Cashless payments underpin economic growth

By:
Published on:

New research shows a direct link between non-cash payments and economic growth. With greater consistency coming to how such payments are handled worldwide, Simon Newstead says businesses should be ready to take advantage.

By Simon Newstead,
managing director of market and business strategy
Non-cash payment volumes are growing twice as fast in developing economies as they are across the world. In fact, European regulators and businesses might do well to watch the approach adopted for such payments in some developing markets.

As parts of China, Russia and Brazil continue to grow and build new infrastructure, they are rapidly embracing the speed and efficiency that comes from electronic forms of payment such as credit cards, debit cards and mobile phones.

Extensive research for the World Payments Report 2012, produced by RBS, consultants Capgemini and trade body EFMA , shows that global non-cash payment volumes grew by 7.1 per cent in 2010 – the latest figures available – reaching 283 billion.

This compares to 16.9 per cent growth in developing markets, boosted by a more than 30 per cent increase in both Russia and China.

Brazil also raced ahead with non-cash payments up 8.9 per cent to 20 billion, making it the second-highest ranking country by volumes after the US.

In fact, Brazil is so far ahead that the BRIC (Brazil, Russia, India, China) concept of emerging markets is no longer valid when it comes to payments – with the other three countries combined reporting 13.1 billion non-cash payments.

Meanwhile, the economic downturn in the Eurozone constrained growth in several markets – notably Greece, Italy and Spain – and volumes actually declined slightly in Ireland. Although overall, non-cash payments in Europe remain on the rise.

Non-cash payments make it easier and quicker for people and businesses to buy goods and services, pumping money into the system faster and contributing to GD P. According to the World Bank, Brazil’s GD P is predicted to rise by 2.9 per cent this year, while China’s is expected to increase by 8.2 per cent. The rapid adoption of non-cash payments in these countries has to be a contributing factor.

This all points to a correlation between the growth of non-cash payments and the pace of economic growth. And this link – although not perfect as there is still plenty of cash going through the system – will only become stronger as non-cash payments continue to rise. In the case of developing economies, non-cash payment systems can also be easier and cheaper to set up, helping the economy. The most obvious example of this is the M-PESA initiative in parts of Africa, where they are bypassing the expensive business of building bricks-and-mortar branches and moving straight to mobile, non-cash payments.

Consistency

Worldwide, the methods used to process electronic payments are slowly but surely becoming more consistent across regions.

In Europe, for example, there have been some big differences traditionally between countries – Sweden is now almost 100 per cent electronic whereas the UK looks set to continue using cheque books for the foreseeable future.

These differences are still there but are narrowing, and this trend will eventually make it much easier for businesses to handle payments more efficiently around the world.

In Europe, we have the Single Euro Payments Area (SEPA) initiative – a drive to simplify and harmonise payments across the continent.

While its goals are important and the potential benefits significant, the process of getting so many different parties to sign up to a common way forward has been slow.

It has taken some ten years to get off the ground and is only now coming to fruition – thanks to the recent move to set a mandatory migration end date of February 2014.

Compare this with some emerging markets where, rather than getting bogged down in discussions, consultation and regulation, they are getting on with it. Staying with Africa as an example, the government and the private sector in some countries there are very much united in their vision.

In many ways, developing economies are benefitting from the work already done in Europe and the US to pave the way for smoother, more efficient payments. For example, some of the SEPA discussions involved selecting common technical standards, based on XML ISO 20022, for processing credit transfer and direct debits.

We are now seeing other countries such as Japan adopt similar standards, which is also making it quicker and cheaper to process payments around the world.

It is vital that businesses of all shapes and sizes have a clear strategy in place for handling electronic payments globally. It’s a strong, rapidly developing market that can underpin their own growth and help them to become more efficient and profitable.

Those that haven’t already done so need to invest now in the right technology in-house or the right external partnerships to ensure they can process such payments. Those that don’t will get left out of a rare thing in today’s troubled global economy – a growing, successful and resilient market.

With non-cash payments playing a strong role in fostering greater economic growth, and analysts expecting mobile and electronic payments to keep rising as customers increasingly embrace the technology, now is the time for banks and businesses to ensure they are well prepared.

Doing so is good for them and the wider economy.

Much of this information is taken from the World Payments Report 2012, which explores the state and evolution of global non-cash payments. To see a copy of the report, produced by Capgemini, The Royal Bank of Scotland (RBS) and Efma, click here

For more RBS Insight content, click here


Disclaimer

The contents of this document are indicative and are subject to change without notice. This document is intended for your sole use on the basis that before entering into this, and/or any related transaction, you will ensure that you fully understand the potential risks and return of this, and/or any related transaction and determine it is appropriate for you given your objectives, experience, financial and operational resources, and other relevant circumstances. You should consult with such advisers as you deem necessary to assist you in making these determinations. The Royal Bank of Scotland plc (“RBS”) will not act and has not acted as your legal, tax, regulatory, accounting or investment adviser or owe any fiduciary duties to you in connection with this, and/or any related transaction and no reliance may be placed on RBS for investment advice or recommendations of any sort. RBS makes no representations or warranties with respect to the nformation and disclaims all liability for any use you or your advisers make of the contents of this document. However this shall not restrict, exclude or limit any duty or liability to any person under any applicable laws or regulations of any jurisdiction which may not lawfully be disclaimed.

Where the document is connected to Over The Counter (“OTC ”) financial instruments you should be aware that OTC derivatives (“OTC Derivatives”) can provide significant benefits but may also involve a variety of significant risks. All OTC Derivatives involve risks which include (inter-alia) the risk of adverse or unanticipated market, financial or political developments, risks relating to the counterparty, liquidity risk and other risks of a complex character. In the event that such risks arise, substantial costs and/or losses may be incurred and operational risks may arise in the event that ppropriate internal systems and controls are not in place to manage such risks. Therefore you should also determine whether the OTC transaction is appropriate for you given your objectives, experience, financial and operational resources, and other relevant circumstances.

RBS and its affiliates, connected companies, employees or clients may have an interest in financial instruments of the type described in this document and/or in related financial instruments. Such interest may include dealing in, trading, holding, or acting as marketmakers in such instruments and may include providing banking, credit and other financial services to any company or issuer of securities or financial instruments referred to herein.

RBS is authorised and regulated in the UK by the Financial Services Authority, in Hong Kong by the Hong Kong Monetary Authority, in Singapore by the Monetary Authority of Singapore, in Japan by the Financial Services Agency of Japan, in Australia by the Australian Securities and Investments Commission and the Australian Prudential Regulation Authority ABN 30 101 464 528 (AF S Licence No. 241114) and in the US, by the New York State Banking Department and the Federal Reserve Board. The financial instruments described in this document are made in compliance with an applicable exemption from the registration requirements of the US Securities Act of 1933. In the United States, securities activities are undertaken by RBS Securities Inc., which is a FINRA /SIPC member and subsidiary of The Royal Bank of Scotland Group plc.

The Royal Bank of Scotland plc. Registered in Scotland No. 90312. Registered Office: 36 St Andrew Square, Edinburgh EH2 2YB.