• Facing a Maturing Industry and Tighter Competition, Incumbents Must Accelerate Digitization, Gain Scale, Optimize E- and M-Commerce, and Tap into Developing Markets to Maintain Growth, Says New Report by BCG.
As attackers continue to erode the edges of incumbent profit strongholds, established payments players must become ultra-focused to expand their businesses, concentrating on areas that are likely to be critical in the future and selecting those where they have natural advantages, according to a new report by Boston Consulting Group (BCG). The report, titled Global Payments 2019: Tapping into Pockets of Growth is being released today.
This 17th annual study by BCG outlines recent developments in the payments market globally and regionally, explores how retail providers can find the green shoots that will have the greatest impact in the 2020s and beyond, and explains why wholesale banks must reckon with digital disruption and find the most impactful areas for investment—focusing on a handful of strategic and operational areas that can deliver above-average growth. The report also offers action steps that payments providers can take to improve their competitive positions.
“The paths that global, regional, and local players take will vary tremendously,” said Yann Sénant, a Paris-based BCG partner, coauthor of the report, and global leader of the firm’s payments and transaction-banking segment. “But banks that capitalize on green-shoot growth areas, fast-track digitization, and operational improvements will reap outsize rewards.”
Market Outlook
According to analysis in the report—complemented by data from SWIFT, the world’s leading provider of secure financial messaging services—payments revenues globally should rise by a compound annual growth rate (CAGR) of 5.9% from 2019 to 2028, in line with the average CAGR of 5.8% posted since 2010. This expansion, fueled partly by a steady rise in cashless transactions, will add $1.0 trillion to the payments revenue pool, raising the total to $2.5 trillion by 2028. Rapidly developing economies will be the engine of that growth.
Retail payments revenues will increase by an estimated 6.0% CAGR from 2019 to 2028, modestly outpacing wholesale payments growth (5.6%). E-commerce and other remote transactions, which BCG expects will grow by 11% annually over the next five years, should be a key driver of retail payments growth.
Retail Payments: Finding the Green Shoots
The report says that established retail payments players will have to work hard to capture their share of growth amid significant disruption in the payments landscape globally. Some of that disruption comes as regulatory bodies press for reductions in interchange rates. But perhaps the most significant shift reflects the impact of a rapidly expanding fintech presence that is accelerating technological innovation and increasing merchant power. Three factors, in particular, are poised to reshape the retail payments space in the 2020s:
- Money movement is making a comeback. We are seeing massive innovation in the way money changes hands and in the infrastructure that enables that movement. Many new real-time payments rails are being launched around the world.
- Increasing competitive intensity is driving mergers and blurring boundaries. In an effort to gain critical capabilities and scale, issuers and merchant acquirers are seeking partners.
- Data use cases are moving beyond risk assessment. Leading players are beginning to shift their focus toward the customer experience, and the most advanced players are using data to personalize outreach and customer journeys.
Wholesale Payments: Some Parts Are Greater Than the Whole
According to the report, the wholesale payments category continues to be profoundly shaped by steady advances in digital tools and by the fast-maturing capabilities of digital attackers and fintechs. Among the most significant disruptive forces are the adoption of real-time payments systems, greater cross-border competition, and the growing number of connections and interdependencies between corporate and vendor payments systems. In response to the last dynamic, treasurers from large corporations and smaller businesses are increasingly turning to nonbank platforms to reduce the resulting complexity. To retain strong corporate relationships, incumbents need to provide a similar level of convenience, helping treasurers streamline their wholesale payments interactions and more readily gain access to cash management, account reconciliation, supply chain finance, and cross-border payments capabilities.
The report also says that wholesale banks can use their scale, resources, and other natural advantages to turn disruption into opportunity. The rapid expansion of the wholesale payments space over the past decade has created enormous complexity within the offering space, the competitive space, and the technological space. For incumbents and newer entrants alike, attacking complexity and providing simpler solutions throughout the value chain will yield the greatest returns.
“Ultimately,” said Sushil Malhotra, a New York–based BCG partner and coauthor of the report, “wholesale payments businesses must invest aggressively but selectively, focusing on a handful of strategic and operational areas that can deliver above-average growth. We recommend that banks consider building opportunities in high-value niches such as cross-border payments, trade finance, and working capital and supply chain finance.”
A copy of the report can be downloaded here.
