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Africa Snip
Merchant Acquiring in Africa

Merchant acquiring in Africa remains underdeveloped relative to other regions of the world: the traditional acquiring models which have been successful in the developed world have for the most part failed in spreading card acceptance beyond large urban centres and popular tourist destinations.The costs involved in installing POS terminals are often prohibitive for smaller African merchants and the potential volume insufficient for acquirers to consider subsidising these costs. This conundrum, coupled with patchy connectivity and unreliable electrical supply means that an alternative to the POS terminal is essential if cards are to stave off the threat posed by mobile money throughout much of the continent.It is within this context that both Visa and Mastercard have introduced QR codes to the point-of-sale so that all a merchant requires to accept 'card' payments is a smartphone. While Africa has long lagged behind other regions in terms of development, it is the region where technology is having the most transformative effect and it is here that the card networks are refining their strategies for life beyond plastic.A developing regionAfrica is a region with great potential, especially in the realm of financial services. It is home to a very young population that is becoming increasingly aware of different financial products. While low commodity prices and political uncertainty remain a challenge, the region has witnessed substantial economic growth over the last decade or so.Perhaps the most pressing priority for African authorities is to increase the rate of financial inclusion, which Governments hope will spur economic development, among other goals. In the case of the ten African markets covered by Lafferty, they are succeeding handsomely: the rate of financial inclusion (the number of people aged 15 or older with an account at a financial institution) has increased from 31 percent in 2010 to an estimated 51 percent in 2016.While this is a great boost to the financial services industry in Africa, it will be some time yet before the acquiring industry will be able to reap the rewards of this greater participation in the banking sector. For the time being, it is debit cards that have witnessed a huge spike. However, in common with credit cards, debit cards are mostly used to withdraw cash from the ATM: migrating cardholders from the ATM to the POS should be a priority for issuers and acquirers alike.In general, financial literacy also remains a challenge for many and for the continent as a whole. Lafferty research has found that consumer credit and banking services are mainly restricted to the top earners in society, where the risk is more assured. As a result, products such as credit cards are available only to an elite few. This has a considerable knock-on effect on the level of merchant acquiring. The challenge presented by mobile money is also something that industry players should familiarise themselves with.However, the increased rate of financial inclusion will have an effect on the number of cardholders, while continued economic growth will lift more into the middle-class, thus allowing them to avail of credit cards.Africa's acquiring industry is small in scale and revenue is far below that of other regions. In spite of this, there has been continued growth in all of the main metrics. In contrast to more mature regions, there is great scope for growth in Africa. In time demographic factors will tell: issuers and acquirers are finding it increasingly more difficult to grow volumes in other regions, while Africa is just awakening to the possibilities that payment cards present. Industry players who enter the African market in the near-term may well continue to enjoy first-mover advantage for some time afterwards.Acquiring modelsWith a population of approximately 1.2 billion at the end of 2016, Africa is a young, diverse and growing market. This is also the case when it comes to merchant acquiring. The most advanced cards market in the continent is South Africa, with levels of credit card ownership that would not be out of place in Europe. Mauritius is almost at the same level: the difference in scale, however, means that South Africa is a more attractive arena for acquirers. Egypt is the second most profitable African market by merchant income, boosted by high tourist arrivals.Much of the rest of the continent, however, is undeveloped from a credit cards and acquiring perspective. Of the African countries covered by Lafferty, there were five markets at the end of 2016 that had a credit cardholding per 100 adults of less