For Payments Players, a Tumultuous Landscape Brings New, Tougher Challenges

BOSTON, Sept. 23, 2019 /PRNewswire/ -- 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.

To arrange an interview with one of the authors, please contact Eric Gregoire
at +1 617 850 3783 or [email protected].

About Boston Consulting Group
Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we help clients with total transformation—inspiring complex change, enabling organizations to grow, building competitive advantage, and driving bottom-line impact.

To succeed, organizations must blend digital and human capabilities. Our diverse, global teams bring deep industry and functional expertise and a range of perspectives to spark change. BCG delivers solutions through leading-edge management consulting along with technology and design, corporate and digital ventures—and business purpose. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, generating results that allow our clients to thrive.

About SWIFT
SWIFT is a global member owned cooperative and the world's leading provider of secure financial messaging services. We provide our community with a platform for messaging and standards for communicating, and we offer products and services to facilitate access and integration, identification, analysis and regulatory compliance. Our messaging platform, products and services connect more than 11,000 banking and securities organizations, market infrastructures and corporate customers in more than 200 countries and territories. While SWIFT does not hold funds or manage accounts on behalf of customers, we enable our global community of users to communicate securely, exchanging standardized financial messages in a reliable way, thereby supporting global and local financial flows, as well as trade and commerce all around the world. Headquartered in Belgium, SWIFT's international governance and oversight reinforces the neutral, global character of its cooperative structure. SWIFT's global office network ensures an active presence in all the major financial centers.

SOURCE Boston Consulting Group (BCG)

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