Global Trends Shaping Consumer Finance

Consumer payment policy favouring cash alternatives becoming common

In both emerging and developed markets, regulators have turned to payment policy as a channel to increase their tax base by making the purchase of illegal goods and tax evasion more difficult. Although payment policy has taken a variety of different shapes, a few common approaches include: creation of a domestic network to lower the cost of acceptance to merchants; tax incentives for card and electronic transactions; additional fees or restrictions on the amount of cash that can be used; distribution of government benefits on reusable cards; adding a fund transfer and payment facility to identification cards; outright merchant acceptance mandate.

A combination of cash alternative incentives, consumer education and disincentives for paper payments has proven most effective. Government regulation and policy on consumer payments is accelerating globally and helping drive the reduction in cash.

Credit growth surpasses debit

In emerging markets, consumers that were recently introduced to financial services have become comfortable enough with cards to adopt additional card types whereas the driver in developed markets has been consumers return to credit after a period of saving and paying down debt. Credit is projected to increase by USD4.8 trillion compared to USD4.4 trillion for debit from 2017 to 2018, according to Euromonitor. In terms of total card payment value, debit is expected to remain the most used function by card payment value, accounting for 49% of global card payment value in 2022, a decline of three percentage points from 2017. Despite the growth in value, debit cards in circulation have a greater expected compound annual growth rate through 2022.

Asia Pacific card payment value slowing

Card payment value growth in the Asia Pacific region, largely driven by China, has finally started to slow after decades of double-digit value growth. The slowdown, which is exacerbated by a stronger dollar, has resulted in the largest card network in the world by value, UnionPay International, losing share of global payment value. The slower growth in China is partly a function of slower economic growth, but also a result of large portions of urban consumers already adopting financial products and services. This milestone could be a worrying indicator for international operators that are expected to be allowed to compete in the market in 2017.

With Asia Pacific growth slowing, the emerging market regions of Eastern Europe and the Middle East and Africa have the highest projected compound annual growth rate for card payment value, 13.7% and 12.8%, respectively, through 2022. In both these regions, several key markets’ governments have made converting paper payments a priority. Despite greater awareness, both regions have to overcome card payment infrastructure limitations in the short term.