World Payments Report 2014 Key Findings Presentation

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The information contained in this presentation is proprietary. Copyright ©2014 Capgemini. All rights reserved.
October 2014
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World Payments Report
Presentation

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About World Payments Report 2014
What is Driving Payments Growth?
Increasing Overlaps of KRIIs and Increased Cascade Effect
Innovation and Transformation in Payments Processing
The Way Forward
World Payments Report 2014 (WPR) -Roadshow

2 The information contained in this presentation is proprietary.
Copyright ©2014 Capgemini. All rights reserved.
Celebrating 10 years of analyzing the quickly evolving global non-cash market
2005 2006 2007
2008
2011 2012
2009 2010
2013
 The industry‟s point of reference
for global non-cash transaction
market data
 At the forefront of understanding
regulations and their interaction
with business models and
operations
 The clear thought leader on the
various levers for successful
payments strategies and
innovation
 WPR13 analyzed the client-end of
the value chain, WPR14
examines the fulfillment i.e. the
non-customer facing part of the
value chain -„Payments
Processing’
WPR 2014
2014

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Payments executives from 31 financial institutions globally have shared their opinions with Capgemini and RBS’ industry experts
WPR 2014 Executive Interviews —Executives Pain Points
“Handling data and transformation initiatives are getting complex, especially for global banks which have to comply with regulatoryissues across geographies.”
“Our business transformation approach is to test and learn with new use cases as we go along. We do not want to take a big bang approach.”
“Although it is a long journey, banks need to act now as simplification of payments systems has a strong commitment from key stakeholders.”
SELECT FIRMS*
Australia:ANZ
Austria: Erste Group Bank AG, Raiffeisen Bank International AG
Brazil: BancoBradescoCartões,
France: EBA, NatixisPaiements, Credit AgricoleCards and Payments, BNPP
Germany: EquensSE, UniCreditBank AG
India: NPCI
Mexico:Banamex
Netherlands:ING, RabobankNederland, ABN AMRO, Deutsche Bank
Singapore: Standard Chartered Bank
Sweden: Nordea, SEB
UK: Aviva, Mastercard Worldwide
US:Citibank, PayPal, VeldosLLC
* Represents only the firms that agreed to be named in the report

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A Ten Year World Payments Report Retrospective: An Industry in Evolution
What Were Correct Predictions?
Penetration of non-bank PSPs in the payments market
Increased fragmentation and commoditizationof the payments value chain
Challenges to business models caused by regulatory and industry dynamics
Barriers to a full and successful SEPA
migration
Payments growing in importance and
reaching board level attention
WhatSurprised Us?
Sourcing strategies have remained relatively stagnant in the payments industry
Decrease in usage of checks was slower
than expected
Consolidation of ACHs (Automated Clearing
Houses) did not happen as anticipated
The fast development of technologies
including smartphones, cloud-based solutions
and real-time payments was not anticipated

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The Way Forward
World Payments Report 2014 -Roadshow

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Global non-cash transactions volume growth decelerated in 2012, but is expected to have accelerated in 2013

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The information contained in this presentation is proprietary. Copyright ©2014 Capgemini. All rights reserved. The mobile payments space is increasingly more competitive, with banks and non- banks striving for insightful data, market influence and consumer loyalty
Note: Number of Global Transactions (Billion), 2011–2015F
The growth continues in the e-and m-payments markets and a gradual convergence is happening as the distinction between the two diminishes
CAGR: 15.9%
CAGR: 60.8% (Non-Banks: 82.7%, Banks: 58.1%)
Banks
Non-Banks
E-Commerce Transactions
M-Payments

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Cross border payments in the retail sector represents an opportunity for banks, with large volume and potential growth
Remittances
B2C CommerceGlobal Trade
Financial Markets
Key Industry Statistics in 2012
$529 bn
(6.6% CAGR 2009- 2012)
Source (Estimated/Actual)
E-commerce: $300 bn
$22.6 tn
(3.8% CAGR
2008-2012)
World Bank (E)
PayVision (E)
Current Market Share of Banks
WTO (E)
SWIFT (A)
2.2 bn securities and treasury transactions (4.4% CAGR 2008- 2012)
Snapshot of Data for Cross-border Segments
Corporate
RetailBanks should revisit the balance of risk and convenience within their product mix to further increase their overall share in the cross-border payments space
Growth opportunity for Banks
90%
100%
10- 30%
30- 60%

