Country reports: Australia, South Korea, US, Germany, Italy and UK

Payment cards use boosted by contactless drive
The Australian payment card market continues to evolve at a rapid pace. Australians are very comfortable using debit and credit cards for payments. The frequency of payment card use in Australia stood at 213.0 in 2021 – the highest compared to its peers New Zealand (100.1), Singapore (87.5), South Korea (82.7), Hong Kong (42.0), China (26.1), Japan (21.4), Taiwan (20.5) and India (19.3).

Growth in the payment market has been characterised by the rise of contactless payments, growth in debit card usage, and the emergence of digital wallets. But digital wallets still need to demonstrate greater benefits and convenience compared to payment cards in order to drive further uptake and usage. Consumers now have more payment choices, particularly for low-value purchases, and there has been a decline in cash use as a result.

This transition towards electronic payments is expected to continue over the forecast period (2021–25f) due to the growing number of contactless payments and the launch of the New Payments Platform (NPP). Competition has therefore heightened among card issuers.

The Covid-19 outbreak is expected to further propel the adoption and usage of cashless payment methods in the country. Although the pandemic has impacted consumer spending, overall, there will be a rise in payment card transactions at the expense of cash.

Debit cards overtake credit and charge cards
Debit cards are now the preferred card for payments in Australia, surpassing credit and charge cards in terms of payment value in 2019. This is supported by a growing number of Australians cutting down on unnecessary spending and increasingly using debit cards for payments.

To compensate for revenue lost due to the reduction in interchange fees, issuers have increased annual fees and cut reward benefits on credit cards, making them less appealing to consumers. The low interchange fees on debit cards and the growing preference for contactless debit cards have also supported debit card transaction value and volume.

Contactless growth
Australia is one of the most highly developed contactless card markets in the world. The number of contactless cards is estimated at 56.5 million in 2021, up from 50.2 million in 2017. This figure is anticipated to reach 60.9 million by 2025. All of the country’s leading banks offer contactless payment cards. Australian consumers and financial institutions alike have embraced the technology, with the extensive acceptance infrastructure in the country a major reason why the cards are so popular. Contactless payments have further gained momentum due to the Covid-19 outbreak, as they are perceived as a hygienic payment method.

COVID-19 has boosted ecommerce growth in Australia
The Australian ecommerce market has registered robust growth, recording a CAGR of 13.3% over the four-year period to end 2020. The rapid adoption of smartphones, growing internet penetration, and the availability of secure online payment systems supported this growth. The growth of online shopping events such as Black Friday and Cyber Monday have also driven ecommerce growth. The Covid-19 outbreak has further accelerated this trend, as wary consumers are staying home and using online platforms to avoid exposure to potential disease vectors. Payment solutions such as PayPal, POLi, Apple Pay, and Google Pay are benefitting from this trend.

Australia’s card acceptance network is highly developed
The card acceptance network is highly developed in Australia, with one POS terminal for every 27 individuals. The interchange fee cap and the reduced cost of accepting contactless payments have supported the growth of POS terminals. The growing payment card market is encouraging companies to enter the POS terminal market.

In May 2021, fintech company Zeller launched its bundled business banking solution in Australia, which includes an eftpos terminal and a free business transaction account linked to a business Mastercard card. In the same month, payment services provider Shopify launched in-store payment acceptance solutions (including the WisePad 3 mobile POS terminal) in Australia.

Debit card payment frequency is on the rise
South Korea’s cards and payments industry is well developed, and the country’s consumers are prolific users of payment cards. On average, each individual held 5.5 cards in 2021, while the frequency of card use increased from 74.8 times per card in 2017 to 82.7 times in 2021. A strong banked population, high financial awareness, banks incentivising customers through a range of benefits (including cashback and discounts), and government support to boost cashless payment methods have driven payment card adoption in the country.

With the necessary payment infrastructure in place – which includes ubiquitous ATMs and well-developed point of sale (POS) infrastructure – consumers are gradually becoming more aware of the benefits of payment cards. While debit cards dominate in terms of circulation, credit cards are more popular for payments.

