Fast Forward into the Future - Boston ...
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
Global Payments 2020 Fast Forward into the Future
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. 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.
Global Payments 2020
FAST FORWARD INTO
THE FUTURE
YANN SÉNANT SUSHIL MALHOTRA
MARKUS AMPENBERGER STANISLAS NOWICKI
ANKIT MATHUR PRATEEK ROONGTA
INDERPREET BATRA MICHAEL STRAUß
JEAN CLAVEL ALEJANDRO TFELI
STEFAN DAB ÁLVARO VACA
ALEXANDER DRUMMOND
October 2020 | Boston Consulting GroupCONTENTS
3 INTRODUCTION
4 MARKET OUTLOOK
A Shifting Landscape
Regional Outlook
11 SECURING FUTURE GROWTH IN RETAIL PAYMENTS
How Issuers Can Prepare for a Healthy Recovery
How Merchant Acquirers Can Derisk and Reboot
How Merchants Can Use Payments to Drive Efficiency and Growth
17 SOLVING PAIN POINTS IN WHOLESALE PAYMENTS
A Growing Role for Transaction Banking Solutions
Fierce Competition Across the Value Chain
Strategies to Drive Differentiation
23 WINNING THE FUTURE
Rebalance the Product and Customer Portfolio
Pursue Strategic M&A, Partnerships, and Ecosystem Opportunities
Become a Data-Driven Organization
Reinforce Risk Management
Accelerate Digital Transformation
26 APPENDIX: ABOUT OUR METHODOLOGY
28 FOR FURTHER READING
29 NOTE TO THE READER
2 | Fast Forward into the FutureINTRODUCTION
P ayments players are used to operating in an instant and
real-time world, but few could have anticipated the crushing
speed of the pandemic or its devastating toll. Amid the extraordinary
dislocations, the payments industry demonstrated its adaptability,
springing quickly to serve as a crisis response copartner for individu-
als and businesses, assist in distributing government stimulus pay-
ments, and help customers, merchants, and corporate clients transact
in contactless ways.
Still, with economic life disrupted by social distancing and lock-
downs, most payments businesses will see revenue growth dip in the
near term—although the impacts will vary according to the value
proposition, portfolio composition, and market position of individual
players. Our modeling suggests that from 2019 to 2024 global pay-
ments revenues will likely increase by about 1% to 4%, depending on
the speed of the economic recovery. Under a quick-rebound scenario,
that growth range would be roughly half the rate of the prior five
years. Once the recovery is underway, however, prospects in the
medium term and beyond remain buoyant. Our forecasts suggest that
payments revenues globally could soar to $1.8 trillion by 2024, from
$1.5 trillion in 2019, lifted by the continued transition away from
cash, sustained strong growth in e-commerce and electronic trans-
actions, and greater innovation.
Incumbents will need to work harder to capture this growth, however.
The payments space is becoming more crowded, with an expanding
array of nontraditional players jostling with banks and payments ser-
vice providers to become the issuer, provider, processor, or partner of
choice. Shifts that were already happening before the pandemic will
force established institutions to pick up the pace of digitization, gain
economies of scale, and manage risk in new ways—all while continu-
ing to innovate. The growth winners in the postcrisis period will be
those that use this time before the recovery to reset and rebalance.
These are among the findings of BCG’s 18th annual analysis of pay-
ments businesses worldwide. Our coverage draws from BCG’s pro-
prietary global payments model, using data from SWIFT, a global
provider of secure financial messaging services. First, the report out-
lines recent developments in the payments market around the world
and on a regional basis. The next chapters then explore how retail
and wholesale payments providers can best respond to the disrup-
tions caused by the pandemic and fast-forward to growth. Finally, in
our concluding chapter, we note key challenges impacting the indus-
try and five imperatives to win in the future.
Boston Consulting Group X Swift | 3MARKET OUTLOOK
T he COVID-19 crisis has reshaped much
of daily life, including how consumers
and businesses transact. In the short term,
Given the uncertainty surrounding the still-
unfolding pandemic and questions about
subsequent waves of infection, our payments
most players in the payments industry are forecast includes three revenue growth
likely to see revenue growth contract. But scenarios based on global GDP development.
favorable trends such as the shift to contact- (See Exhibit 1.) Under a quick-rebound
less payments, the growing adoption of scenario, our outlook suggests that the global
digital wallets, and the more widespread use payments revenue pool will expand from
of business-to-business (B2B) payments $1.5 trillion in 2019 to $1.8 trillion in 2024,
automation will lift the industry’s prospects a compound annual growth rate (CAGR) of
longer term. 4.4%. (See “Appendix: About Our Method-
Exhibit 1 | Three Revenue Growth Scenarios from 2024 to 2029
Quick rebound Slow recovery Deeper impact
4.4% 5.6% 2.7% 5.0% 1.1% 4.4%
Revenue ($B)
2,374
2,127
7.3% 1,810 1,915
1,670
1,464 1,542
1,031
2014 2019 2024 2029 2024 2029 2024 2029
CAGR 2019–2024 CAGR 2024–2029
Source: Global Payments Model 2020.
