Amid rising hype about mobile wallets, P2P FinTech challengers and QR-code payments, this year’s Digital and Card Payments Yearbooks show a card segment in robust health, with business growing strongly. James Wood invites Europe’s central banks and payments players to show their hands…
A 2020 study from Research and Markets reported that mobile wallets could account for $1.4 billion in spending across Europe by 2023, while studies from Deutsche Bank and others in early 2020 predicted we’d see a payments landscape consisting of cash and wallets only by 2030.
However, new and exclusive research for PCM’s Digital and Card Payments Yearbooks 2021 shows the European card business in robust health. So much so that, even if the wildest projections regarding mobile wallet use come to pass, wallets will still only account for around five percent of all electronic transactions by 2025.
As we’ll see in what follows, the real dangers to existing payment infrastructures come from burgeoning fraud and disintermediation by account-to-account IBAN transactions.
Across the 33 countries surveyed, our yearbooks report almost 1.12 billion cards in circulation, up 4.83 percent from the year before. These cards were used for a total of 97.53 billion card payments (up 11.65 percent), giving an average of 87.11 payments per card per year (up 6.51 percent). The total value of card payments undertaken was €3,817.4 billion, up 6.59 percent, with an average transaction value of €39.14 on cards across Europe. By comparison, JP Morgan projects total global wallet use will reach $740 billion by 2025 – around a quarter of the spending on cards in Europe alone.
Although card usage figures varied from a low of 28.8 card payments per head of population in Bulgaria through to a high of 472.3 card payments per head in Norway, there’s no doubting the pattern of continued solid growth shown in this year’s data.
Contactless is king
No doubt COVID-19 has played a part in card payments’ continued popularity across Europe, with consumers opting for what they know and trust in a time of difficulty. However, the capacity to pay by contactless card has proven wildly popular during the pandemic, with new data from Visa (see this issue’s “Market Analysis” section, pp XX-YY) showing that contactless cards were used in 73 percent of all card transactions world-wide last year. PCM’s independent research shows that more than 85 percent of Europe’s POS terminals are now contactless-enabled, and that the shift to contactless payment appears permanent, no doubt facilitated by increases in the contactless payment limit to €50 and £45 across the euro zone and the UK, respectively.
The debit dynamic
Debit cards now account for 68.8 percent of all cards issued in Europe, with compound growth in the number of debit cards at 4.25 percent over the last five years. Debit cards outstrip credit cards by a ratio of 2.21 to 1, up from 1.81 to 1 five years ago. While this is part of a longer-term shift away from credit cards, the usage of debit cards shows how pervasive they now are. Debit card payments were up 11.80 percent across Europe to 76.11 billion, with spending on debit cards growing at a compound rate of 13.17 percent over the last five years – more than twice the rate at which debit cards have been issued – demonstrating the popularity of the debit function.
“Demonstrating the popularity of debit cards, debit payments grew more than twice as fast as card numbers over the last five years.”
Recent studies from Accenture and others have highlighted the increasing cost of credit cards to bank providers, while – as has been widely reported in these pages and elsewhere – instalment payments have been jumping ahead of traditional credit cards in recent years as a means for consumers to finance purchases. It therefore comes as little surprise that our research shows growth in credit card numbers across Europe at a little over half (6.57 percent) that of debit cards in the last five years.
Likewise, expenditure on credit and delayed debit cards stood at €1,107.2 billion (up 6.18 percent) across Europe, excluding France. Spending fell in the Czech Republic, Finland, Iceland, Latvia and Portugal, although a rise in credit card spending was recorded elsewhere thanks to contactless payments and the introduction of a cap on interchange fees by the EU from 2015.
The UK is a major credit card market, but even that market has essentially been flat for several years. By contrast, debit cards continue to grow strongly in the UK, according to our profile for that country.
Acceptance: POS rising, ATMs cashed out
At present, the acquiring market is coping with consumer demands for the acceptance of a wider range of payment types, from cards and cash on the one hand through to mobile wallets, wearables and account-to-account payments – as well as continued downward pressure on fee structures, whether through regulation or competition.
These challenges aside, the installed POS terminal base grew across Europe grew by 8 percent to 19.45 million last year, up by 51.7 percent in the last five years for compound growth of 7.86 percent. As many countries look to upgrade their POS networks, we can expect this growth to continue – last year, Ireland (35.9 percent), Poland (15.2 percent), and France (14.4 percent) reported growth rates of 14 percent or higher. Driven by the rise in contactless payments, POS payments grew faster last year (12.42 percent) than their five-year average of 11.73 percent.
“There are clear signs of market saturation when it comes to ATMs as cash use continues to decline.”
By contrast, Europe’s ATM network showed its continued pattern of decline, decreasing by 0.94 percent to 457,773 ATMs across the continent in 2019. With a compound annual growth rate of -0.37 percent in the last five years, there are clear signs of market saturation.
Where next for banks?
Faced with the digital revolution, stiff competition from digital-only players and growing regulation, it will come as no surprise that Europe’s bank branch networks continue to decline at rate of around six percent per year, much faster than the continent’s ATM network. There are now 10,000 fewer branches across Europe than in 2018, and less than 163,000 across the continent. The total number of credit-issuing institutions in Europe has also declined from 8,525 in 2008 to 5,981 in 2019. As our interview with PCM’s Director of Research, Horst Forster, makes clear, this is a trend we can expect to continue – new self-service branch concepts are being introduced by many European banks which fit modern lifestyles. These include innovative user authentication arrangements such as voice ID, facial ID and two-factor authentication using PIN and/or biometric factors in remote locations.
Fraud: the ghost at the feast
Fraud has been a constant thorn in the side of the European payments industry. The most recent figures available from the ECB show that the total level of card fraud losses amounted to €1.8 billion in 2018, constituting significant growth of 12.5 percent on the previous year. Seventy-nine percent of these fraud losses by value came from card-not-present (CNP) payments via post, telephone or on the internet, with around 15 percent at physical POS terminals, and six percent at ATMs.
Since the last ECB report in late 2018, fraud has shot up in the mobile channel, with account takeover and user impersonation recording treble-digit growth during the pandemic – and new fraud types, such as false claims for non-receipt of goods and fake invoicing also growing dramatically. The growth in these new fraud types underlines the need for workable forms of digital ID to be introduced as soon as possible – as well as improvements in Know-Your-Customer (KYC) technologies in the digital channel.
“Despite the hype these numbers paint a telling picture about the dominance of cards as a means of non-cash payment.“
While Mark Twain’s comment about lies, damned lies, and statistics may loom large in our minds, these numbers paint a telling picture of the dominance of cards as a means of non-cash payment, especially for those of us often exposed to breathless hype.
The relative decline of credit cards is a trend of note, especially given the advent of “instalment payments” as an alternative and the ever-rising cost of managing credit products for banks. It will be interesting to see how far mobile wallets and, in particular, account-to-account payments affect the card business in the years to come. With the regulation of instalment payments just announced in the UK (Feb 21), the question of what happens to credit products in a fully-digital environment remains open.
For more information about the Digital and Card Payment Yearbooks, or to order your copy, please visit: www.paymentyearbooks.com.