than two (not counting Algeria, which did not have any credit cards in issue at that date). In addition, there are many markets where card penetration does not even reach these low levels. Given the situation, this study focuses on nine markets in the continent where credit card usage and acceptance is comparatively more commonplace:Africa: No. of Credit CardsAcquiring in Africa is most commonly carried out by the leading issuers. Merchant acquiring is often seen as a support service for the issuing business, which is what drives profits. This is in contrast to Western Europe, where specialist acquirers dominate the acquiring industry. In South Africa, the most important market in the region, acquiring is dominated by ABSA Bank, First National Bank, Standard Bank and Nedbank. Together these four banks acquired approximately 91 percent of credit card billed volume during 2016, which meant that these institutions acquired approximately 75 percent of total African credit card billed volume during 2016. In many African markets, inbound tourism and business travel are important drivers of acquiring volume. Merchant acceptance is clustered around places frequented by foreign visitors such as airports, hotels and resorts. Thus the second and third markets with the greatest merchant income during 2016 were Egypt and Mauritius, which are popular tourist destinations. Political instability however has curtailed this revenue stream in recent years with lower tourist inflows in North Africa in particular and to a lesser extent in Kenya. However, this may turn out to be a blessing in disguise for the acquiring industry, as acquirers are forced to focus on developing the domestic market for sustainable long-term growth. On the other hand, many of Angola's large population of expatriate Chinese workers carry Chinese issued UnionPay cards, which boost acquiring volumes in the country. Similarly, acquiring is boosted in major oil producing nations such as Nigeria by expatriate workers:Africa: Merchant Revenue (USD, mn.)Overall, the merchant acquiring business is a challenge in most African markets: banks have found merchant acquisition a low-margin business. To address these obstacles, there is a concerted effort to promote new technologies — such as mobile money, internet banking, electronic signatures and biometric identification — which have been successfully deployed in other countries, including some in Eastern, Southern and Western Africa.Merchant AcceptanceAn obvious issue in the region at the moment is very low merchant acceptance: as a result, Africa has one of the highest proportions of ATM usage of all of the regions researched by Lafferty. There are several reasons behind the lack of card acceptance and usage at the POS. These include surcharging by merchants to pass on merchant service charges to customers, customer perception of an abuse risk regarding card usage, merchant fears of billing fraudulent cards and tax avoidance practices by merchants. Furthermore, merchants require that goods purchased should be above a certain value to be paid for through payment cards. Cards acceptance remains limited to major urban areas and significant tourist areas. In Ghana, Nigeria, Egypt and Kenya, merchant terminal deployment is generally restricted to travel and entertainment outlets. Reflecting the popularity of these countries as tourist destinations, a considerable proportion of revenues from merchant service fees are generated by foreign-issued cards.However, despite the above, there has been a significant increase in the number of POS terminals per 100,000 adults across the region: the only decrease from 2010 to 2016 was in Tunisia (of one percent). There was a substantial increase from 2010 to 2016 in four markets: Ghana (of 1,023 percent), Nigeria (754 percent), Angola (392 percent) and Algeria (163 percent). The ratio for the region as a whole increased by 84 percent:Africa: No. of POS Terminals per 100,000 AdultsHowever, compared to the other regions covered by Lafferty, Africa has by far the lowest level of POS penetration per 100,000 adults, trailing the Middle-East and Asia-Pacific. If acquiring volumes are to be grown over the coming years, then this low level of POS penetration must be increased.However, a potential solution to the lack of merchant acceptance is the introduction of mobile payments via QR Code. Mobile money has been a huge success in many African markets, showing that both consumers and merchants are open to mobile payments. Mastercard and Visa have introduced payment by QR Code to several African markets, and it is likely that this form of merchant acceptance will grow strongly over the medium-term.

