The increase in unregulated and unmonitored mobile and internet payments brings with it serious risk.
We all know that more payments are being done by internet or mobile phone but how many more? We also know this is the area of the business where innovation is hottest and banks risk losing their interface with the client to non-banks. But because measuring the growth of e- and m-payments is proving something of an art rather than a science, banks that want to innovate to capture these new flows will be doing it in the dark. This presents them with serious risks of getting the market wrong.
These are some of the dangers highlighted in the World Payments Report 2013 published by Capgemini and Royal Bank of Scotland and released at Sibos 2013, which was held in Dubai in September. Industry estimates predict e-payments will reach 34.8 billion transactions by 2014, with m-payments notching up 28.9 billion, giving each instrument roughly 10% of 2012’s global non-cash volume of 333 billion transactions.
The problem is that a lot of this new activity is taking place by way of new unconventional players falling outside the scope of the financial authorities or in emerging markets, such as parts of Africa where data collection is in its infancy. All this means industry estimates could be vastly over, due to double counting in a different payment process, or under, due to lack of standardisation and a failure to capture new payment types.
Alarm bells should be ringing. We know that build-ups of financial flows, in ways we cannot measure and do not fully understand, bring risks. In Kenya, for example, 30% of gross domestic product is being transacted via M-Pesa, the country’s mobile payments system. Have all the risks been fully understood? Or are we in danger of seeing a shadow payments market emerge to go alongside the shadow banking we already see in the capital markets?
Small wonder that the Bank for International Settlements raised concerns about a lack of clarity in e- and m-payments as far back as May 2012, and urged central banks to increase their efforts to collect and analyse the data. So far only the Dutch and UK central banks have responded.
Banks need this data if they are to make the necessary innovation and investment that will keep them abreast of the demand for payments in “any form, anywhere and anytime”. Regulators need to ensure the market is growing in a healthy fashion. It is time for this black hole to be filled.
