payments – reloaded! spending priorities & innovation in payments

Payments – Reloaded!

Spending Priorities & Innovation in Payments

© IDC Financial Insights

Payments - Reloaded!


Agenda

Payments Business – Strategic Relevance• CXO Discussion Highlights• Financial Insights WW Spending Guide (Payments)

Innovation in Payments• “Disruptive” Innovation• Innovation in Payments

Payments Business – Strategic Relevance

CXO Discussion Highlights


How are IT Budgets beingDeployed ?

Channels & Distribution28%

Business Process

Re-engineering12%

Core

Refresh 28%

EnterpriseData Management14%

Administration &

Reporting5%

Enterprise

Payments13%

Australia

US$4 Billion

Singapore (regional)

US$6 Billion

India

US$4 Billion

China

US$3 Billion

Malaysia, Indonesia, and Thailand are all in excess of

US$1 Billion

Overall IT Budget

N=162 CXOs


Payments remains a Major Operational Challenge

Human Capital

Management (COO) 15%

Cost & Performance

Management (CFO/COO) 12%

Prioritization &

Management of

IT projects (CIO/CFO) 17%

Cards, Payments & Lending (CIO/CFO/COO) 29%

Regulation & Compliance (CRO) 10%

Innovation & Market Responsiveness

10% (CIO/COO)

Business Process Improvements (CIO) 7%

N=162 CXOs


Tier 1

, NA

Tier 1

, NA

Tier 1

, NA

Tier 1

, NA

Tier 1

, NA

Tier 2

, NA

Tier 3

, NA

Tier 3

, NA

Tier 1

, AP

Tier 1

, AP

Tier 2

, AP

Avera

ge0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Other

Clearing And Settlement

Exception Processing

Fraud Management

Payment Instruction Generation And Validation

How is Payments Spend being Allocated, Functionally?


Financial Messaging

IT Payments Infrastructure

POS Channel

Debit card fraud management

Enterprise payments reporting and business intelligence – that is, cross-product reporting

Compliance in AML

ACH fraud management

Credit card processing

Online banking – consumer

Online banking fraud management

0% 2% 4% 6% 8% 10% 12% 14%

1%4%4%5%5%5%

5%6%

6%6%6%

7%7%

8%9%

10%10%

11%12%

Average Percentage Increase in Spending

What is the Fastest Growing Area of Payments Spend?


Influence RatingRegulatory requirements 1.1

Customer requests for new products/features 1.6

Fraud rates 1.7

Need to match competitive offerings 1.8

Vendor support ending for software application 1.9

Cost Reduction (hardware, software, FTE) 2.1

Globalization of Payment systems 2.1

Consolidation of bank systems due to M&A activity 2.1

Adoption of mobile technologies 2.2

Merger integration 2.2

New software version 2.3

Macroeconomic conditions 2.5

New hardware available 2.6

Default/charge-off rates 2.8

Interest rates 2.8

Silo Convergence – Middle Office Integration 3.0

Exchange rates 3.1

What are the Key Drivers for Payments Spend?


Function RatingMerchant card processing 2.1 Debit or prepaid card processing 2.4 Credit or charge card processing 2.4 Credit or charge card fraud management 2.5 Debit or prepaid card fraud management 2.5 ACH processing 2.8 POS Channel 2.8 Enterprise payments reporting 2.9 Mobile Payments 3.0 Mobile Banking 3.1 ACH fraud management 3.1 Online banking – consumer 3.2 ATM Channel 3.3 Wire Fraud 3.3 RTGS Processing 3.3 Payments Intelligence 3.3 Online Banking Fraud 3.4 Online banking - business 3.4 Payments IT Infrastructure 3.5 Messaging 3.6 Compliance in AML 3.9 SWIFT Processing 4.1

Appetite for Payments Outsourcing?


Less risk

Higher revenues

Lower exception rates

Improved customer satisfaction / loyalty

Other: Lack of expertise and scale in-house

Higher quality service to the bank customer

Greater accountability

Quicker time to market

Access to otherwise unavailable functionality

Lower costs

Better operational efficiency

1

1

1

1.6

1.6

1.92.7

3.1

3.1

3.4

3.9

Benefits of Outsourcing in Payments

What are the Drivers of Payments Outsourcing?

Payments Business – Strategic Relevance

Financial Insights WW Spending Guide (Payments)


Payments Spend (Overall)

+12%

+12%

+8%

+8%

+9%+4%


Payments Spend (by Solution Element)

+12%

+12%

+8%

+8%

+9%+4%


Payments Spend (by Region)

+12%

+12%

+8%

+8%

+9%+4%


Payments Spend (North America)

+9%

+9%

+5%

+6%

+7%+0%


Payments Spend (Europe)

+13%

+16%

+9%

+9%

+11%+7%


Payments Spend (Asia/Pacific)

+12%

+12%

+9%

+10%

+9%+10%


Payments Spend (Transactions)

+10%

+10%

+6%

+7%

+8%+3%

Innovation in Payments


“Disruptive” Innovation?


Innovation in Payments requires:

Innovation-friendly legal and regulatory environment

Harmonization of the payments ecosystem

Market maturity and social acceptance

Successful integration into existing value chain

E-micropayments?

International remittances?

P2P payments?


Innovation in Payment (Products / Services)

Users select payment instruments depending on Place, Timing, & Amount – the key is CHOICE!

E-Money & Stored Value products

• Various form factors

• Prepaid – targeted acceptance

Cards 2.0 – driven by:

• Security – Authentication at the point-of-sale

• Service – Payment choice at the point-of-sale

Merchant offerings

• Cost-efficient & integrated offerings

• “Mobilized” merchant acceptance & social mobile payments

Free-form, contactless payment devices

• Locational intelligence; proximity; real-time decisioning

• Mobile retail marketing tools


Innovation in Payments (Delivery Channels)

Channel innovation based on Convenience, Interaction, (low) Cost, and Security

“Mobilizing” Payments• Mobile has become a key component in any medium-term payments roadmap

• Mobile payments gaining traction across emerging markets; evident in initial acceptance rates, scale, and ambition

• New fund transfer mechanisms targeting demand for convenience and privacy

• Mobile technologies driving merchant acceptance

• Governments also initiating mobile payments innovation


Predicting the Future of Payments?• Explosion of debit and prepaid card products

• E-micropayments will gain traction, driven by mobile, prepaid, contactless, biometrics technologies

• Growing prominence of non-bank PSPs will threaten disintermediation of the payments value chain

• Mobile devices become established money transfer instruments

• Increasing challenge of balancing regulations with new market dynamics

• New forms of risks – “closed” settlements; interoperability creating interdependency, emerging security risks


Shawn Yip

Asia/Pacific Analyst

IDC Financial Insights

Email: [email protected]

Tel: +65 6829 7523

payments – reloaded! spending priorities & innovation in payments

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