Fast Adaptation to the Pandemic and a Consumer Shift Toward Online Payments Fuel Expectations, But Players Must Move Now to Seize Growth Opportunities, Says New Report by Boston Consulting Group
BOSTON—The payments industry suffered a much-smaller- than-anticipated impact from the COVID-19 crisis and has returned to growth with renewed momentum, according to a new report by Boston Consulting Group (BCG). The report, titled Global Payments 2021: All in for Growth, is being released today.
This 19th annual analysis by BCG of the global payments industry reports that the sector responded quickly to challenges posed by the pandemic, from e-commerce enablement to accelerating cash-to-noncash conversion. Global payments revenues declined by only 2.5% from 2019 to 2020, to $1.5 trillion, and they could reach $2.9 trillion by 2030. All regions are likely to see growth over the next five years, with Asia-Pacific continuing to lead the way with a compound annual growth rate (CAGR) of 8.8% from 2020 to 2025, followed by Latin America at 8.3%, Middle East and Africa at 6.9%, North America at 5.8%, and Europe at 5.3%.
“The payments industry was an enabler of economic recovery during the COVID-19 crisis” said Yann Sénant, a Paris-based BCG managing director and senior partner, coauthor of the report, and global leader of BCG’s payments and transaction banking segment. “But meeting the challenges raised by the pandemic has opened the gates to a wave of innovation that will see new players entering the space in greater numbers and raising the competitive stakes. The winners over the next five years will be the industry participants who move quickly to adapt to the new landscape, by seizing these new partnership and revenue opportunities.”
The report identifies a number of global trends that are likely to dominate the payments sector in the coming years. For example, digital ecosystems and specialized software solutions are likely to play a growing role in the industry, as integrated software vendors, Bigtech players, and fintechs enter the space and as banks increase their engagement. A wave of industry consolidation and M&A will accompany this trend. Digital currency activity is likely to pick up pace, too, with the possible launch of more central bank digital currencies. Payments regulators will continue to promote an open banking agenda and focus on upgrading payments infrastructure.
Merchant acquiring will remain the fastest-growing area in the sector. After a low of just 2.2% growth from 2019 to 2020, it is expected to return to an annual CAGR of 11.3% over the next five years, close its pre-pandemic average rate of 11.8% from 2015 to 2019. However, challenges persist in the form of wide variations in profitability between segments, as well as a boom in e-commerce that will dwarf physical point-of-sale transactions growth. These dynamics should lead to increasing disintermediation, as integrated software vendors and online marketplaces embed payments capabilities into their platforms.
Issuers and Networks
This area is expected to deliver strong performance, with issuing revenues in position to grow by 7.6% and networks by 11.4% from 2020 to 2025, close to the CAGRs of 9.4% and 11.2%, respectively, in the five years prior to the pandemic. Potential headwinds in this area include the proliferation of noncard payments options—notably the success of “Buy now, pay later”—and a greater push by integrated software vendors and fintechs to partner with next-generation card processors on card opportunities.
Although the wholesale payments revenue pool dropped by $22 billion between 2019 and 2020, owing to low interest rates and a decline in business spending, recovery is likely to be quick, with 6.6% growth likely until 2025. But the wholesale payments environment continues to be challenging, as incumbents and nontraditional players alike show increasing ambition in the sector, and as digital B2B and B2B2C platforms proliferate across all industries. In addition, corporate customers are increasingly demanding streamlined banking and payments services, analytical insights, and seamless data integration into corporate management systems.
After two decades of strong growth in the banking sector, especially in payments, fintechs are entering a stage of more mature development. Their next steps must include refining strategies to capture growth in an increasingly crowded space and developing elements such as people organization, compliance, and risk management functions. We now expect the rise of a new wave of fintechs focusing on crypto payments as well as on decentralized finance.
“The payments ecosystem is in flux, and this offers tremendous growth opportunities to companies that are prepared to act fast,” said Markus Ampenberger, a Munich-based BCG partner and associate director, and coauthor of the report. “Now is the time to gain long-term advantage through bold and strategic action.”
A copy of the report can be downloaded here.
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