The search for a solution to the hidden payments conundrum

Hidden payments have become "too big to ignore", according to a new report, even though the exact volumes are difficult to quantify. The growth in hidden payments is being driven by customer demand, gaps in existing value propositions, a lack of customer access to traditional payments, and regulation, says the World Payments Report 2015, a joint venture between Capgemini and Royal Bank of Scotland.

It estimates that hidden payments now account for about 10% of total non-cash transactions, which themselves totalled $358bn in 2013, an increase of 7.6% over the previous year. Of the hidden payments, $22.6 bn  are accounted for by closed loop cards and mobile apps such as the Starbucks mobile app, $16.5bn by non-bank digital wallets, $1.8bn by non-bank mobile money such as Kenya's M-Pesa, and $40m by virtual currencies.

One interesting aspect is that these new payment methods appeal across social classes and geographies, uniting the latte sippers of the cities with the rural poor in Africa. 

Banks held back by legacy systems and regulations have sometimes been slow to respond in this space. In the past, bankers have sometimes excused themselves by saying the volumes are trivial. Clearly this is no longer the case. But hidden payments offer up challenges for regulators and users too. They do not provide the same protections as banks and regulators will want to be sure this sector is safely run. Meanwhile, these players are moving the financial services industry on in terms of innovation.

Brian Caplen is the editor of The Banker. He will chair a panel session on the World Payments Report at Sibos in Singapore on October 13 at 12.45pm local time.