KPMG has issued an insightful report indicating that the card payments industry is undergoing rapid innovation and change, with powerful commercial, technological and regulatory forces shaping the evolution of payments ecosystems and creating the conditions for new players to enter the market. The KPMG paper, "Card payments in Asia Pacific: The state of the nations" outlines the challenges and shortcomings in the current payment systems in different markets in Asia Pacific. It assesses the future states for the industry and the areas where there could be closer cooperation between different players, namely the issuing banks, cardholders, merchants, acquiring banks and card schemes.
In many countries across the Asia Pacific, payments systems are struggling to cope with increasing volumes of transactions after years of under-investment by banks in payments infrastructure.
Recent innovations in card payment transactions across Asia Pacific are significant, but have brought their own challenges. These include the increased cost of developing innovations and processing greater volumes of electronic payments, as well as the increased cost of regulatory compliance. In many ways, the new entrants providing the links in the payment chain are best equipped to address these challenges.
For their part, many banks are evaluating whether payments systems are an integral part of their future, or a function that can be outsourced. "The emerging vision of the banking industry suggests there may be a continued shift from the in-house model to a shared services model, or what can be referred to as 'Payments as a Service' model," comments Simon Gleave, Partner in charge of Financial Services, KPMG China.
The challenges faced by the existing players in the card payments systems in Asia Pacific come from several sources. One is new industry players, such as third party processors, Internet gateways, telecommunications companies and large merchants. Another is new technologies ranging from broadband networks, near-field communications technology mobile handsets, the Internet, multi-functional point of sale terminals, and cards with new features and functions. New services such as multi-currency payment options and duty tax refunds, data mining consolidated financial reporting for merchants and a variety of value-added applications have also brought changes to card payment systems.
The most prominent newcomers to the Asia Pacific payment chain are third party payment processors (TPPs) who offer added value by tailoring services to the needs of specific merchants in specific industries. "The largest TPPs are already well-established on a global scale, with market capitalisations in the billions of dollars. However, many are still in the process of building up their presence in Asia Pacific," says Mr. Gleave. "In the past, Asia Pacific was perhaps viewed as too fragmented and complex a set of markets for them to tackle effectively, but now the scale of the opportunities is too large for them to ignore."
The rise of the Internet, among other major factors, has also created an entirely new set of players that are not only interacting with the offline card payments world, but also exploring opportunities to by-pass it.
"The traditional system is increasingly under pressure from newer, more flexible service providers," says Egidio Zarrella, Global Partner in charge of IT Advisory. "By outsourcing some of the key functions in the payments process, businesses could benefit from newer technologies without needing to invest significant capital themselves. They may also be able to save on payroll costs around personnel and expertise required to perform functions that are often not core to their business strategy, whilst retaining control over the card member portfolio. We may then see enhanced customer experiences, as well as new business models for the payments ecosystem that evolve according to the influences of the different stakeholders involved."
The evolution of this more open approach could lead to the restructuring of the payments ecosystem with the potential for a new model with shared services between the different parties.
Opportunities will continue to emerge for new entrants to shake up the landscape. In turn, some existing players in the market may find their position threatened. Many international vendors of payment software applications and third party processors are still at the stage of establishing their footprint in the Asia Pacific region. Having the right strategy, aligning with the right partners, and relentlessly striving for further efficiency gains will all be key to success and survival.
To read KPMG China's new report, please visit www.kpmg.com.hk
- Ends -
KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 144 countries and have 137,000 people working in member firms around the world.
The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss cooperative. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
KPMG China has 12 offices (including KPMG Advisory (China) Limited) in Beijing, Shenyang, Qingdao, Shanghai, Nanjing, Chengdu, Hangzhou, Guangzhou, Fuzhou, Shenzhen, Hong Kong and Macau, with more than 8,500 professionals.