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CMSPI – IAC State of the Industry Report
CMSPI – IAC State of the Industry Report
Methodology CMSPI’s Insights team has synthesized a wide range of publicly-available sources and conducted expert analysis to generate the SOIR. Wherever possible, global case studies are used to illustrate overarching trends. Throughout, a strong focus is placed on the U.S. given its instrumental role in the development of card-based payments infrastructure and the latter’s so-far unrivaled dominance in the global payments industry. Core Findings • Section 1 - In Section 1, we start with the basics of the market for card payments, unpacking the main parties involved in the transaction flow, the purposes they serve, and how they are paid around the world. For many merchants, the cost of accepting card payments has ballooned in recent years, fueled by growth in higher-cost payment methods, rising Card Not Present volumes, and increases to largely-non-negotiable fees • Section 2 – In Section 2, we take three key supply chain parties – card issuers, acquiring banks, and networks – and dive into the performance of some of the largest on the market. On average, the profit margins of the largest card issuers, acquirers and networks significantly exceed those of merchants. In the case of issuers, there is evidence that only a portion of revenue from card payments is used to fund benefits for consumers. • Section 3 - In the wake of the COVID-19 pandemic, the growth rate of global ecommerce has slowed but remains positive, leading to an increase in transactions with disproportionately higher associated costs and risks. In Section 3, we explore the implications of online purchases for payments, the distinction between Card Present and Card Not Present transactions, and the growing payments technologies that blur the distinction between the digital and physical worlds. Although ecommerce exists almost everywhere today, consumers exhibit strongly differentiated payment habits around the globe. • Section 4 - In Section 4, we take our analysis to the country level, analyzing markets across Europe, the Middle East, the Americas, and Asia to see how customer preferences have produced distinct patterns for merchants to contend with. Regions - and even countries - cannot be treated as homogenous when it comes to payments; payment method preferences continue to diverge significantly at the country level despite pushes towards interoperability and unified frameworks. • Section 5 – In Section 5, we address the entities responsible for balancing it all (absent voluntary industry improvements): regulators. With particular focus on the U.S., Europe, Australia and Japan, Section 5 looks at four diverging approaches to payments regulation, highlighting how each affected merchants and, in turn, end users. The results – payments regulation can be vulnerable to regulatory arbitrage, with increases to non- regulated fees and limited enablement of relevant technologies observed in multiple case studies, leading many regulators towards a competition-first approach.
Executive Summary The Backdrop
Since 1950, when Diner’s Club was introduced in New York City as the first charge card, electronic payments have come a long way in customer offerings, issuance and acceptance technologies, and total global payment volume. In 2023, there were 687 billion global card network transactions. 1 Furthermore, ecommerce grew an estimated 41% between 2019 and 2022 across countries analyzed in this report. 2 Behind the card – the most prominent electronic payment method in most geographies – lies a complex web of infrastructure rules and practices that have shaped the structure of the payments industry. The CMSPI Insights Advisory Council State of the Industry Report (SOIR) seeks to educate industry stakeholders and demystify the rapidly changing global payments landscape. Our Purpose Where payments were once a means to an end, ordering processes, return flows, and checkouts are now a strategic differentiator for businesses. For many, payments are also the second-largest operational cost after labor. 3 However, as complexity compounds in an industry, so too can barriers to entry and asymmetric information. The result? A highly-specialized industry, with profit margins over 40% reported by some of its largest stakeholders (See Section 2). In that environment, merchants – despite paying $224 billion in annual fees to accept cards in the U.S. alone - can be some of the least informed when it comes to the fundamentals that underpin the services they pay for, with obfuscation and complexity among the underlying challenges merchants face. CMSPI’s first State of the Industry Report aims to equip them with that information.
1 https://www.statista.com/statistics/261327/number-of-per-card-credit-card-transactions-worldwide-by-brand- as-of-2011/#:~:text=Nearly%20four%20out%20of%2010,transactions%20per%20day%20in%202023. 2 CMSPI analysis of Worldpay Global Payments Reports (2020-2023) 3 NRF | Retailers Say Small Businesses Are Hardest Hit by Rising Credit Card Swipe Fees
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