By Zach Spellman, Market Research Analyst at TSG
This article is based on The Strawhecker Group’s (TSG) ongoing Country Series, a growing collection of eReports that analyze the payments landscape of various countries across the globe. Gain access to this exclusive collection and more through TSG’s eReports subscription.
The ongoing transformation and adoption of payment technologies is apparent across all major geographies in the world and implementing an international strategy should be a key focus for payment providers. As the adoption and growth of eCommerce unfolds, merchants are gaining access to a wider addressable market beyond their own country borders which offers payment providers an opportunity to increase their market share internationally and further drive electronic payment growth. With continual development, electronic payments are becoming more innovative and taking on a more centralized role among merchants as well as consumers. However, the preference, availability and progression of payment technologies differs across countries causing disparities based on location. Different geographic areas generally focus on different methods of payment that best fit their preferences, customs, and current infrastructure. While several similarities persist across country borders, the overall international payments landscape comparatively varies by country and geographic area. Primary differences among countries commonly coincide with domestically developed payment systems, local infrastructure, alternative and local payment methods, regulations, and market competition.
Discrepancies among a payments landscape are influenced by regulatory organizations that oversee a country or geographic area’s payments environment. These regulatory organizations establish policies and structure on how payments flow within and outside of their borders, which in part shapes how payment entities operate in the area. Regulatory organizations also control domestically developed payment systems, which play a central role in the transfer of electronic payments across the country’s financial sector. While these payment systems generally serve the same purpose, they are typically local and operate within a set boundary.
Payment regulations and the degree of oversight largely varies by country, although overlap persists across certain geographies. The European Union, for example, has institutionalized several overarching regulations for the payments environment across its 27 member states. While countries within the European Union have also established their own regulations and oversight, the European Commission and Central Bank largely control the payment policies and systems across its member states. In addition, the organizations also manage SEPA (Single Euro Payments Area), a collaborative payments infrastructure that facilitates electronic payments across the area. This payment system is unique to Eurozone countries and transfers electronic payments across the region. However, many other geographic areas are more controlled at an individual country level with different directives and government initiatives set in place that push forward specific country objectives.
The government of India, for instance, is largely focused on driving digital payment adoption across the country and has set forth several programs and incentives to increase the use of digital payments and move further away from cash. India has also established its own payments infrastructure operated by the National Payments Corporation of India (NPCI) which controls the country’s retail payments and settlement systems. Overall, regulations and domestically developed payment systems play a large role in the adoption and advancement of payment technologies across a country’s payment landscape. Governmental powers see major benefits in the adoption of electronic payments as it enables easier accountability in tax collection and counterfeit currency management, while merchants see several advantages including increased payment method acceptance, enhanced security, integrated software, and more.
While regulatory organizations and governments play a significant role in a country’s payments landscape, local market providers and the level of competition is also a driving force behind a country’s advancement of digital payments. Developers of digital payment technologies are pushing the adoption of their solutions across their regional addressable market. As opposed to global payment providers, local players have a closer understanding of their payments environment in which they can better accommodate their solution to fit with the local area.
TSG’s Market Intelligence team regularly analyzes the payments landscape of geographies across the globe to build country profiles, exclusive to eReports subscribers.With a growing list of countries analyzed, please download a complimentary copy of Payments in Australia to see the type of data gathered.
The payments environment in Japan, for example, is largely controlled by local players and has a comparatively smaller presence of non-local multinational players as compared to the European market. Countries in Western Europe have a more interconnected landscape, largely due to the European Union, which enables payment providers to more easily market their solution across borders. Competition among local and global payment providers largely differs by geographic area, although the establishment of strategic partnerships among the two groups is a common practice. Multinational acquirers including First Data (now Fiserv), Global Payments, and Worldpay from FIS have grown their client base and penetrated new markets through various strategies including partnering with or purchasing local entities. An example of this is Global Payments’ strategic alliance with HSBC, a leading multinational issuing bank, in which Global Payments offers merchant services to HSBC’s client base across several countries including the United Kingdom. Relationships among leading issuing banks and merchant acquirers is common globally, although some issuers have developed their own payment processing services in-house and serve both sides of the payments ecosystem. Furthermore, in certain geographies, creating a partnership with a state-owned entity/bank is a necessity in order to have any sort of meaningful footprint or scale in the region. The payments environment in China, for instance, is largely controlled at the state-level in which payment entities must be approved by the People’s Bank of China in order to operate in the country.
The degree of payment methods used generally differs by country and geographic area due in part by market players, government incentives, and domestic payment systems. As the use of cash declines in many countries, numerous players have introduced alternative/local payment solutions to take advantage of this growing opportunity and better reach their target markets. Alternative/local payment providers are affected by different payment systems, regulations, country cultures, etc. which influences their ability to expand internationally and increase their user base. Adoption of integrated payment software also affects the acceptance of alternative/local payment solutions as some offer direct integrations to these methods. Many regions have not fully adopted integrated software solutions yet, although the growth of “horizontal” software players like SAP and Salesforce, which have a broad solution set that can be used by many industries, are gaining larger international traction.
While some countries have obtained a very diverse set of alternative/local payment providers, others are largely dominated by a select few. The Netherlands’ payments environment, for example, is largely centered around iDEAL who claim to make up 57% of online transactions in the country. Conversely, the payments environment in Germany is largely fragmented with a wide variety of different payment methods and alternative/local payment providers. Although cash is still largely used across the world for in-person transactions, alternative/local payment solutions have found their stride in the eCommerce ecosystem. Generally, countries across the world are experiencing increases in the number of eCommerce payment transactions which has made the alternative payments market more lucrative. However, competition in this market is robust across geographies and global providers such as PayPal have amassed a significant user base with more than 300 million users worldwide.
As the international payments landscape further transforms, the emergence and adoption of payment technologies will likely continue to progress at different speeds across geographies and countries. Differences among countries’ payments landscape will persist and evolve as regulatory organizations and payment entities influence their respective markets. Although, as the world grows to be more connected through digital infrastructures and international relationships, the disparities among countries may become less intricate. Global merchant acquirers, alternative/local payments providers, and cross-border solutions such as currency conversion capabilities are reaching more individuals which helps drive payment inclusion across borders. Furthermore, expansion into new markets remains a large opportunity for many market players. Developing countries in Africa, Latin America, and Asia-Pacific will prove to be critical targets for payment providers in the coming years as the emergence of electronic payments along with rapid advancement of technology and consumer adoption continues to take place. As payment entities seek to increase their global presence, the international payments landscape will continue to evolve with new technologies, wider accessibility, and increased competition. Developing and pursuing an international strategy will continue to be a key component for payment providers going forward.
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