The RBS Capgemini 2015 World Payments Report estimates that “hidden” digital payments – payments not statistically reported under instruments such as credit/debit card, credit transfer or direct debit – were worth as much as $40 billion last year.
The report acknowledges that the payment industry has become increasingly complex as non-bank payments applications, such as digital wallets and mobile money, have entered the market. Of course, the key issue for treasurers is whether this development is having an impact on payment-processing costs or has the potential to do so.
Daniel Blumen, founding partner of consultancy Treasury Alliance Group, observes that for businesses that deal with individual consumers, payment processing and interchange charges can be a substantial expense.
He says: “The development of multiple payment types is increasing the pressure on these businesses as consumers demand the ability to make payments through Apple Pay, for example. Many companies will have little choice but to accept a wider variety of payment types.”
As a result, Blumen says, it is difficult to predict whether the growth of alternative payment providers will drive down costs. “This could be the case, but then there is the added cost of accepting a large number of payment methods. What makes alternatives such as PayPal attractive is that some of the cost of the payment falls on the consumer.”
This point is taken up by Gene Neyer, senior vice-president, product management, at payment technology provider Fundtech. He says: “Initiatives such as MCX [Merchant Customer Exchange – a company created by a consortium of US retailers to develop a merchant-owned mobile payment system} have been slow to take off, while payment mechanisms with very low fees and no interchange such as Dwolla are not being massively adopted.” MCX could be about to get a boost with JPMorgan Chase’s announcement earlier this week that it plans to introduce a mobile wallet – Chase Pay – which will go live in mid-2016.
According to Neyer, the significant items are the capital required to implement new standards – which he says many smaller retailers will not be able to afford – and the shift in the liability model for fraud, although Chase Pay hopes to minimize the former by enabling merchants to use devices currently used to scan gift cards to process payments.
“Payment processing charges – and in particular interchange – are driven down by regulation (Dodd-Frank in the US, PSD2 in Europe),” says Neyer. “PSD2 is creating a competition framework where alternative providers can insert themselves between the consumer and their banks in a structured way, which is expected to significantly increase the number of alternative providers and competition.”
Most smartphone payment apps generate a faster payment, which remain expensive relative to BACS and debit cards, says Stephen Baseby, associate policy & technical director at the Association of Corporate Treasurers. “This is partly to do with the volume of transactions, but should change as volume increases. In theory, an unlimited number of alternative payment services could emerge, but public opinion and acceptance will decide how many survive.”
Blumen refers to an inevitable shakeout in the industry, while Steve Kenneally, vice-president at the American Bankers Association’s Center for Payments and Cybersecurity, says that until there is a standardization in how alternative transactions are conducted, it might be cumbersome for merchants to offer access to multiple mobile payment types.
Looking ahead, Peter Seward, a vice-president at treasury solutions vendor Reval, says he could see applications such as Google Wallet being used for high-volume, low-value ACH payments that are usually sent to banks a few days before the payment is needed “although it may be some time before those channels are used for high-value payments that require higher security standards.”
RB Erickson, director of global sales enablement at treasury software provider Kyriba, suspects that Google Wallet and Apple Pay will be adopted in a similar fashion to PayPal – that is, from the receivables side.
He says: “For corporates that receive online retail payments from customers, treasury may monitor these from a forecasting or cash-balancing perspective. However, while corporate treasuries may not elect to make their own payments via Google Wallet or Apple Pay, some may require links with these payment methods to project incoming cash flows or set cash balances.”
On the question of whether lower costs from alternative payment methods could encourage corporates to move away from card payments, the UK Cards Association refers to a European Central Bank study undertaken in 2012 which found that card acceptance costs amounted to less than 0.2% of retailers’ total costs.
“While payment processing and interchange fees are part of the costs of doing business, retailers who take card payments benefit from guaranteed payments, security from fraud and the ability to accept payments online,” says Richard Koch, the association’s head of policy.