The untold story of ePayments: opportunities for merchant banks

When it comes to ePayment penetration, it’s easy to believe that China is well ahead of every other country in Asia. A high volume of mobile payments, puts China well ahead of Japan, where cash makes up 80% of consumer spend.

However, a closer look reveals that this is only true if we consider account retail (B2C) and consumer (C2C) spending, which is actually only a small segment of the payment value chain.

Seeing the bigger picture: Cash share in Asia Pacific

The latest Global Cash Index™ by, reveals things aren’t quite as they seem. In reality, Japan spends only 4.2% of their entire GDP in cash. The same figure for China is an enormous eight times higher at 33.9%.

Cash is still king in China.

To understand this counterintuitive statistic, we need to analyse the entire payment value chain. As an example, let’s take a look at how fresh produce move from the farm to the consumer’s shopping basket in both countries.

We can see that China’s high mobile payment volume takes place largely in the final stage of the transaction value chain, where consumers purchase goods from retailers (52% of WeChat users conduct less than 20% of their monthly transactions in cash1). This means China has a huge opportunity to support and drive ePayment penetration for the rest of the value chain, before the retailer-consumer segment.

A look at the same value chain for Japan shows the complete opposite.

Here, the final stage is the only one in which we see cash spend. The good news for Japan is that enabling ePayments for consumers is a little more straightforward in comparison to the rest of the value chain. For these parties, banks need to build capacity, expand acceptance points and push for low-cost acceptance solutions such as mobile payments.

Supporting ePayments across the entire payment value chain

This analysis shows just how important it is to consider the entire payment value chain when looking at ePayment penetration. Though transactions between consumers and retailers are very significant, they represent only a portion of total exchange and transfer of money in trade. There is still a huge opportunity for banks and payment networks to electronify the payments value chain. Identifying who are the merchants of tomorrow is the first step to unlock these new opportunities.

Banks will need to re-examine and calibrate their overarching payment strategies, build the necessary capacity and infrastructure, and be willingly to disrupt themselves or risk being disrupted by technology companies.

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06 Nov / 2017

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