Besides cards, the country has been an early adopter of innovative payment solutions including contactless biometric payments, QR codes, soundwave-based payments, and cryptocurrency payments. The outbreak of Covid-19 is also pushing non-cash payments in the country. Overall consumer spending has been directly impacted by the pandemic, with the travel and tourism and hospitality sectors among the most affected. The impact of the pandemic means consumers are increasingly shifting from cash to non-cash and from in-store to online purchases. As a result, ecommerce is one of the few areas that can expect an overall positive impact from Covid-19.

Card rewards programmes boost debit use
Debit card penetration in South Korea stands at 326.8 cards per 100 individuals in 2021. This has been supported by a strong banked population. Yet despite high penetration, debit card usage is low compared to credit cards. Debit cards account for just 21.3% of card payment transaction value in 2021. However, the government has been encouraging the use of debit cards by offering tax benefits and subsidy programmes. Meanwhile, card issuers offer reward benefits and discounts on debit card purchases in order to drive uptake and usage.

Tax regime boosts credit card usage
Credit cards remain the dominant payment method in the country, accounting for 78.7% of total card payments by value in 2021. This is partly due to favourable government regulations that provide income tax benefits on payments made using credit cards. Growth in this space has been hampered by Covid-19 due to a decline in consumer spending.

The value of credit card payments decreased by 0.1% in 2020 compared to the previous year, while payment frequency decreased by 5.6% over the same period. However, efforts to incentivize customers to use credit cards are expected to reverse the slowdown going forward.

Ecommerce has registered robust growth
South Korea has among the most developed ecommerce markets in the world. The market registered a review-period 2017-2021 compound annual growth rate (CAGR) of 22.6%, rising from KRW58.0tn ($53.3bn) in 2017 to $120.5bn in 2021 supported by the country’s robust tech infrastructure.

The outbreak of Covid-19 has further boosted online purchases, as this helps consumers avoid close social contact and prevent the spread of the virus. According to survey results published by the Korea Chamber of Commerce and Industry in June 2021, 78.4% of South Koreans have increased their online shopping activity since the outbreak of Covid-19.

Prepaid card market sector well placed for growth
South Korea’s prepaid card market registered a robust CAGR of 77.3% in terms of transaction value during the period 2017-2021. Rising use of prepaid cards can be attributed to their convenience and benefits such as discounts and cashback. Prepaid cards for travellers are gaining popularity. In November 2020, South Korean payment provider Danal introduced China UnionPay-branded virtual prepaid cards for travellers. The card can be accessed within the Danal payment app and is accepted at 30 million UnionPay partner merchants across 179 countries.

Transport prepaid cards are also popular. T-money is a rechargeable stored-value card that can be used to pay public transport fares. Issued by the Korea Tourism Organisation, T-money cards can be purchased at retail stores such as CU, GS25, and 7-Eleven. The company also offers the Korea Pass card exclusively for use by tourists. Aside from transport purchases, the card also provides discounts on ticket fares at popular tourist attractions in the country.

Debit cards increasingly preferred for payments
The US payments market is highly mature – arguably even overserved by its financial institutions. There are more cards in circulation than individuals in the US by a considerable margin. Ready access to formal financial services (at least, for consumers above a certain level of affluence) has resulted in a population that is highly comfortable with credit and debit cards both in-store and online.

Growth in the payment market during the review period (2017–21e) was characterised by the rise of contactless payments, a surge in debit card payments, and the increasing use of mobile wallets such as Apple Pay, Google Pay, and Samsung Pay. Amid the Covid-19 pandemic, contactless card usage is growing fast, with most contactless users in the country seeing these cards as helpful. Strong growth was also seen in instant payments as both consumers and businesses increasingly used online and mobile banking to make payments and transfer funds.

The Covid-19 pandemic has significantly affected the economy, which in turn has resulted in a decline in overall consumer spending impacting all sectors (including payments). While restrictions have been eased in many states and over 50% of the population are fully vaccinated, the emergence of the highly transmittible Delta variant remains a key challenge.

Contactless growth
While US consumers have been traditionally credit-reliant, the economic uncertainty caused by Covid-19 has seen consumers increasingly turning towards debit cards for payments. The market registered healthy growth of 15.4% in terms of card payment value in 2020. And since the outbreak of Covid-19, US consumers are increasingly using contactless debit cards. To capitalise on this trend, banks are rolling out debit cards with contactless functionality. According to a study by Discover Financial Services’ PULSE, the number of debit cards with contactless functionality in the US rose from 11% in 2019 to 30% in 2020.

