John Chaplin, the author of the Global Payment Innovation Jury Report, in this interview with BusinessDay’s Frank Eleanya, speaks about the payment system in Africa and globally from the point of view of the 79 global industry executives. The report which was sponsored by organisations such as Interswitch, World Bank, and Global Processing Services provides insights into what works in the payment market and what the future of card payments, CBDCs, and other channels look like.
Give us a summary of the report. What was the objective?
We started the Global Payments Innovation Jury in 2008 and have published reports every 1½ years since then. The goal of our reports is very clear – to find out how payments innovation really works by gathering the insights and experience of the leaders in the industry. I often hear pundits and experts saying things such as ‘This is definitely going to happen” or “That is going to take over the world”. But many seemingly great ideas are a real problem to implement.
The idea of the Payments Innovation Jury is to persuade the really senior people around the world to give their views and then to make them available to everybody in the industry. Our reports are available at zero cost so any company can read them and know what the people who are very successful actually think. But we are not making recommendations – we are sharing the wisdom of the people real experience.
There is a notion that technology runs ahead of the regulator. We have also seen their struggles to keep up. How would you say they are approaching the issue of innovation?
You often hear that regulation tends to be backwards-looking and I understand that view. But what we have to consider is that regulators have multiple objectives., including preserving the integrity of the system. If they were out there, always supporting the latest innovations, they may not protect the community and the people. Often the industry gets frustrated with the regulator. However, when consumers or businesses lose their money on some great new innovation, the cry to the regulator is “why didn’t you stop that? or ”Why didn’t you protect us?” So I think the regulator has to act with caution. Wirecard is a famous example where regulation didn’t do its job. When a business such as Wirecard is operating in maybe 40-50 markets, it is very hard for a single national regulator to have a complete picture, especially of say where all the cash balances are at any moment. We all now know that the company was committing fraud and the senior executives including the CEO and the COO have been subject to criminal charges. In this case, we needed more regulatory oversight, not less.
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The second thing is it is commonplace for people trying to innovate in the industry to be very critical of the regulator and say are they too slow and changing their mind? But the reality is that it is very difficult for the regulator to understand what is going on with many technical innovations – so the industry has the responsibility to educate the regulator. My maxim is “Don’t just sell an idea to the regulator, explain it” because they need to understand the objectives and how it works.
It is similar to the situation with politicians. People often complain about their politicians but I think the reality is that usually you get the kind of politicians you deserve as a country. In the same way, the payments industry gets the regulator that it deserves. If you feel that in a particular market that the regulator is being particularly difficult, I say to the industry “What are you doing about it?”
For this 2022 report, we were delighted for the first time to have many regulators contributing their views and not just reading the views of others. That helps us have a better report because regulators and actively contributing their views.
Looking at the growth of mobile money, cardless payment, mobile banking, and other channels, what do you see as the jurors see as the future of card payment? Where does card payment feature in the future?
This is one of the things we set out to look at. When you see mobile money, and real-time systems like the NIP in Nigeria, are they going to replace the card model? The answer from the Jury is they are going to grow, and we will see more of them..
Why would the card not be replaced?
First, they are in the big markets of the world, the US and Europe. They are very well entrenched, so very hard to displace.
Second, they solve some significant problems that these other models haven’t yet properly addressed. If you have a Mastercard, Visa or Amex, you can go to a shop or website almost anywhere in the world and it will work. It will be years before new payment types can solve the complexity of doing that. And it is not just about making the initial transaction, it is also about having solutions so that people can resolve disputes. I think that these issues can be addressed by the new payment types, but it won’t happen overnight and it will require significant investment.
The third thing is generally when you get these new payment markets, regulators have often required them to be free or almost free. However, in payments, if you do not make a profit then the industry is reluctant to invest. So, the banks will say “why would I do that one and make no money when I can do this and make money?” Cards have an economic model that works.
I think growth in the future will be harder for the card model because of the increased competition but the Jury is clear that on an aggregated basis, cards will still be the leading retail payment method in 5 years’ time. But the competition is good because it spurs innovation and efficiency.
What do you think needs to be done to speed up interoperability in the payment industry?
Interoperability doesn’t happen automatically because large established players are usually reluctant to create it – they see it as helping smaller competitors and harming their own bottom line. From the overall market perspective, that is the wrong view because interoperability leads to strong market growth and everybody benefits. There has to be somebody or an organisation that drives it. I was involved with Visa for many years and literally the organisation was created to solve the interoperability problem. So far, interoperability in mobile money has been very slow to develop and real-time payment systems are still at the starting gate.
If the market is failing to create interoperability, usually because of the dominance of one player, then the job falls to the regulator to force it. And even then, it will not happen overnight because it needs the active cooperation of the industry to make it work.
The report notes that fintech will benefit more from CBDCs than traditional banks. What are the barriers that make it difficult for banks to leverage CBDCs? If those barriers remain, what is the future of CBDC without banks?
The push towards CBDC has come from a number of things and the Jurors (79 industry leaders from around the world) see it now as almost inevitable in many markets. The first CBDC was in the Bahamas, followed by China and now we have the eNaira in Nigeria. But the Jury have major concerns that they can’t see an overall business case and that the promoters of CBDC’s have underestimated the difficulty of implementation.
So why are central banks pushing for it? I think the answer lies with crypto. When Facebook decided they were going to create its own digital currency (Libra), the central banks jumped on it because they could see what would happen if you suddenly got a global currency run by a company with nothing to do with the financial sector. It would be impossible for countries to run their own monetary policy. So, effectively they stopped Facebook from doing that .and killed Libra but instead decided to create their own national CBDC’s. But success is not assured for the reasons the Jury identified.
By definition, bank account holders already have access to digital money, so CBDC’s are unlikely to benefit them much. But the Jury believes that fintechs that are trying to reach the underbanked will benefit much more. It is going to be fascinating to see how this all develops.