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The Way Forward

10 The information contained in this presentation is proprietary.
Copyright ©2014 Capgemini. All rights reserved.
As Key Regulatory and Industry Initiatives continue to increase across the globe
their focus shifts from a regional to a global level, creating a cascading effect
Heat Map of Key Regulatory and Industry Initiatives (KRIIs), Global and Regional, 2014
North America
 EMV Adoption in the U.S.
 Prepaid Payment Products
Regulations in North America
 Capital Rules for Foreign Banks
in U.S. LOW
HIGH
Europe
 Access to Accounts (PSD II)
 European Current Account Switching
 Large Value Payment Systems Upgrades
 SEPA / e-SEPA
 SEPA for Cards
 Mobile Payments Security in Europe
 Cybersecurity Directive
 Electronic Identification and Trusted Services
 Internet Payments Security in Europe
 Financial Transaction Tax LOW
HIGH
Note: Emerging Markets refers to Asia-Pacific, Middle East, and Latin America
KRIIs cited in previous WPRs
KRIIs introduced in WPR 2014
LOW
IMPACT
HIGH
IMPACT
IMPACT ON
PAYMENTS
Emerging Markets*
 Asian Payments Network*
 Financial Inclusion
 UAE Wallet
 National Payments Corporation
of India LOW
HIGH
Global
 Basel III Capital Norms
 Basel and Intraday Liquidity Norms
 Real Time Retail Payments
 Pressure on Card Interchange Fee
 Contactless Cards / NFC
 Cross-Border Low Value Payments Processing
 Payments Governance
 Mobile Payments
 Tokenization for Cards
 e-Invoicing
 ISO 20022 Standards in Payments
 AML / ATF
 Data Privacy and Payments
 e-Government
 Access to Clearing
 Virtual Currency Regulations
 U.S. Foreign Account Tax Compliance Act (FATCA)
 Bank Payment Obligation
 CPSS-IOSCO
LOW
HIGH
Many European initiatives like:
• Real Time Retail Payments
• Payments Governance
are being taken to a global level

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The information contained in this presentation is proprietary. Copyright ©2014 Capgemini. All rights reserved. This year, more than 50% of the analyzed KRIIs focused on innovation with 60% overall falling into that trend
LOWIMPACT
HIGHIMPACT
IMPACT ONPAYMENTS
Standardization
Competition and Transparency
Innovation
1a
27
4
628
3
30
9
820
5
Risk Reduction
2
23
11
14
31
7
10
1b19
25
26
29
3432
33
12
13
15
16
17
18
21
22
24Overlap of Industry Transformation Trends Driven by KRIIs
1a Basel III Capital Norms
1b Basel and Intraday Liquidity Norms
2 Cross-Border Low Value Payments Processing
3 Access to Accounts (PSD II)
4 FATCA
5 AML / AFT
6 SEPA / e-SEPA
7 Pressure on Card Interchange Fees
8 Prepaid Payment Products Regulations in North America
9 Large Value Payment Systems Upgrades
10 Real Time Retail Payments
11 European Current Account Switching
12 EMV Adoption in the U.S.
13 Internet Payment Security in Europe
14 Data Privacy and Payments
15 Payments Governance
16 ISO 20022 Standards in Payments
17 Mobile Payments
18 Contactless Cards / NFC
19 SEPA for Cards
20 e-Invoicing
21 e-Government
22 National Payments Corporation of India
23 CPSS-IOSCO
24 Access to Clearing
25 Mobile Payments Security in Europe
26 Virtual Currency Regulations
27 Capital Rules for Foreign Banks in U.S.
28 Financial Transaction Tax
29 Bank Payment Obligation
30 CybersecurityDirective
31 Electronic Identification and Trusted Services
32 Tokenization for Cards
33 UAE Wallet
34 Financial Inclusion
Y
Y