Revival of the credit and charge card market
Traditionally, the US has been credit-reliant, and consumers have been avid users of credit cards. However, Covid-19 and the subsequent economic uncertainty has forced many consumers to cut down on unnecessary spending. In 2020, credit and charge card payment value, volume, and frequency of use slumped by 9.0%, 6.7%, and 8.8% respectively.

But with the gradual recovery of the economy and job opportunities and thus a rise in consumer spending, the credit and charge card market is anticipated to record healthy growth in 2021. The market is set to register a forecast-period (2021e–25f) CAGR of 3.1%, in terms of card payment value.

Covid-19 is aiding ecommerce growth
The US ecommerce market registered significant growth, rising from $884.8bn in 2017 to an estimated $1.4tn in 2021 at a review-period CAGR of 12.2%. The Covid-19 pandemic has aided the growth of ecommerce, as wary consumers are preferring online platforms for shopping in order to avoid exposure to disease vectors. Ecommerce value is anticipated to reach $2.1tn in 2025 at a forecast-period CAGR of 10.3%. Online shopping events such as Black Friday, Prime Day, and Cyber Monday have also driven ecommerce growth. Online payment solutions such as PayPal, Amazon Pay, and Click to Pay stand to benefit from this trend.

The prepaid card market is set to grow
The US prepaid card market has benefitted from a government program to support individuals affected by Covid-19. From January 2021 onwards, the US Department of Treasury is distributing nearly 8 million economic impact payments by prepaid card. The EIP Visa prepaid cards can be used for in-store and online payments, as well as ATM cash withdrawals. The EIP card is part of the Treasury’s US Debit Card programme; MetaBank was selected as the financial agent for the programme in 2016.

To benefit from the growing ecommerce market, card issuers are launching virtual prepaid cards. In May 2021, Skrill and its card-issuing partner Community Federal Savings Bank launched a virtual version of its Skrill Visa Prepaid Card. Card holders incur no transaction fees when shopping online and earn 1 Knect point for every $1 spent under the Skrill Knect loyalty program. Points are redeemable for cash once card holders reach the 5,000-point threshold, as well as other rewards.

Cash displacement remains key focus
Although cash remains the preferred method of consumer payment in Germany – accounting for 34.8% of the country’s total transaction volume in 2021 – Germans are increasingly adopting payment cards, which registered strong growth during the review period (2016–21e). The convenience of electronic payments, robust payment infrastructure, the increasing preference for contactless payments, and ecommerce growth are all boosting payment card usage.

Debit cards are the most popular card type and are increasingly being used for payments. Consumers are gradually switching to debit cards for low-value transactions, supported by an increase in contactless payments. Adoption of credit cards is low in comparison to debit cards, mostly due to the debt-averse nature of German consumers. However, issuers are pushing adoption and usage by offering value-added benefits such as instalment facilities, reward points, and discounts.

Additionally, rising adoption of contactless cards, the proliferation of digital-only banks, the emergence of alternative payment solutions, and growth in the ecommerce space indicate the German payment market will grow further over the forecast period (2021–25f). The outbreak of COVID-19 has made both contactless card payments and mobile payments more appealing, as both options help consumers avoid close social contact and prevent the spread of the virus.

girocard dominates the debit card market
Germans strongly prefer debit cards over other cards. National debit card scheme girocard is the most frequently used payment card. Until a cap implemented by the EU in 2015, its lower interchange fees compared to international schemes gave it a significant edge – and the new fee rules have had little impact on its dominance. In order to offer enhanced convenience to users, girocards are now equipped with contactless functionality.

By the end of H1 2021, 64% of transactions made using girocards were contactless. In addition, support for NFC-enabled mobile wallet solutions was launched in May 2018, allowing girocard holders to make contactless payments using mobile phones.

German consumers are strongly averse to debt
Credit cards are not very popular, with penetration standing at 7.2 cards per 100 individuals. This is mainly due to the cultural aversion to debt. Germans prefer the use of charge cards compared to credit cards in order to benefit from interest-free credit periods without falling into long-term debt.

The economic uncertainty caused by the pandemic has forced consumers to cut down on unnecessary spending, which in turn has affected the market. While credit cards have lower penetration than charge cards, they are increasingly being used for payments. Credit card payment transaction value recorded a review-period CAGR of 3.9%, compared to -0.3% for charge cards.

