 25 by the end of 2015.
The objective of the regulators is to better control liquidity and systemic risk. At the time of
publication, similar initiatives are yet to take shape in any other geography.60
25
Mobile Payments Security
in Europe
The ECB has drafted new recommendations for security standards covering internet and
mobile payments aimed at mitigating mobile payments fraud and increasing consumer trust
in mobile payments. The recommendations will be applicable to payment service providers
(when offering mobile payment services) and governing authorities of payment instrument
schemes (such as card, direct debit, credit transfer schemes, and e-money schemes). The
implementation of the recommendations should be undertaken by the PSPs and governing
authorities within two years from the date of publication of the final report.
26
Virtual Currency
Regulations
A group of companies pushing virtual currencies such as bitcoin and XRP (pronounced as
ripples) are setting up a self-regulatory body, the Committee for the Establishment of
Digital Asset Transfer Authority. It will set technical standards aimed at preventing money
laundering and ensuring compliance with laws. In July 2014, the European Banking
Authority (EBA) set out the requirements for regulating virtual currencies. In the current
absence of a regulatory regime, it advised the national supervisory authorities to
discourage FIs from buying, holding, or selling virtual currencies. The EBA said while
virtual currencies offered some potential benefits, the 70 risks it identified across different
categories outweighed the benefits. The U.S. IRS has stated that virtual currency will be
treated as property for U.S. federal tax purposes. Canada has become one of the first
countries to pass a national law to regulate virtual currencies, subjecting them to the same
record keeping and verification laws etc. as other money services businesses.
27
Capital Rules for Foreign
Banks in the U.S.
The Federal Reserve proposed new capital rules on 18 February 2014 for foreign banks
operating in the U.S. to address concerns about U.S. tax payers carrying the burden of
bailing out foreign banks. Under this regulation, foreign banks will have to comply with
Basel III on their activities in the U.S. for both capital adequacy and liquidity.
60
http://www.bankingtech.com/191891/five-international-banks-to-join-uks-chaps-system/.

Key #
Key Regulatory and
28 Financial Transaction Tax
The tax aims to discourage speculative trading and ensure that the financial sector pays back
part of what it received from taxpayers during the financial crisis. Under the EC’s proposal, a
0.1% levy would be applied to share and bond trades and 0.01% to derivative transactions
between financial institutions, if at least one party is located in the EU. The EC’s proposed
Directive is likely to have an impact on the availability of liquidity. The tax is expected to be
implemented by 2016. France has already implemented a tax, which covers three types of
transactions: purchases in French equities or comparable securities; high frequency trading in
equities, and purchases in uncovered credit default swaps in European Union sovereign debts.
29 Bank Payment Obligation
A BPO is an irrevocable undertaking given by one bank to another bank that payment will be
made on a specified date after a specified event has taken place. This specified event is
evidenced by a match report that has been generated by SWIFT’s Trade Services Utility (TSU)
or any equivalent transaction matching application.
30 Cyber Security Directive
A comprehensive Directive on cyber security in the EU was approved by the European
Parliament on 13 March 2014. The Directive aims to facilitate information sharing between
member states and private and public sector organizations on cyber security threats.
Organizations across the EU will need to address complex technical, governance, and
process challenges.
31
Electronic Identification
and Trusted Services
In February 2014 EU member states reached political agreement that paves the way forward for
this regulation, which covers electronic identity and trust services for electronic transactions in
the internal market. It aims to provide a legal framework for Electronic Identification (eID) and
notification, electronic signatures, electronic seals, time stamping, electronic documents
admissibility, electronic delivery and website authentication.
32 Tokenization for Cards
As EMV standards in their current form do not address mobile and internet payments, there is a
push for tokenization, particularly in the U.S. As a result, EMVCo has proposed standards for
tokenization that it says will provide a consistent, secure, and interoperable environment to make
digital payments when using a mobile handset, tablet, personal computer, or other smart
device.61
The EMV Payment Tokenization Specification—Technical Framework v1.0, will help
industry members to design and develop interoperable solutions.
33 UAE Wallet
As part of the Smart Government Initiative in the UAE, the UAE Banks Federation launched a
mobile wallet project in June 2014. The first phase of the project is focused on developing
infrastructure to support payments and money transfer from smart phones and other digital
devices. In addition to providing digital payments for Government services, other objectives
include enabling cashless purchases at retailers and other outlets in the UAE.62
34 Financial Inclusion
The Central Bank of Kenya’s National Payment System Draft Regulation proposes opening up
Safaricom’s M-Pesa platform to other PSPs. The objective is to increase interoperability of
the systems in line with a World Bank report encouraging the integration of mobile operators’
systems. The Indian Government is revamping its financial inclusion campaign to focus more
sharply on empowering businesses to push financial products to the rural market. The
scheme aims to transfer subsidies directly to people living below the poverty line.
61
‘EMVCo Expands Scope To Develop Tokenization Specifications’, EMVCo Press Release, 16 January 2014.
62
http://gulfnews.com/business/banking/mobile-wallet-is-launched-in-uae-1.1343077.

