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CHARACTERISTICS OF A SUCCESSFUL PAYMENT METHOD: COST
For many merchants, the most expensive payment method is Buy Now, Pay Later (BNPL), with average estimated fees of 2.77%. This is at least partly explained by the size of the market: at an estimated $137 billion across four leading global providers, it is estimated to be less than 0.5% of the volume within the analysis. The lack of economies of scale, combined with high credit losses, relatively low consumer fees compared to credit cards and high sales and marketing budgets, helps explain why BNPL fees are relatively high. Stablecoin has the second largest fees at 1.87% on average, but given how nascent stablecoin is as a consumer payment method, there is perhaps not too much to be deciphered at this stage. We will continue to monitor the growth of stablecoin in the future, as regulations are introduced that look to formalize the industry and open it up for new payment use cases. The third most expensive payment method in our analysis credit cards at an estimated 1.65% on average. This trend is harder to explain by volumes, as credit cards have among the highest volumes of all the payment types analyzed, consumer interest rates mean credit card issuers could be less dependent on merchant fees. However, the governance structure of the card industry does not currently provide merchants with tangible voting power, and interchange and network fees are largely non-negotiable. Meanwhile, while credit card interchange fees have been regulated in many markets, the world’s largest economy, the United States, has not regulated credit card interchange or network fees. Midtable for fees are cash, debit cards, digital wallet and bank transfer, which all have fees of between 0.67% and 1.00%. Debit card fees are much lower than credit card fees largely because of more strict regulation of interchange fees and the co-badging of debit cards in countries such as Australia, France, Germany and the United States. Cash is surprisingly cheap to accept for merchants considering it is manual and labor intensive to collect, transport and process, and considering it is declining in volume on a largely fixed cost base in many countries. However, cash industries are often more competitive and less profitable than other payment industries, so merchant pricing remains manageable. vi Staged digital wallets vary greatly in price, but the global leaders WeChat Pay and Alipay offer merchants in China comparatively low fees. 48 Bank transfers tend to cost merchants significantly above-cost because they typically need to engage a third-party processor to accept them, but average fees of 0.98% are not high compared to other tender types. The cheapest payment method is real-time payments (RTP), with merchant fees on UPI, PayTo and Pix estimated to be below other competing methods. There has been rapid growth of RTP in some markets, and with comparatively low merchant fees it is worth monitoring its growth in other global markets in the years to come.
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For example, see the UK Case Study in Cash Profile.
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