3 May 2023
National Payments Schemes: drivers of economic and social benefits in growth markets
The opportunity for domestic payments schemes
The research project shows that domestic payment schemes have the potential to take a major and potentially larger portion of global retail payments volume vis-a-vis the international payment schemes. Nonetheless, there are a number of challenges and issues they are facing, which if not addressed the risk of marginalisation is large despite the potential opportunity. Here are some of our key findings.
The need for innovation
Operating with continued low-cost / low margin operations is important, but zero margin leaves no funding available for innovation. Creation of modest profitability to fund innovation would not endanger the cost advantage they currently have.
Working with regulators and other domestic systems
Domestic schemes must maintain close relationships with regulators and make sure their business model and competitive issues are understood. Close relationships with other domestic retail payments systems should be built to permit the development of hybrid capabilities as well.
Meeting consumer needs
Scheme pricing should continue to be simpler and clearer than the international schemes but market reality should also be recognised. Domestic card schemes should also provide a viable e-commerce solution, as debit cards without this support will be increasingly unattractive.
For domestic schemes, their international strategy is important and discussions should be held with all potential partners. In small markets, regional cooperation possibilities should be examined at the scheme and infrastructure levels.
A step towards financial inclusion
If studied through the prism of positive, impactful social change, then the economic opportunity presented by global Growth Markets comes down, broadly, to affecting large-scale financial inclusion. At Apis Partners, we strongly believe that a robust and efficient Financial Services sector is the cornerstone for developing sustainable and equitable growth models across key social sectors (food production, healthcare, education) and thus creating paths out of poverty.
Amongst the many impediments of financial inclusion is the lack of a cost effective payments infrastructure, and expensive international card schemes are often a major culprit. As this comprehensive global study finds, cheaper and more agile domestic card schemes minimise financial frictional costs and crucially, foster change from mostly physical cash economies to de-materialised digital ones. This becomes particularly relevant in an age of rapidly evolving mobile payments infrastructure, which requires a cost effective merchant acceptance platform.