WORLD PAYMENTS REPORT 2018 WORLD PAYMENTS REPORT 20182 TABLE OF CONTENTS Preface 3 Section1: Non-Cash Transaction Analysis 4Key Findings 5Global Non-Cash Transaction Volumes Analysis 6E-wallet Market Analysis 12Payments System Evolution Economic Analysis 14Australias New Payments Platform 15The Benefits of Non-Cash Transactions 16 Section2: Key Regulatory and Industry Initiatives (KRIIs) 18Key Findings 19As KRIIs Spread Regionally, Standards and Interoperability Measures are Required to Harmonize the Fragmented Marketplace 20KRIIs Traverse a Cyclical Path from Standardization to Innovation and Back Again 22Conflicting KRIIs Pose Implementation and Operational Challenges that Hinder the Transition to New Payments Ecosystems 25Conflicting KRIIs 26 Section3: New Horizons in Payments and Transaction Banking 30Key Findings 31The Complexity of the Payments Landscape is Increasing at an Accelerated Pace 32Creation of Value-Added Services will Help Banks Derive Greater Benefits from Orchestration 35The Payments Open Banking Assessment of Select Countries 37Emerging Technologies and Innovation are the Key Transformation Pillars to Orchestrate Ecosystems 39Deep Dive of Emerging Technologies in New Payments Ecosystems 41In Anchoring New Ecosystems, Banks Must Identify the Best FinTech Partners, Based on Complementary Services and Value 49The Roadmap for Banks to Lead Orchestrated Payments Ecosystems 51 Methodology 52 Glossary 53 About Us 54 Acknowledgements 55In this 14 thedition, the World Payments Report (WPR) provides insightful analysis of the development of new payments ecosystems, which are opening new horizons in payments and transaction banking. In-depth analysis of global non-cash transaction volumes is combined with an examination of the ever- changing regulatory landscape to track the evolution of payments ecosystems and payment service providers (PSPs) changing roles. WPR 2018 marks the third year of partnership between Capgemini and global banking institution BNP Paribas, a recognized leader in transaction banking and cash management. This partnership brings strategic insight and client-based industry research into the critical issues and trends shaping the payments industry that are relevant for corporate treasurers and financial institutions. Globally, non-cash transaction volumes continued to grow at double digit growth rates during 2015 2016. Volumes grew by 10.1% to reach a total of 482.6 billion. The main growth regions during the period were Emerging Asia and Central Europe, Middle East, and Africa (CEMEA). Based on our model and hypotheses, we have also estimated the global non-cash transactions from 2017 through to 2021. WPR 2018 finds that the global e-wallet market is growing even faster, with transaction volume estimated to total 41.8 billion, which is about 8.6% of global non-cash transactions. Alibaba, Tencent, Google, Apple, Facebook, and Amazon have captured a significant share of this market. There is increasing evidence that high levels of non-cash transactions can benefit society in a number of ways and can even help to solve challenging problems, such as corruption and payments fraud. Section 2 of the report analyzes the regulatory dynamics in the payments market. The section describes the cyclical effect that is being observed in the objectives of key regulatory and industry initiatives (KRIIs) between risk reduction, innovation, and standardization. It also examines how KRIIs with conflicting objectives impede the development of payment ecosystems and how regulatory clarification could help alleviate the challenges. The core theme of the report explores how the banking industry is adopting new payments models to offer new value-added services to customers, including corporate treasurers. The report also analyzes the ways in which banks can come closer to their customers by orchestrating various services, leveraging emerging technologies, and suggests a roadmap for the future. In this edition of World Payments Report, we have introduced the Payments Open Banking Assessment. This highlights the state of open banking from a payments perspective across 16 countries. We highlight how an open banking environment successfully creates the conditions for non-cash payments, provided PSPs meet a few critical requirements, including adoption of emerging technologies, an innovative spirit, and collaboration with FinTechs. World Payments Report 2018 Preface Anirban Bose FS SBU CEO & Group Executive Board Member Capgemini Bruno Mellado Head of International Payments and Receivables BNP Paribas4 Non-Cash Transaction AnalysisWorld Payments Report 2018 Key Findings 5 Global non-cash transaction volumes grew at 10.1% in 2016 to reach 482.6 billion. Emerging Asia (25.2%) and CEMEA (17.1%) were the chief drivers of this growth. Growth rates accelerated in developing markets to reach 16.5%, fueled by governments efforts to increase financial inclusion, and the increasing adoption of mobile payments, particularly in India (33.2%), China (25.8%) and South Africa (15.1%). Mature markets including mature APAC, North America, and Europe witnessed a stable growth rate of 7.1%. Non-cash transactions are estimated to accelerate at a compound annual growth rate (CAGR) of 12.7% globally with emerging markets growing at 21.6% from 201621. Emerging markets that now account for about one-third of global non-cash transaction volume are expected to contribute nearly half of the global volume in 2021 by growing at a rate of close to three times that of mature markets. Emerging Asia is expected to witness a stellar CAGR of 28.8% from 201621, driven mainly by sustained digital innovation, adoption of mobile payments, and financial inclusion initiatives. Global electronic wallet (e-wallet) transaction volumes are estimated to be about 41.8 billion in 2016, comprising almost 8.6% of all non-cash transactions. There is enough market potential for the large global technology firms (the so-called BigTechs, such as Google, Amazon, Facebook, Apple, Alibaba, and Tencent) and incumbents to expand their respective markets. BigTechs accounted for about 71.0% of the global e-wallet market in 2016. These companies are leveraging their large- platform user base to make an impact in the payments space, focusing on providing seamless user experience, value-added features, and making use of network effects. Incumbents should learn from the BigTechs and invest in technology platforms in order to compete with them. There is no one-size-fits-all strategy that can help with payments evolution of a market. Context analysis of a particular market is critical to enable high digital transactions growth. Regulators can help by creating the required demand-side pull and supply-side push to enable rapid adoption of non-cash instruments. Government initiatives and industry collaboration are creating the necessary supply-side push for Australias payments industry, for example. High levels non-cash transactions can benefit the society in a number of ways, solving even challenging problems, such as corruption.