Between Bank Transfers and Oxxo — Global Differences in Online Payments

The range of payment types is growing—and enjoying varying degrees of international success

Easy come, easy go: Not even 15 years after countless Europeans flocked to cash machines on January 1st, 2002 to get the new Euro notes and coins, these are set to disappear. As is cash in general, according to several leading economists. If and when this proposal will become reality is still up in the air, but the uproar among the German population is tremendous. According to a survey carried out by the Bankenverband [German Banking Association] in February 2016, the overwhelming majority (91 percent) are vehemently opposed to getting rid of coins and banknotes. While there are many reasons for this, the concern that this development would create a more transparent population of “glass citizens” if every transaction were to become digitally traceable, is debatable. Currently, almost half of all payment transactions made at brick-and-mortar retailers are carried out using cards. Electronic payment methods in Germany are, however, still in their infancy compared to other countries. In Great Britain, for example, Apple Pay has been commonplace for a long time, while in Sweden even the smallest payments made to bakers are cashless, and current discussions in Denmark are focusing on relieving retailers of their obligation to accept cash altogether. These examples show how differently payment processes are developing in the global financial industry.

E-Commerce as an Indicator for Payment Trends

An overview of the most significant key data for global payments in e-commerce underscores the major differences between countries. With somewhat more than 50 percent, cards—credit, charge and debit—are the world’s most popular cashless payment methods. As is to be expected, North America is considerably above the global average with cards making up 67 percent, followed by Latin America (52%), the EMEA states (49%) and the Asia-Pacific region (40%). Just as clear, however, is the growing acceptance of e-wallets, or virtual purses. With a 34% share, the practical electronic wallet lags only slightly behind cards in the Asia-Pacific region. But in the EMEA (20%), too, and even North America (14%), e-wallets are on the rise. Various studies assume that this trend will continue to increase until 2020—at the expense of plastic. On a global level, an increase of up to 6 percent is predicted, whereas cards are predicted to decrease in popularity by up to 5 percent. The biggest changes are expected to occur in North America.

(Not) Everybody’s Darling: Bank Transfers

When it comes to the most popular global and regional payment methods, bank transfers are in third place. There is an important distinction to be made between real-time bank transfers and transfers which are made at a later time, rather than being processed at the time of purchase. With the first method, customers are either transferred directly to their online banking environment or asked to select their bank from a list of the retailer’s banking partners. Authorisation is performed as usual with online banking via PIN and TAN. Many popular and widely accepted regional alternative payment types work along these lines, including SOFORT Überweisung in Germany, iDEAL in the Netherlands, and Przelewy24 in Poland. With the second method, customers receive a reference number during the purchase process, which they then use to make payment via online banking or at a branch in order to complete the transaction. Globally, around 11 percent of all online purchases are made using bank transfers. This percentage will change only insignificantly over the next few years, with a slight upward trend. New, bank-transfer-based alternative payment types, however, are a completely different matter, and some of these (it remains to be seen which) will gain in regional popularity over the next few years. Internationally active e-commerce retailers should keep a very close eye on their target markets when it comes to selecting payment methods. A global comparison shows that bank transfers are most popular in the EMEA region, (around 17 percent), followed by the Asia Pacific region (11%), Latin America (9%), and North America (7 percent)
Overall, cards are in first place as the world’s most popular payment method. Their market penetration is, however, gradually being reduced as other, alternative payment types become more popular. In Great Britain, for example, a real pioneer when it comes to FinTech and alternative payment methods, around 52 million credit cards are currently in circulation, whereas there were over 66 million in 2008 . Bank transfers remain in third place.

Opposing Trend

Only Latin America contradicts this global pattern. Although cards and bank transfers are still in first and third position (52% and 9% respectively), second place is occupied by cash-based payment methods (16%) instead of e-wallets. With these methods, customers order goods online and then pay the amount owed locally: at a bank or post office, supermarket or cash machine. One reason for the popularity of this payment type is the very low level of bank account ownership in South America. In Brazil, for example, by far the most developed Latin American e-commerce market, over half of the population has no bank account . Boleto Bancário (Portuguese for “bank ticket”, or “voucher”), a local cash-based payment process, is therefore extremely popular.
Conclusion: The payment industry is in flux, although it will, presumably, be some time before cash and plastic cards become museum pieces. Today’s global e-commerce developments can be viewed as an indicator of the shift towards a new and technologically more mature payment landscape which will, at some point, establish itself independently from Internet retailing.