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China poised to overtake the US in digital payments

Digital payments are rapidly being adopted around the world, with China making faster progress than the US, still the world’s biggest economy, reports CapGemini.

The group’s 2018 World Payments Report, produced in conjunction with BNP Paribas, finds that while the US is home to Silicon Valley and other tech hubs, its reliance on old payment methods is holding back itgs digital progress.

By contrast China is a force to be reckoned with in digital payments, spearheaded by Alipay and WeChat Pay. The report questions whether this is simply a threat to traditional payment systems, or the first sign of a transformation that will affect all global economies.

Fast progress

The world is rapidly adopting digital payments, with Capgemini forecasting that from 2018 to 2021, the compound annual growth rate for all digital transaction volume will be about 13%, rising to 876 billion from an estimated 598 billion in 2018. Growth is fastest in developing markets, with developed economies moving at a much slower rate.

Emerging Asian markets lead the pack, with forecast compound annual growth rates of about 29% over the next four years, followed by the Central Europe, the Middle East and Africa regions, whose CAGR forecast is 20%. Mature Asian markets will see a CAGR of about 10% over the same period, followed by Europe at 7% and North America at 6%, Capgemini estimates. However, fraud is the unknown factor that could upset predictions.

Payment cards—led by debit—are gaining market share in most global markets, although in emerging Asian markets e-wallets are growing faster than other payment forms, according to Capgemini. Debit card transaction volume grew almost 15% globally in the most recent period measured, followed by credit cards (11%), and bank credit transfers (7%)

The report suggests that as card usage rises, direct debit volume is expected to slow gradually, as consumers adopt in-app and real-time payments in most markets. Direct debits will be used less frequently for paying bills as alternative payments enter the mix, and the US and Europe are rapidly replacing bank credit payments with real-time payments.

The US currently accounts for 40% of global credit card volume, according to Capgemini, with strong credit card volumes also in Canada, mature Asian markets and Latin America.

Capgemini expects China to overtake the US in total digital payment transaction volume by 2021, in part because of American consumers and businesses’ reluctance to adopt new payment types.

The paper cheque, regarded as the most costly and inefficient legacy payment instrument, is swiftly vanishing from all regions except North America. The US represents 74% of global cheque volume, with the bulk going to larger-value bill payments, business-to-business (B2B) payments and payroll.

Asia, China, South Korea and Australia have seen sharp declines in cheque usage in recent years, with total cheque volume in the single digits. India, despite relatively low cheque volume, bucked the trend with a 10% increase in check usage as some shifted back to writing cheques in the wake of India’s 2016 demonetisation policy.

North American cheque volume has fallen to around 10% from 15% in 2012, but remains the leading global region for cheques. Europe has reduced cheques to 3% of total payments volume from 5% in 2012, while cheques are less than 1% of payment volume in Asia-Pacific regions. Globally, cheques now account for 5% of all payment volume, against 8% in 2012.


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