The development of new payment services and the evolution of technology are currently the top priority of most domestic payment schemes. An overwhelming majority of schemes are in favour of cross-border collaboration and the top two rated actions are sharing of technical standards and jointly developing technical solutions.
These the findings of a recent global report by CC Associates, Consorzio BANCOMAT and SIA, with the support of the European Card Payment Association (ECPA), on today’s challenges and opportunities for domestic and regional card organisations.
The survey has been carried out amongst 25 domestic payment schemes from 5 continents and presented during the “2nd International Conference on Regional Card Organisations” held in Milan.
Domestic payment schemes overall prospects
The report highlights a much greater sense of optimism about the future of domestic payment schemes than in a 2013-2014 survey: almost 70% see their prospects as better (compared to 56% in the previous research) and only 9% of respondents consider the situation as worsening (32% two years ago). So, despite strong competition, domestic payment schemes clearly feel that they have an increasingly important role to play.
Priorities and remit of domestic payment schemes
In terms of priorities and remit of domestic payment schemes, development of new services was rated as the highest priority: 56% of schemes rated it as top priority and 44% medium priority. This underlines that schemes recognise they cannot continue to just provide the legacy services on which they were originally based.
The second highest priority was technology (42%). Many schemes think they can gain competitive advantage in developing their own specifications, particularly in terms of tokenisation. Some schemes, especially in Europe, argue that compliance with ever-changing regulatory requirements is a top priority, but mostly this is seen as a “business as usual” requirement.
Responding to commercial pressures by increasing revenues and/or reducing costs is rated as the third highest priority (25%). As domestic payment processing becomes more of a utility service and in the face of fierce competition in the card market, domestic payment schemes know that they must continually improve their commercial performance to meet the needs of their users.
By a very large majority, domestic payment schemes are in favour of extending their remit beyond cards. Many feel that the widespread adoption of mobile phones for payments is already happening and that domestic schemes must embrace mobile as well as other forms of alternative payment.
It is felt that as the distinction between cards and other forms of payments (e.g. credit transfers) breaks down, the management experience of card schemes positions them well to extend into these other payment methods rather than being replaced by them. Some schemes comment that in some markets, alternative payment types are tending to lead to the creation of new schemes and if they do not extend their remit, then they risk being marginalised.
Use of international standards
Whilst domestic schemes have the option to develop their proprietary technical standards, EMV is used by almost all schemes (92%) and in many countries it is mandated by the regulator. There is less uniformity in terms of the chip application identifier (AID) that is used.
In terms of security standards, a similarly high proportion of schemes (96%) conform to international security standards such as PCI.
Cooperation between schemes
Domestic schemes are generally confined to a single market which allows them to be very focused but can also generate inefficiencies. The research shows an overwhelming majority of schemes (92%) are in favour of greater cross-border collaboration. The clear message is that domestic schemes see a need and a strong business case to work together.
Looking in more detail at collaboration potential, the top two rated areas are sharing of technical knowledge and standards and jointly developing technical solutions, such as tokenisation.
However, arrangement of mutual card acceptance is also seen as an area where domestic schemes should actively cooperate, although some schemes have already satisfactorily addressed the issue through bilateral arrangements or cooperation with international partners. Sharing of best commercial practice is seen as important by many schemes and there is also support for coordination in regulatory lobbying efforts.
“I think it is the increased willingness of domestic schemes to collaborate that is causing a big uptick in their confidence about the future. And collaboration is now seen as essential if they are to remain relevant; the domestic schemes in Asia are particularly advanced in this respect,” commented John Chaplin of CC Associates.
“It is likely that as well as increased technical and acceptance cooperation we may see some actual mergers of domestic schemes in Europe. And we could well see the surfacing of at least one African multi-domestic scheme.”