McKinsey on Payments - McKinsey & Company

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The <strong>McKinsey</strong> Global Payments Map7Exhibit 3Basic typology ofpayments markets2007 transactions dataElectronicPolandJapanNetherlandsFinlandIndonesiaChinaGermanyItalyBrazilSpainSouthKoreaU.K.AustraliaShare ofelectronictransactionsrelative tocheck*RussiaColombiaFranceCanadaMexicoMalaysiaHong KongU.S.* Electronic consists of credit transfersand direct (ACH) debits; for thispurpose it excludes card transactions** Excluding ePurse and prepaidSource: <strong>McKinsey</strong> Global Payments MapCheckIndiaArgentina0 185Debit & credit card transactions per capita**2“Volume” throughout this article refers tothe total number, not value, of transactions.Cash: Important everywhereAlthough cash usage is shrinking across theworld, it remains the most frequently usedpayment instrument in most countries and isparticularly strong in some of the world’slargest developing markets: China, India,Brazil and Russia. Cash is also prevalent inseveral mature economies such as Japan andGermany. In the United States, cash accountsfor an estimated 57 percent of totalpayments volume 2 and, in Europe, rangesfrom 47 percent (Finland) to almost 95 percent(Poland). The variation in cash usagebetween “cash economies” and “electronifyingeconomies” in Asia-Pacific is similarlywide, from 61 percent in Hong Kong andAustralia to 99 percent in India (Exhibit 4on page 10). Banks in diverse markets canadvance the “war on cash” (and reduce thecosts of cash processing) by promoting electronicand card payments and alternativepayment channels, such as Globe’s GCash, amobile payments initiative in the Philippines.(For more on mobile payments, see“Mobile payments: Ringing louder” onpage 34 of this issue.)Cards: Extending their reachRapid improvements in national telecommunicationsinfrastructures reduce the costof extending card acceptance technology tomerchants of various sizes, even in remotelocations. Thus, card growth is strong inemerging markets, particularly in cash-intensiveIndia and China, but usage continuesto grow at close to double-digit rateseven in highly developed markets, e.g.,Scandinavia. Expanding acceptance to publicand semi-public agencies (e.g., hospitals)and other high-volume locations can spurcard growth significantly, as is happening inJapan, where the growth rate of card transactionshas increased more than threefoldsince 2005.While levels of card usage and the resultingrevenue each depend on a variety of factors(including interchange rates, mix ofdebit/credit and annual maintenance fees),
8 <strong>McKinsey</strong> on Payments April 2009those countries where card usage is relativelylow may see the greatest opportunityfor growth in both card transactions andrevenue. For example, Germany’s 36 cardtransactions per capita per year is low byEuropean standards, and China’s one transactionper capita is distorted by a high unbankedpopulation. Card transactionrevenue in these countries (i.e., debit andcredit, excluding interest) accounts for 6percent and 10 percent of total paymentsrevenue, respectively, suggesting an untappedreserve of revenue from transactionvolume. By contrast, in markets like theU.S., with 177 card transactions per capitaper year, and South Korea, with 63, (a relativelyhigh figure compared to the Asian peergroups) cards contribute 33 percent and 44percent of total payments revenue, respectively,and the prospects for further revenuegrowth from cards are more measured.Checks: Declining but impossibleto ignoreWhile checks have long provided the mainalternative to cash in certain countries, theirrelative importance globally is declining rapidly.In countries such as Finland or theNetherlands, checks have actually ceased toexist, which is expected to happen soon inmost of northwest Europe as well. As a resultof these trends, check usage is now increasinglyconcentrated in North America, afew European countries (e.g., France andthe U.K.) and Latin America, where theproduct proves difficult to replace, due pri-International glossary of paymentsWhile the core offerings of a payments franchise are consistent from one region to another, different markets use a variety of English-languageterms to identify the same services. Bankers, therefore, need not only to understand the distinct behaviors and conventions of local marketsbut also regional differences in the payments lexicon. The glossary below lists the alternative names for the products discussed in this article.ServiceCard acquirerCharge cardCredit cardCredit card issuerCredit transferAlternative namesMerchant acquirerDeferred debit card,credit cardRevolving credit cardACH credit (in the U.S.);also (in Europe) giro paymentand direct creditDescriptionThe bank that provides merchants and billers with technology for accepting card transactionsand processes card payments on their behalf. Acquirer revenue is based on technologyimplementation and taking a small portion of the “discount rate” on each transaction.Card allowing holder to charge purchases to a card account up to an authorized limit.Card does not offer extended credit and the full amount of the debt incurred is settledat the end of a specified period. Most cards referred to as “credit cards” in continentalEurope are actually “charge cards.”Card allowing holder to charge purchases against a line of credit up to an authorizedamount, with the option to pay a portion of the balance at the end of a specified periodand “revolve” the remaining balance indefinitely. Customer pays interest on the revolvedbalance. In countries where deficit spending is prevalent, credit card holders tend to be“revolvers”; in countries where consumers maintain high current account balances, theytend to be “transactors,” using credit cards as a form of “deferred debit.”The bank that issues the credit card and associated credit line to the customer. Card issuerrevenue comes from interchange (merchant discount rate), and interest on revolvingbalances (in some countries) or membership fees (in other countries), as well as incidentalfees (for late payment and transactions that exceed the credit limit).Electronic payment where both payment instructions and funds move from payor bank topayee bank via batch-transfer system. Traditionally low-value.
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