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Data management is becoming a key bank strategy to effective regulatory compliance and develop new service offerings that improve return on investment
Optimized Data Management for Effective and Efficient Regulatory Compliance
Silo’ed Approach
Leverage external data
Correlate internal and external data
Leverage analytics
Develop tools Single Data Model Approach
Develop MIS
Improve reporting efficiency and compliance effectiveness
Consolidate reporting activities
Create vision
Develop strategy
Define data requirement
Develop systems
Reduce complexity of technologies
Develop dashboard
Ensure accuracy of the data
Robust governance
Monitor the dataGoing Beyond Compliance
Roadmap to Single Data Model Approach
Create
Configure
Conform
Comply
Complement
Deriving a single view of the customer will help banks improve their customers’ experience and enhance their sales opportunities

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The information contained in this presentation is proprietary. Copyright ©2014 Capgemini. All rights reserved. Leveraging payments data models can help firms move from a compliance- centric approach to one of differentiation for customer valueInternal FocusClient Focus RegulatoryNon-Regulatory
Perspective
Driver
Fraud Monitoring
AML
KYC
Regulatory Reporting (Transactions and Liquidity)
Cost Management
Product Innovation
Cross-Sell and Up-Sell
Improved Control and Risk Reduction
Value Added Services
Big Data
Customer Analytics
Format Standardization
Transparency in relationship (e.g. transparency of prices and not pricing information , speed of transactions etc.)
Shared KYC initiatives
Efficiency
Differentiation
Compliance
Support
E-invoicing
Supply Chain Advisory
Cash Forecasting DataAdvisory/ Service Driver and Perspective Analysis for Payments Data Models

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The Way Forward

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The information contained in this presentation is proprietary. Copyright ©2014 Capgemini. All rights reserved. Innovation has accelerated in customer facing areas but payments processing face multiple external and internal challenges
External Pressure
Impact on PP (E)
Security and Data Privacy (Regulations)
Real Time Information and Processing
Pressure on Traditional Business model
Competition forVolume
Competitionon Front End
Disruptive Technologies
Price Pressure
ChangingProduct Mix
Reorganization (ring- fencing)
Customer Demand for Visibility into Data
Internal Challenges
Impact on PP(E)
Complexityof Legacy IT
Managing InternalBandwidth (and limited resources)
Silo-edOperations
HighCost of Processing
Product Proliferation
Selecting RightPartnerChallenges constrain firms from developing a full response to the external forces they face; traditional players now need a strategic review of their payments processing activities.
LOWIMPACT
HIGHIMPACT
IMPACT ONPAYMENTS

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In addition to the client-facing part of the value chain, customer demands are driving the need for payment processing transformation and innovationCustomer Demands Driving a Need for Innovation in Payments ProcessingReal-time Capability‘Anytime’ /‘Anywhere’ PaymentsMultiple Payments Modes/ChannelsEnterprise-wide Visibility (Cash and Working Capital) Cost Control via Efficient Payments ProcessingRisk ManagementTreasury Technology Compliant with Corporate IT
Ease of Payments
Value-Added Services
Visibility/Insights from Payments Data
Retail
Corporate
Retail/Corporate

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For the majority of payments firms interviewed, transformation of processing infrastructure is a top priority in the short term as well as medium to long term
Short Term
Medium Term
Long Term
Top Priority
Top 3 Priority
Not a PriorityTime Horizon of Transformation Objectives for ProcessorsOur research indicates a strong inclination towards quick prioritization of payments processing transformation projectHalf of the interviewed firms indicated that payments processing transformation is the top priority for them in the short termMost of the participants indicated that payments processing transformation takes time and hence have retained it as a top 3 priority over the medium or long termsPayments processing transformation is amongst the top priorities for most of the interviewed participants in the short/medium term and a few indicated otherwise

