The card payments industry is growing rapidly, fuelled by the shift to online and mobile payments. It is changing the way business is done and the way people are spending their money. According to the influential 2017 Nilson report card payments globally will grow from $20tn in 2015 to $54tn in 2025.
This market has traditionally been dominated by Visa and Mastercard who control a huge payments network. They license banks to issue credit and debit cards on their behalf allowing the banks earn generous interest income from their customers.
According to the Federal Reserve in 2017 US credit card debt has passed the $1 trillion mark, the highest level since the global financial crisis. The delinquency rate is now only 2.3%, down from a peak of 6.8% in 2009 making the risk of bad debts much lower.
In the US, the average interest rate is 13.9% for existing cardholders and 15.7% for new card holders. As only one third of outstanding card balances are cleared in full this is a very lucrative lending business.
On the other side of these transactions are merchant acquirers like Worldpay who process card payments on behalf of B2C businesses like retailers, hotels and airlines. These are called merchants.
Worldpay processes two in every five card transactions in the UK on behalf of the likes of Tesco, Sainsburys and Boots and are now a FTSE 100 company. They earn processing fees from the merchants out of which they pay fees to Visa and Mastercard.
Visa and Mastercard earn lucrative interchange and scheme fees for these card transactions. The rates are set by Visa and Mastercard and though subject to price controls in different parts of the world they still generate major revenues. Other players in the market include Amex and China Union Pay.
Amex’s business model is different to Visa and Mastercard as they also play the role of the issuing bank thus completing the loop themselves and as a result have a greater level of control of the revenue stream and pricing.
China Union Pay dominates the payment card market in China and is rapidly growing market share. Unlike Visa, Mastercard and Amex they are effectively a payment association operating under the approval of the People's Bank of China (Central Bank of China).
Visa posted net profits of $6bn for 2016, Mastercard $4.1bn, Amex $5.4bn. Add this to the billions earned by the issuing banks and all of the providers in the card payment processing ecosystem and we have an industry that can generate massive profits for years to come.
Bankhawk Analytics helps B2C companies to successfully navigate the payments ecosystem to ensure their own commercial position is optimised. Using better partnership arrangements B2C organisations can earn a bigger slice of the pie.
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