Note: Please refer to the appendix for GDP growth relative to each scenario. Rounding effects may occur.
4 | Fast Forward into the Futureology” for assumptions and reporting meth- limits for contactless transactions at the point
ods.) Although solid, this CAGR is much lower of sale without entering a PIN code. In the
than the 7.3% annual growth the industry en- US, digital wallets attained a level of mass
joyed from 2014 to 2019. In a slow-recovery adoption during the lockdown period that
scenario, the global revenue pool would reach would ordinarily take two to three years to
$1.7 trillion by 2024, a CAGR of 2.7%. Under achieve.1
a deeper-impact scenario, the revenue pool
would grow to only $1.5 trillion, a moderate
CAGR of 1.1%.
Consumers have eagerly
The second half of the decade, however, looks embraced contactless
considerably brighter, driven by economic
expansion, advancements in payments infra-
payments methods.
structure, e-commerce growth, and greater
financial inclusion. From 2024 to 2029, pay-
ments revenues globally should rise by 4.4% The shift away from cash could prove endur-
to 5.6% annually (depending on the scenar- ing. In Asia-Pacific, e-commerce adoption
io)—roughly 1.5 times faster than the growth soared after the SARS outbreak, establishing
of banking revenues overall. By 2029, the rev- behavioral norms that contributed to subse-
enue pool could swell to between $1.9 trillion quent strong growth in digital payments. Ali-
and $2.4 trillion, depending on the extent of baba’s Taobao platform, for example, grew by
the economic recovery. more than 50% in 2003 during the post-SARS
period in China, and E-Mart saw online or-
ders rise by 50% to 60% after the 2005 MERS
A Shifting Landscape outbreak in South Korea. Governments may
BCG’s market data and industry observations also have an interest in accelerating the
suggest a few important trends will shape switch to cashless payments—research shows
the payments industry globally over the next that electronic payments boost GDP by as
five years. much as 3 percentage points annually.
COVID-19 Will Accelerate the COVID-19 Will Boost E-Commerce
Cash-to-Noncash Conversion Growth in Select Categories
Although areas like the Nordics are already The pandemic drove more retail purchasing
nearly cashless, with more than 300 electron- activity online as a cooped-up populace
ic payment transactions per capita annually, sought to meet its everyday needs. BCG’s con-
several mature-market countries have been sumer pulse survey found that 48% more US
slower to make the shift. The COVID-19 crisis consumers used digital channels to shop
could change that. A BCG survey revealed during the first months of the crisis than be-
that from May to June 2020, many formerly fore, with younger generations especially like-
cash-loyal countries, such as Germany, Japan, ly to embrace e-commerce sales. Small and
and Italy, saw cash use fall by 30% or more. midsize enterprises (SMEs) that had previous-
Other countries, like Australia, Canada, and ly relied heavily on in-store transactions were
the UK, made an even sharper move away quick to help meet this rising interest, with
from cash. many moving briskly to add online-shopping
capabilities.
Changing mindsets, greater accessibility, and
higher contactless transaction limits helped From 2020 to 2023, eMarketer estimates that
drive this transition. Globally, more mer- retail e-commerce will jump from $4.2 trillion
chants began to accept contactless payments to $6.5 trillion, a CAGR of 16%. But that
during the crisis, even for low-value trans- growth will come from different sources than
actions. Consumers proved eager to embrace in the past. The crisis has created a structural
these payments methods, even in previously shift in consumption, with sectors like travel
tough-to-crack markets. Card schemes and entertainment that depend on mobility
supported the development by increasing and density seeing a drop and others such as
Boston Consulting Group X Swift | 5fresh food, pet supplies, and in-home That push could spark further consolidation
entertainment likely to see above-average after the crisis since small and midsize play-
growth. That shift will alter the mix of pay- ers might band together to defend their mar-
ments methods used, reducing the traditional ket position.
dominance of cards in some instances. Pro-
viders need to be alert to these changes and Megadeal fever also reached Europe, with
align payments options to fit the context of Worldline’s $8.6 billion bid for Ingenico in
different sector-based purchasing patterns. February 2020 serving as the latest example.