Covid-19 slowed down ecommerce growth
Ecommerce in Germany increased from €74.5bn ($91.0bn) in 2017 to $112.7bn in 2019. However, in contrast to other markets, the COVID-19 outbreak slowed down growth in 2020, with ecommerce transaction value rising by just 0.3%. With the economy recovering and consumer spending increasing, the market is expected to rise from 2021 onwards and is anticipated to reach $174.1bn in 2025 at a forecast-period CAGR of 9.0%. Online shopping events such as Black Friday and Cyber Monday have helped boost ecommerce growth. Payment solutions such as PayPal, giropay, Klarna, and Apple Pay are benefitting from growth in this space.

Mobile payment transaction volume and value are on the rise
Being a cash-driven economy, the use of mobile payments is low in Germany, primarily due to security concerns, a lack of lucrative rewards/offers, and a developing NFC infrastructure. Consumers in Germany are open to new technology, and mobile payment innovations have been growing in popularity – especially among the young population.

However, the entry of payment solutions from some of the most valuable global consumer brands (including Apple, Google, and Samsung) has raised consumer awareness of new payment technology. Following the launch of Apple Pay, mobile proximity payments have gained popularity in Germany. With smartphones integral to everyday life in Germany and consumers becoming more comfortable with utilising mobile payment technology both in-store and online, mobile payments are likely to continue to grow over the next few years.

Government measures boost high debit card penetration rates
Italians remain slow adopters of electronic payments, primarily due to a strong inclination towards cash, which accounts for 74.2% of total payment transaction volume in 2021. The government is making concerted efforts to promote electronic payments through financial inclusion initiatives and a cap on cash transactions.

Meanwhile, the EU-wide cap on interchange fees is also playing a role. As a result, a gradual increase in payment card usage was recorded during the review period (2017–21e). The number of POS transaction increased from 2.8 billion in 2017 to 3.9 billion in 2021 and is expected to reach 5.8 billion in 2025.

Besides cards, customers are increasingly embracing alternative payment methods including the likes of Bancomat Pay, PostePay, Apple Pay, PayPal, and Google Pay, as well as other innovative payment methods such as self-checkout stores, wearable payment devices, payments via payment links, and biometric payment cards.

Pandemic gives boost to cash displacement

The pandemic has further propelled the shift in preference towards cashless payment methods, even though there was an adverse impact on the level of consumer spending and thus the payments industry. The growing adoption of contactless technology and the surge in ecommerce –supported by the availability of various alternative payment methods – is likely to drive the Italian payment card market over the forecast period (2021–25f).

Debit card penetration stood at 103.4 cards per 100 individuals in 2021. This is supported by a rising banked population, which grew from 93.8% in 2017 to 96.5% in 2021. Government support for debit card penetration –particularly through financial inclusion initiatives and awareness programmes –has positively contributed to growth in this space. Meanwhile, the proliferation of digital-only banks is complementing traditional banks, thereby further pushing banking and debit card adoption in the country.

Credit and charge card market revives
Italians use credit and charge cards mainly due to value-added services such as reward points, discounts, instalment payments, and other benefits. However, Covid-19 and the subsequent economic uncertainty has forced many consumers to cut down on unnecessary spending. In 2020, credit and charge card payment volume, value, and frequency of use declined by 4.9%, 14.3%, and 5.7% respectively.

But with the gradual recovery of the economy and a rise in consumer spending, the credit and charge card payment market is anticipated to record healthy growth in 2021 and a forecast-period compound annual growth rate (CAGR) of 7.5% in terms of transaction value.

Pandemic aids ecommerce growth
Italy’s ecommerce market expanded at a review-period CAGR of 12.9%, rising from €23.6bn ($28.9bn) in 2017 to $47.0bn in 2021 – supported by increasing internet and smartphone penetration as well as the growing consumer preference for online shopping. In 2020, ecommerce sales rose 2.7% despite a decline in consumer spending. This growth was largely driven by product categories such as food and groceries, with consumers preferring to shop online rather than potentially exposing themselves to disease vectors. The market is set to register a robust forecast-period CAGR of 16.0% in terms of transaction value.

