Digital payments reshape markets, incumbents retain dominance

Retail payments have digitalised rapidly in both advanced economies (AEs) and emerging market and developing economies (EMDEs).

This transformation has introduced new players like fintechs and big techs, alongside innovations in payment technologies.

However, a BIS bulletin finds that despite these shifts, incumbent banks and card networks largely retain their dominant positions in key markets.

For instance, major global card networks have seen rising revenue and high margins, with Mastercard and Visa maintaining around 95% market share in card transactions (excluding China) over the last decade.

The report highlights that while mobile payment apps have increased user choice, the underlying retail payment systems often exhibit strong network effects and economies of scale, reinforcing incumbent power.

The bulletin outlines a three-component architecture for retail digital payments: user-facing front ends, back-end retail payment systems, and wholesale settlement.

It focuses on the first two, noting that front-end interfaces include payment cards, bank apps, fintech services, and big tech wallets.

Retail payment systems encompass card networks and fast payment systems (FPS) like Pix in Brazil or UPI in India.

Rapid digitalisation has been spurred by smartphone adoption, mobile internet access, and the Covid-19 pandemic.

While AEs saw growth primarily in card payments, EMDEs experienced a surge in account-to-account transactions, often linked to FPS implementation.