Africa’s leading integrated payments and digital commerce company, Interswitch, in partnership with the World Bank and Global Processing Services (GPS) has released the 2022 Payments Innovation Jury (PIJ) Report in Nairobi, Kenya.
Christened Payment Innovation: Myths and Realities,” the report reveals startling insights from senior decision makers across the payments industry with Africa coming out ahead of the USA and Europe in the global charge on payments innovation in a market currently being led by Asia.
Africa’s strong showing is despite traditionally having much lower levels of investment in the sector.
“As one of the leading and influential players in payments who regard Africa as both our origin and primary catchment market, we are extremely enthused at Interswitch to yet again facilitate this timely and important research effort, which curates practical insights and expert perspectives of senior leaders globally, and across the entire spectrum of African retail payments,” said Mitchell Elegbe, Founder and Group Chief Executive Officer at Interswitch.
The report shows the market share of account-to-account (A2A) transactions is expected to increase steadily over the next five years, but the lack of a sustainable income stream for participants calls elements of the A2A business case into question.
Account-to-Account (A2A) payments enable the direct transfer of monies between accounts without relying on third-party intermediaries or payment cards.
Although the dominance of the card model in developed countries will be hard to shake, volume growth in card payments will be harder to achieve as alternative payment methods such as A2A grow their market share.
Whilst the mobile is becoming the preferred form factor for payments globally, and gathering particular momentum in developing markets, mobile money has significant regulatory hurdles to overcome.
The introduction of Central Bank Digital Currencies (CBDCs) is seen as highly likely in most markets. The Jury was however not convinced that there is market demand for CBDCs, and highlighted the significant operational costs of deployment.
Essentially, the Jury believes that CBDCs will happen, but not that there are tangible benefits for much of the industry nor end users.
“In the payments industry there have long been competing ideas on what will be the ‘Next Big Thing’, particularly as many good ideas fail to achieve the scale to operate economically. As such, what is surprising about the 2022 Payments Innovation Jury is the level of consensus achieved in almost all areas, from the future of BNPL to the end user benefits of CBDCs,” said John Chaplin, Founder and Chairman of the Payments Innovation Jury.
The report also found payment data is still not being utilised to its full advantage, with the exception of fraud control.
Regulatory restrictions on the use of personal data are leaving the field largely clear for a small number of global bigtechs who have better technology and a different business model than conventional payment providers.
Regulation is a key area of focus according to the report. In terms of which initiatives regulators should prioritise to promote innovation, the establishment of payment institution licenses with lower regulatory capital than full-service banks was seen as most effective, with sandboxes not being viewed as impactful.
The two areas of payments innovation where the Jury feel reality will diverge most from the promises were cryptocurrency and Buy Now Pay Later (BNPL), with BNPL usage set to increase in the short/medium term because of strong benefits for consumers and merchants.
However, its rapid expansion is likely to be a short-term phenomenon in the face of future regulation and rising credit losses.
There was an almost even split between whether Banking as a Service (BaaS) is a technology model or a business model.
Hopes that traditional banks would benefit seem largely misplaced, as it is a new generation of specialist platform providers that are leading the charge.
The 2022 Payments Innovation Jury whose expert insights and perspectives essentially drove the report was made up of 79 senior payments leaders across 30 different markets.
A significant number of senior regulators and investors were recruited to the Jury for the first time since the inception of the report in 2008 to give it an all-inclusive 360-degree picture.
They joined national payments companies, banks, FinTechs, and payments policy bodies. Importantly, all Jury members participate on an anonymous basis to allow them to speak freely, unencumbered by the innovation priorities of their current organisations.
“It has been incredibly rewarding to gather the insights of 79 of the most senior players shaping the global payments industry whose views are curated in this report. The patronage of the World Bank, Interswitch and Global Processing Services allows us to operate on a not-for-profit basis and distribute the report free of charge to anyone with an interest in the future of innovation in the payments industry,” PIJ chairman John Chaplin added.
Interswitch CEO Mitchell Elegbe said this edition coincides with the 20th anniversary of Interswitch’s inception, noting that at such a significant milestone in the company’s journey as a front-row contributor to payment innovation in Africa, Interswitch has once again had the privilege of supporting this worthy initiative that is facilitating balanced appraisal and better understanding of the payments industry as it continues to evolve.