Italy’s card acceptance network is highly developed
In line with improved payment acceptance infrastructure, the volume of card payments registered strong growth. This highlights the growing preference for electronic methods of payment. Nexi offers its Smart POS terminal in Italy, which enables merchants to accept payment through credit cards, debit cards, prepaid cards, smartphones, and QR codes. And in June 2018, Nexi launched a mobile POS terminal that can be installed at no cost and can be used to accept card payments.

Similarly, in September 2020 Mastercard partnered with UK based POS provider Handpoint to provide small merchants with POS terminals in Italy. These terminals are available at lower costs than traditional POS terminals and offer unified payments across channels, meaning merchants can accept electronic payments on a large scale.

Contactless use accelerates cash displacement
The UK payment card market can be characterised as rapidly growing and innovative. Persistent efforts from the country’s financial authorities and banks to ensure a robust banked population, a high level of awareness of electronic payments, and increasingly developing payment acceptance infrastructure have been successful in encouraging consumers to use electronic payment methods for day-to-day transactions. Growth in the payments market during the review period (2017–21) was driven by the rise of contactless payments, a surge in debit card payments, and the increasing use of mobile wallets such as Apple Pay, Google Pay, and Samsung Pay. While overall use of these mobile wallets is currently well behind contactless cards, it is likely these payment methods will see strong growth going forward.

Contactless card numbers and usage saw robust growth during the review period, with the vast majority of contactless users in the country viewing these cards as helpful. Strong growth was also seen in instant payments as both consumers and businesses increasingly used online and mobile banking to make payments and transfer funds. The pandemic is expected to further propel the adoption and usage of cashless payment methods in the country. Although the pandemic has impacted consumer spending, payment card transactions have grown at the expense of cash.

Improving economic conditions boosts credit card sector
Consumers in the UK have been avid users of credit cards. However, Covid and the subsequent economic uncertainty has forced many consumers to cut down on unnecessary spending. In 2020, credit and charge card payment volume, value, and frequency of use declined by 19.0%, 19.8%, and 17.1% respectively. But with the gradual recovery of the economy and a rise in consumer spending, the credit and charge card market is anticipated to record healthy growth in 2021. The market is set to register a robust forecast-period (2021–25f) compound annual growth rate (CAGR) of 6.4% in terms of card payment value.

Pandemic boosts e-commerce growth
The UK’s contactless card market is highly developed. The number of contactless cards in circulation increased from 118.9 million in 2017 to an estimated 140.0 million in 2021 at a review-period CAGR of 4.2%. According to UK Finance’s Payment Markets Report 2021, during 2020 the number of contactless payments rose 12% to 9.6 billion payments, mainly due to consumers being encouraged to reduce contact by using cards (and contactless payments in particular) during lockdowns. Effective from October 15, 2021, the contactless payment limit was increased from £45 ($61.48) to $136.63, which will further encourage contactless payments.

Ecommerce in the UK has registered healthy growth, increasing from $204.7bn in 2017 to $282.8bn in 2021 at a review-period CAGR of 8.4%. Growth has been boosted by the Covid outbreak, as consumers have favoured online platforms rather than potentially exposing themselves to disease vectors. The figure is anticipated to reach $355.0bn in 2025 at a forecast-period CAGR of 5.9%. Online shopping events such as Black Friday and Cyber Monday have also supported the growth of ecommerce in the country. The likes of PayPal, Apple Pay, Klarna, Google Pay, and Amazon Pay are increasingly being used for online purchases.

Prepaid card sector posts slow growth
The adoption of prepaid cards in the UK is gradually growing. The industry – led by the Gift Card & Voucher Association – launched a campaign in August 2020, as part of which the association has urged the government to raise the tax-free gift card limit from $68.32 to $683.16. As per a January 2021 survey conducted by the association, 20.7% of gift card users had received a gift card as an incentive from a business or for market research since the outbreak of COVID-19 in the UK, while 20.6% had received one via a work reward program.

Buy now pay later is gaining traction in the UK
Buy now pay later services are gradually gaining prominence in the UK. Klarna offers both immediate and pay-later options for online purchases, allowing customers to make payments within 30 days of receiving their items. It also offers extended credit financing, enabling customers to spread the cost of purchases over six to 36 months. In addition, it offers another payment option for both in-store and online purchases, enabling customers to pay in three interest-free instalments.