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Firms need to reassess the basics of incremental transformation through considering more robust execution aligned to a clear business vision
Roadmap Towards Desired Payments Processing CapabilityBuilding Transformation VisionIncremental TransformationIntegrated Payments Back- OfficeDelivering Long- term Business BenefitsCommon constraints during transformation initiatives restrict the ability of firms to derive clear benefits from transformation
•Decide a long-term payments processing vision
•Assess the current maturity and agree the future desired maturity
•Formulate an incremental transformation
•Execute the strategy through short cycle projects
•Develop an integrated processing platform with desired capabilities and flexibility
•Deriving business benefits for the firm and the clients –retail and corporate

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The Way Forward

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•800 billion number of non-cash payments transactions by 2024
•Developing countries growing to half of the total non-cash market by 2021
•Developing markets to be the focus of the majority of new solution development
•Entry by large numbers of non-banksinto the customer-facing segments
•In several major countries, banks may no longer be the only party at the center of payments governance
•More PSP’s sharing parts of the value chain due to regulatory and industry changesRadical Shift In Roles And Influenceof Key Stakeholders Innovation And Convergence will Change Pricing and Product Mix
•Continued acceleration of innovation and convergence
•Emergence of additional currencies
•Rising usage of closed loop payments instruments (prepaid)
•Increased biometric identification
•Rising potential risk of fraud or failure of PSPs
•Continued proliferation of financial industry regulation
•Focus on consumer protection by regulators to continue
•Increased cross-border e-commerce
The 10 year horizon: potential changes in the payments industry

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The information contained in this presentation is proprietary. Copyright ©2014 Capgemini. All rights reserved. Closing Thoughts… Section 1: Payments LandscapeThe global non-cash transactions volume growth is projected to have increased by nearly 10% (9.4%) in 2013 after decelerating in 2012 with a growth rate of 7.7%. This projection is fueled by growth in developing markets and debit/credit card use. E-and M-payments are converging. Section 2: KRIIsAs banks face the increasing volume and complexity of key regulatory and industry initiatives (KRIIs), data management offers opportunities to better manage KRIIs and achieve some return on compliance investments. Section 3: Innovation in ProcessingNow is the time for PSPs to develop a long-term vision and realize that vision by implementing short-cycle projects that provide agility and deliver immediate business benefits/value.
Section 4: Industry Trends
Innovation and convergence are likely to accelerate, resulting in multiple changes in product mix and business models. This could lead to greater choice for clients.

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Appendix
Sources and Notes

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List of Sources for World Payments Report 2014
Slide No.
Sourcesand Notes
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Capgemini Financial Services Analysis 2014; Word Payments Report 2005-2013
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European Central Bank –Statistical Data Warehouse -2012 figures released September 2013; Bank for International Settlements Red Book, 2012 figures released December 2013, Country‟s Central Bank Annual Reports, 2012
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Industry estimates for the overall size of the e-commerce and m-payments markets are derived from various industry and analyst reports. For estimating transactional data for non-banks and alternative players in e-payments and m-payments, we have analyzed transactional data from leading market players such as PayPal, Amazon, and Vodafone M-Pesa
8
9
SWIFT Annual Report, 2012; Migration and Development Brief, World Bank, April 2013; WTO –World Trade Reports 2009-2013
Note: Remittances are estimated and contain both cash and non-cash transactions. Global trade numbers include both cash and non-cash transactions. The financial markets numbers reflect only SWIFT transactions.
11
Capgemini Financial ServicesAnalysis, 2014; World Payments Report, 2011, 2012, and 2013
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13
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Capgemini Financial Services Analysis 2014
16
Capgemini Financial Services Analysis 2014; Executive Interviews for WPR2014
Note: The chart has been prepared based on the executive interviews with 15 traditional processors
17
Capgemini Financial Services Analysis 2014; Executive Interviews for WPR2014
Note: The chart has been prepared based on the executive interviews with 15 traditional processors
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Capgemini Financial Services Analysis 2014; Word Payments Report 2005-2013

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World Payments Report 2014 Key Findings Presentation