30
Complementary reinforcement: There has been
considerable focus on new KRIIs that augment the
scope of existing initiatives, leading to a
complementary reinforcement effect. This is well
demonstrated in the complementary effect of EMV
adoption and initiatives related to mobile payments
security. Both are addressing the need to increase
security and mitigate fraud. While EMV improves the
security of card-based transactions at the POS, mobile
payments security initiatives set new security
standards for mobile payments. In the future, there
will be an increased focus on improving payments
security in an effort to not only mitigate fraud but also
to improve customer trust in such transactions.
Another example of complementary reinforcement is
evident in the Internet Payment Security in Europe
and Cybersecurity directives as they address a
common need to increase the security and oversight
mechanism in the market. The first Directive intends
to facilitate efficient, harmonized, and comparable
assessments by oversight or supervisory bodies within
Europe. The Cybersecurity Directive will facilitate
information sharing between the member states and
private and public sector organizations about cyber
security issues related to the security of online
payments and cards. As fraud levels increase, we can
expect new regulations to appear across regions that
complement existing legislation and improve the
ability of the industry as a whole to mitigate fraud risk.
Competing effect: Some KRIIs have a competing
effect on each other. For example, the access to
accounts provisions of PSD II compete with data
privacy and payments KRIIs. While access to
accounts is aimed at opening up payments account
information to third parties for payments initiation,
giving such access to payments account information
may infringe on customer data privacy. Given the
competing nature of these regulations, there is a need
for more collaboration between payments industry
stakeholders to ensure a streamlined process and
alleviate the contradictory nature of some initiatives.
With the increasing complexity, scope, and interplay
between KRIIs in the regulatory environment, taking
a holistic approach is becoming more critical for
efficient implementation. An executive at one central
bank in Europe said: “Currently we are changing our
systems and processes to meet regulatory
requirements on a case by case basis. This has a
significant impact on the time taken to effectively
manage compliance.” Regulators and PSPs can no
longer afford to assess the impact of individual KRIIs.
The 3C model–comprising cascading,
complementary reinforcement, and competing
effects–was introduced in WPR 2013 to demonstrate
the different and overlapping effects of KRIIs in the
payments space. These three effects have continued
to occur since the publication of the last WPR.
Therefore, all stakeholders need to take a
collaborative approach towards compliance as
individual KRIIs are often interconnected.
Cascading effect: Initiatives such as real-time
payments, pressure on card interchange fees, and
improved payments governance are gaining
prominence across many countries. Payments markets
are emulating other regions in developing new
KRIIs. Recognizing this phenomenon will be critical
for PSPs operating across multiple countries. For
example, downward pressure on card interchange fees
began in Australia in 2007 and was followed in
October 2011 with the introduction of the Durbin
Amendment in the U.S. In February 2014 the
European Parliament’s Economic and Monetary
Affairs Committee supported a proposal to cap
MIFs.63
The key message for payments industry
participants is that the number of regulations related
to card interchange fees are likely to increase in the
near future. Cascading effects are also demonstrated
in the proliferation of real-time payments schemes
around the world. Initiatives have been launched in
Australia, the U.K., Sweden, Poland, and Singapore.
In the U.S., the Fed has undertaken a public
consultation on retail payment systems, stating there
is an opportunity to “improve speed and efficiency of
payment”. It is likely there will be an increase in
customer expectation and that more countries will
develop and launch real-time payments initiatives.
63
http://payments.banking-business-review.com/news/european-parliament-meps-back-limit-on-card-payment-fees-230214-4182515.
A Holistic Approach Will Help Banks to Cope With
the Complexity, Scope, and Interplay of KRIIs

10th Annual World Payments Report 2014 from Capgemini and The Royal Bank of Scotland

10th Annual World Payments Report 2014 from Capgemini and The Royal Bank of Scotland

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10th Annual World Payments Report 2014 from Capgemini and The Royal Bank of Scotland