The use of bank notes in the UK has been in decline, as electronic alternatives gain traction in the wider economy, so the idea that we could effectively abandon cash is no longer quite so fanciful. And yet many of the world’s advanced economies are laggards when it comes to the adoption of digital payment technologies. One of the central findings of the World Payments Report (2018) is that demand is being driven by emerging and frontier economies. The report, published by Capgemini and BNP Paribas, suggests that global volumes of non-cash transactions could expand at a compound annual growth rate (CAGR) of 12.7 per cent until the year 2021 – yet the rate of adoption in the US is less than half the global estimate.
It may seem counter-intuitive that the growth in non-cash transactions is being spurred by transitional economies, until you realise that many populations, particularly those in isolated rural areas, have limited access to banking services. In a country such as India this has not only acted as a brake on regional economic development, but it is both causal and symptomatic of the problems that have distorted (constricted) the nation’s money supply. You could argue that this eventually led to the much-derided demonetisation schemes of Narendra Modi, but when India’s prime minister took office in 2014 he was intent on vastly expanding household access to banking, credit and insurance services. Unfortunately, the implementation of the Modi government’s financial inclusion policies is taking longer than expected, but it underlines why digital payment technologies and trade have become increasingly intertwined.
Closer to home, trade association UK Finance estimates that by 2026 about one-fifth of all payments in the UK will be made using cash, against just under two-thirds 20 years earlier – a significant contraction. The volume of cash removed from ATMs is in perpetual decline, while retail customers are eschewing cash for cards – even for relatively minor purchases. You could say a firm trend has been established, but the World Payments Report also suggests that while demand for digital payments is soaring, regulatory and operational requirements remain barriers to innovation. This is potentially more of an impediment for small caps and/or new market entrants, less so 'big tech', which goes some way to explaining why the quest for scale has given way to increased M&A, although recent deals show that companies are also determined to broaden their capabilities to meet the evolving marketplace.
Both these catalysts are reflected in this year’s £9.8bn merger between US credit card processing company Vantiv and the UK’s largest payment processing company, Worldpay, a deal brokered in pursuit of “global scale, integrated technology and diverse distribution”, as per the related regulatory filing. And it’s just been announced that PayPal (US:PYPL) has taken a strategic investment in Tala, the leading consumer lending app in emerging markets. The tie-up promises to boost access to finance in a world where two-thirds of the adult population has no formal credit bureau score. And it flows on from PayPal’s $2.2bn all-cash acquisition of Stockholm-based payments provider iZettle. To cap it off, US payment solutions firm OSG has just tabled a £154m cash takeover offer for Communisis (CMS).
