Nick Ford on CapGemini World Payments Report for MTOs

Nick Ford, Head of Payments, CapGemini, explains the third World Payments Report in its view of the future of the money transfer industry in Europe and globally.

Says Nick Ford, “The essence of the report is that there is going to be a complete change in the payments market within Europe. That change will be heavily affected by additional services, new markets and the entry of more international players both within and outside the European arena. The whole object of the PSD and the SEPA, to a certain extent, is to open up the European community to new money providers, money transfer operators (MTOs), banks, card providers, and clearinghouses. Traditionally, this has been a stronghold of the banks but the banks will now need to move towards new services, offer value added services, money transfers, and money exchange services. They can no longer operate plain vanilla payment services; they will have to wrap these services up for consumers, corporations and public authorities.

“Banks will start investigating this space more, since they will be on the lookout for new revenues because the regulatory constraints in Europe make their costs more transparent and thus reduce their revenues. So, the large banks who want to remain in this business will need to look for new services.”

Money transfer industry: What's next?

“Next, these banks will be looking to enter new markets, and we believe money transfers are going to be one of the areas that banks will target. They will need to assess -where are we now against the regulatory issues, where are we against the costs for payment transactions and what are the impacts on revenue. They are going to correspond that to the question – should they insource, outsource or get into new business areas. In the next five years, I believe there will be far more convergence between the banking industry and money transfer industry. It will add an interesting dimension to the money transfer industry. Operators like Western Union, Travelex, etc. are going to see far more competition from organisations with a very strong and trusted brand.” Ford continues.

“For the banks, the challenge will be handling distribution down the line the way the key players in the money transfer business do. The banks have got the reach but do they have the really decentralised distribution channels that an operator like Western Union has.

“MTOs will likely face increased competition. They will need to look at their business strategically and assess their long term position, for the first time in a long time. It is not just about sales but their positioning, need to consider from the opposite side of the banks, where they need to be placed and how they need to be structured – value added type or niche player, similar to the banks or lower cost high volume transaction processor.

“Large US-based MTOs like Western Union or MoneyGram will probably need to look at that business globally and look in detail at the pressure on costs in terms of the impact on revenue, the impact outside of US, increasing competition from Europe and Asia Pacific, etc.

“There may be tie-ups, as expected in the traditional payments areas. We expect the next two or three years to be a really dynamic and exciting in the money transfer area. The first wave of tie-ups between banks to outsource payments has begun, and later we should start to see the banks and large MTOs begin to partner.”