Cards, credit cards, debit cards, finance, money
CC outstandings in Argentina

At the end of 2016, credit card outstandings in Argentina stood at $15.3 billion, which was an increase of 741 percent compared to 2010. This figure represented 42 percent of total consumer finance in 2016, although Lafferty expects that this proportion will decrease to 37 percent by 2019. Credit card loans experienced strong growth between 2010 and 2016 and represent a key pillar for consumer spending in Argentina. Although credit card outstandings rebounded to a 59 percent growth level in 2015 from 35 percent in 2014, growth decelerated to 26 percent in 2016 due to higher unemployment and inflation. Over the past few years, almost all players in the consumer credit market have been marketing large discounts of ten to 50 percent and repayment plans of up to 60 fixed-amount instalments at affiliated merchants, including supermarkets, department stores, and appliance/electronics outlets. However, between 2013 and 2014, issuers adjusted these benefits, which — combined with deteriorating economic conditions — slowed down consumer credit outstandings and billed volume in the first half of 2014.During 2014, payment card billed volume and consumer credit outstandings (particularly in credit cards) declined over the first nine months because of higher inflation, local-currency devaluation and relatively lower wages. To mitigate this drop, in September 2014 the government — in agreement with credit card issuers and merchants in specific sectors — launched the 'Ahora 12' (Now 12) programme to incentivise consumer spending on domestically-manufactured products.Under this programme, which is available between Thursdays and Sundays, credit cardholders can purchase goods and services from 18 types of merchant categories, including appliances, clothing, footwear, leather goods, motorcycles, bicycles and tourism packages, in twelve interest-free instalments. Initially the programme was expected to last until March 2015, but the government extended it until April 2017 and included a new option of 18 interest-free instalments.Discounts and interest-free instalments are not new to the Argentinean market. A race to offer huge discounts was triggered at the end of 2008, when merchant stocks were too high and consumer spending came to a halt due to fears about the global economy. Since then, a major characteristic of the market has been the intensive use of discounts, combined with up to 18 interest-free instalments as an incentive to promote credit cards use. Although this strategy has proven successful in generating billed volumes and increased profitability, it blurs customer loyalty to both the bank and the card network. It also has associated high expenses, both in terms of marketing and the discounts themselves.The main source of competition for bank-issued credit cards comes from retailer-issued private label cards. The financial services regulatory framework in Argentina is not binding on these cards. Retailers use credit cards to retain clients through loyalty programmes and their own promotions. The law caps interest rates on credit card loans. They cannot exceed the interest rate that the issuer applies to personal loans by more than 25 percent. In the case of non-bank issuers, interest rates cannot exceed the average interest on a personal loan by more than 25 percent as published by the central bank. There are no upper limits on interest rates on personal loans. Although there has been strong credit cards growth in terms of both cards in issue and billed volumes, local market analysts estimate that 30 percent of cardholders — mostly concentrated among middle- to high-income individuals — have three or more credit cards. Only around 20 percent of low-income adults hold a credit card. This is in comparison to an overall average penetration rate of 114 credit cards per 100 adults in 2016.Consumer attitudes to creditArgentineans — especially the middle- and lower-income segments of the population — are well disposed to buying goods and services on credit; they particularly favour paying for purchases in monthly instalments but also control their spending and try to buy only what they consider essential. They are not very sensitive to interest rates, with credit decisions made based on whether they can afford the monthly instalments. However, Argentineans have become more savvy and selective in the use of credit and financial products, taking advantage of every discount, promotion and benefit on offer. Promotions and discounts are an integral part of the market, and thus banks and retailers have had to think creatively. For example, discounts that were initially offered every weekday are now concentrated on certain dates and on specific products. From a social perspective, availing of promotions and discounts is no longer seen as shameful or being cheap. Now it is deemed 'smart shopping'.Note: $1 = 15.891 pesos, exchange rate as of 30 December 2016

Digital payments: an unstable Indian future?

Perhaps nowhere in the world is the ongoing transformation of a country from pro-cash to cashless more evidently intriguing than in India — and yet an eventual overhaul of how the country spends and sends money is not guaranteed.The demonetisation project brought in by Prime Minister Narendra Modi's government late last year to propel the country towards a digital age has endured a bumpy ride so far. Right now, despite all of the innovations and developments, there are no definite answers to the question — "are we there yet?"There is still a long way to go before the country can claim to have cast off the shackles of dependence on paper money — indeed, a recent presentation by Quatrro Processing Services highlighted that cash remains a popular choice. High on the list of the main barriers to digital payment are the habit of using cash, complexity of use and competition from elsewhere."Fear of security is a common issue. In fact, security and the habit of cash are the two biggest barriers to adoption of digital payments," Quatrro Processing Services COO Sriram Natarajan recently told Lafferty. "Also, cash offers a huge advantage of anonymity; which no other form of payment offers. With every breach and scam, customers will continue to fall back on cash."The popularity of apps like BHIM and PayTM are sure to play a key role in how the battle plays out, and the arrival of fellow digital payment app Google Tez on the scene has been welcomed by the government as another boost to the policy.However, Mr Natarajan feels that for digital payments to really replace cash and become popular enough to boost the number of online buyers from around 100 million in 2016 to something resembling China's 460-odd million [2016], a radical overhaul of the current approach needs to take place. Indeed, he is of the opinion that the credit card's past could foretell a brighter future for e-payments and so on. "People at the bottom of the food chain can't be forced to adopt digital payments", he says. "Like any other change, it has to be beneficial to the users."I am primarily alluding to the great Indian demonetisation misadventure — which started off as a war against tax evaders hoarding cash; but quickly turned into a nightmare for the economy as the cash liquidity was drained out of the key sectors of the economy."Merchants will adopt anything that is cost efficient and secure and fast in processing. Customers will adopt digital payments only if there is a clear benefit for them or a powerful incentive that makes it very attractive. We must all remember that the stupendous growth of the credit card over the years was not because of the slick payment experience — it was only because the consumer got access to unsecured credit."If the industry gets back the focus on credit — instead of making the payment process slicker — the industry will see an explosion of mobile payments adoption," Mr Natarajan added.A mentality shift is certainly needed. After all, the prevalence of cash-usage in India is not to be understated: according to ANZ analysis, alongside China, India was one of the biggest factors behind a five percent spike in the number of ATMs worldwide, while the Indian Express (per statistics from the RBI) reported that since 2012 the number of ATMs in the country has doubled to over 200,000.

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