Global payments revenue to increase by USD 0.9 trillion by 2026 - BCG

Corporate treasurers are growing increasingly impatient with the lack of integration, automation, consistency, and customer-centricity in many bank payments platforms.

Facing growing incursion from a diverse group of rivals—including digital giants, fintechs, device manufacturers, and retailers—banks need to reinvent their retail and wholesale payments models if they hope to avoid disintermediation and remain dominant entities in transaction banking, according to the report Global Payments 2017: Deepening the Customer Relationship.

Payments continues to be one of the most important and fastest-growing areas of the financial services sector worldwide. In 2016, the payments business overall, including balances on current accounts, totaled USD1.2 trillion. Core payments revenue represented USD0.8 trillion, or 20% to 25% of global banking revenue.

The value of global payments transactions stood at USD420 trillion, or 5.5 times global GDP. By 2026, BCG expects global payments revenue to increase by USD0.9 trillion as emerging markets continue to grow and cashless transactions become more widespread. A comparison of average payments revenue per capita reveals the potential for significant additional growth in emerging markets.

To remain relevant—and profitable—wholesale banks must reassess how they do business, streamline their processes, and implement digital tools and practices that improve the experience of their customers and the productivity of their back office. Wholesale banks also face changing competitive dynamics.

New entrants from inside and outside the financial services arena are taking advantage of open banking and new technologies and successfully vying for market share in high-margin niches.

Despite these challenges, banks that leverage their longstanding client relationships and balance sheet strength can win in this environment. The first step is fine-tuning their strategic focus.

The report says that in order to stay competitive, banks need to look at their payments value chain to see which activities they should continue managing and which they should outsource. Most banks, for instance, will need to divest subscale businesses that cannot be differentiated from competitors’ over the long term.

With the exception of the world’s largest banks, few institutions will be able to defend the payments relationship unaided: the rate of innovation is too fast, the capability gap is too wide, the advantages of the digital giants are too entrenched, and the investment needed by a single player is simply too great.

But banks cannot afford to stand still. BCG says there are four key actions that banks can take to reinvent their retail payments models: redesign the customer journey, collaborate to tackle the digital wallet challenge, develop an application programming interface portfolio, and employ personalized marketing.

Overall, in both the retail and wholesale payments businesses, banks’ primacy is under attack, according to the report. Digital tools, technologies, and capabilities have opened the vertically integrated value chain that gave banks their dominance.

Competitors inside and outside the banking sphere no longer need the same physical footprint or scale to engage customers. Nor do rivals need to provide the same variety of products. Attackers can now pick off a formerly interlocked part of the traditional payments value chain—be it the interface, the product portfolio, or the underlying infrastructure—and go after it aggressively.