Discover Global Network: Connecting Domestic Schemes Is Critical for Financial Inclusion

Domestic payments schemes have taken on a broad range of different shapes and forms through the past several decades.

Some of them — such as FedNow, the faster payments initiative that just launched here in the states — are government or central bank owned. In other countries such as Brazil, hybrid models bridge government and private sector operators and owners. Elsewhere, there are wholly private options.

Ricardo Leite, SVP International Markets at Discover® Global Network, told PYMNTS’ Karen Webster that the conventional wisdom — that domestic schemes joust with global payment networks for a share of wallet and consumer loyalty — is being upended.

In his estimation, domestic schemes are important for the payments industry and for networks such as Discover — and should not be viewed solely as competition. In fact, networks can help those domestic schemes scale more broadly beyond their initial borders. At a high level, domestic schemes can promote choice adoption and help satisfy customer preferences.

The Initial Drivers

The initial tailwind for domestic schemes came as central banks and local issuers sought to foster competition against the global payments networks. The goal had been to create a local infrastructure that could provide cost-effective and streamlined ways to process transactions at the local level — and to broaden financial inclusion by serving the needs of the local populace without relying on the technologies of the payments networks.

“These schemes,” he told Webster, “would not have to be dependent on what was going on outside of their territories.”

But, as he noted, these same domestic schemes have faced a number of challenges as they’ve looked to scale, increase adoption and reach and provide all manner of payments optionality to end users, including the recent embrace of digital wallets.

An Expensive Proposition

It’s expensive to pursue that growth, he said, to create domestic schemes that are competitive and add value.

“You have to make a number of investments in technology,” he said, “and then you have to support those investments. Building a network brick by brick is time-consuming.” The domestic schemes have had to grapple with some limitations, as acceptance and utility on the local stage may have been positive. Still, card members have wanted to use payment products outside the proverbial home base.

Many schemes have started with debit payments as the lowest-hanging fruit to tackle, then branched into prepaid — and from there, pushed into credit.

But now those schemes need to broaden their approaches to include digital wallets and tokenization and constantly refresh and beef up their anti-fraud efforts (compliance and regulations differ from scheme to scheme).

The partnership approach — with Discover connecting schemes — has created what he said is a win-win situation: the Discover network helps those domestic operators “outside of their territories — and they help us gain access to their domestic acceptance footprint on top of enabling their card member bases when they travel outside of their territories.”

For the domestic partners, said Leite, the benefit lies in not having to “re-invent the wheel, because they can go to a network [Discover] that is willing to share assets with them so they can implement things quickly and meet market demands. … if they leverage our solutions, they can achieve all of that.”

Discover’s capabilities have springboarded off its Diners Club acquisition, where it acquired the international payments business in July of 2008. That acquisition, he said, “is the foundation of our international acceptance footprint.” The partnerships, he told Webster, have grown from just a handful two decades ago (with the likes of UnionPay and JCB) to more than 25 today — and a large pipeline that targets 80+ domestic schemes around the globe.

Looking ahead, though the headlines may be focused on real-time transactions and the inexorable pivot toward faster payments, he said that there is plenty of room to expand the interoperability and uptake of debit and credit and prepaid initiatives.

Domestic schemes, he predicted, will continue to be successful in the local markets and will be critical to boosting financial inclusion and bringing unbanked populations into the digital age. For the domestic schemes, there’ll be greater scale and more transaction volumes across the networks.

“We’re bullish about domestic schemes,” he told Webster, adding that “we want to continue to partner with them — and support them, in any of the ways they need.”