To say that Visa and Mastercard are household names “might be an understatement”, Peter Hobson says in this episode of The Signal. “They’re almost inescapable, at least in certain developed markets.” He explains why these two players are “massively profitable”, well ingrained in the payments ecosystem, and positioned for the future landscape.
Hobson cites a number of growth areas, including digitisation, new payment flows and ancillary services, such as risk and identity advisory solutions. As Grover notes, cash payments still represent a significant portion of transactions in Eastern and Southern Europe, as well as Africa. And while Latin America is following the payments model, “cash remains king” in the region.
In addition, some 40% of B2B payments in the US are still made via cheque, Hobson notes. “One of the experts we spoke with in May said he expects the proportion of cheque-based B2B payments to decrease 10% over the next year and continue decreasing at an accelerated rate thereafter.” AR and AP are also strong growth categories.
Turning to regulation, the European Payments Initiative and ongoing pressures to reduce interchange fees are examples of an intensifying environment. However, Grover says the EPI does not offer “any compelling business case” for participating banks and also notes that interchange fees fund consumer benefits. Hobson also downplays the potential impact of the EPI, noting that some banks have already pulled out.
Another perceived threat is the rise of cryptocurrencies, which Grover quashes as being “hyped” and “not fit for purpose as payment systems”. They do not have critical mass and the lack of governance is a “bug”, not a feature, he says.
On names to watch, Hobson highlights American Express, which is striving to become a more holistic banking solution for businesses, having acquired SME lender Kabbage, for example. Eric says: “I would watch some of the traditional processors that are trying to build some platform economics into their businesses.”
Overall, payment systems are in a world “full” of growth opportunities, our panellists say, with Visa and Mastercard set to remain the dominant players over the next decade. Although the regulatory environment will “probably be more negative”, the existing payments networks “won’t look that different”; there will be more electronic payments and less physical cash, “but physical cash will still be with us”.
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