Those that do stand to capture a significant While the largest deals have created a limited
share of the burgeoning e-commerce market number of players with pan-European reach,
globally. some companies are looking to increase share
domestically, such as Nexi’s strategic partner-
Industry Consolidation Will Continue ship with Intesa Sanpaolo in Italy. Across the
to Shape the Competitive Environment region, private equity engagement continues
The quest for scale, the desire to serve more to be a catalyst for deal activity. The collapse
points along the value chain, and the need to of Wirecard in June 2020, driven by multiyear
move money faster have fueled M&A activity accounting fraud, will also create acquisition
in payments. To date, the deal flow has been opportunities.
concentrated primarily in payments process-
ing and acquiring, but we expect it will bleed In Asia-Pacific, Latin America, and the Middle
into other parts of the value chain. East and Africa, payments markets are still
relatively young. In these regions, M&A activ-
ity is likely to be driven by private equity as
Both the US and Europe well as by ecosystem players and local giants
that are looking to build regional scale.
have seen a recent flurry
of megadeals. Regional Outlook
Despite near-term disruption, the five-year
forecast for most regions remains largely
For example, while the issuer space has been positive. (See Exhibit 2.) This section outlines
relatively quiet, subscale players that don’t the major developments.
partner may find it increasingly challenging
to remain competitive. Networks have been Europe
active in pursuing adjacencies. They may Payments revenues across Europe are on
look to strengthen their position in value- track to grow modestly, although at a lower
added services (VAS) and diversify to ac- rate than over the past five years. From 2019
count-to-account (A2A) rails. Finally, mature to 2024, growth could range from 2.3% un-
fintechs may become attractive targets for der a quick-rebound scenario to –0.9% in a
partnerships and acquisitions. Taken togeth- deeper-impact scenario.
er, the changing competitive and regulatory
landscape, as well as the difference in valua- Eastern Europe, which captures 30% of the
tions between payments activities and retail region’s revenue pool, will continue to notch
banking, is likely to drive more corporate the highest growth rates, with Russia remain-
alliances, joint ventures, and sales of bank- ing a strong driver of growth in the region.
owned payments businesses to reinforce From 2019 to 2024, payments revenues could
banks’ capital base. increase by a high of 4.7% annually in a quick
rebound. Western Europe, which accounts for
Payments-related M&A activity varies by re- 64% of regional payments revenues, will see a
gion. In North America, the 2019 megadeals CAGR of 1.1% in a quick rebound down to a
between Fiserv and First Data, FIS and low of –1.6% in the deeper-impact scenario,
Worldpay, and Global Payments and TSYS while the Nordics, which make up 6% of the
put the industry’s largest players in a league revenue pool, should see revenue growth
of their own in terms of scale and reach. hover at 0.1% to 2.9%.
6 | Fast Forward into the FutureExhibit 2 | APAC and LatAm Are the Growth Hotspots
2024 REVENUE OUTLOOK
Revenue ($B)
Quick rebound Slow recovery Deeper impact
2014 2019 CAGR CAGR CAGR CAGR
2014–2019 2019–2024 2019–2024 2019–2024
Europe 230 258 238
204 2.3% 0.7% 220 –0.9%
2.4%
491 541 514 485
North America 337 7.9% 2.0% 0.9% –0.2%
760 684 623
343 536
Asia-Pacific 9.3% 7.3% 5.0% 3.0%
96 136 173 159 144
Latin America 7.2% 4.9% 3.2% 1.2%
Middle East and Africa 50 71 7.0% 78 2.2% 75 1.1% 71 –0.1%
Source: Global Payments Model 2020.
Note: Please refer to the appendix for GDP growth relative to each scenario. Rounding effects may occur.
Although banks across Europe have imple- become the default payments method in Eu-
mented the Payments Services Directive 2 rope. Both the European Central Bank and
(PSD2), open-banking innovations have not the European Commission have welcomed
yet had a meaningful market impact. Recent this undertaking, which comes on top of oth-
M&A activity (such as PayPal’s investments er infrastructure-related initiatives such as
in the open-banking platform Tink, Master- the TARGET Instant Payments Settlement
card’s acquisition of Finicity, and Visa’s ac- System (TIPS).
quisition of API leader, Plaid) could change
this, however, and usher in new use cases The European Digital Payments Industry Alli-
and greater standardization of APIs. Bank- ance (EDPIA), an advocacy group formed by
fintech collaboration is also on the rise. For four independent European payments proces-
example, TransferWise has created APIs that sors, is another effort to improve coordina-
enable the company to push its products tion. The alliance seeks to accelerate a digital
through traditional banking channels and single market and monetize A2A payments
allow banks, in turn, to provide customers capabilities.
with richer features.
North America
Open banking aside, European banks and Our projections show that payments revenues
regulators are increasingly concerned that in North America will grow by a moderate
without better regional coordination, foreign CAGR of 2.0% from 2019 to 2024 under a
card schemes, wallets, and tech giants could quick-rebound scenario and would turn
challenge Europe’s monetary autonomy and slightly negative if the region experiences a
displace the region’s fragmented payments more protracted recovery.
infrastructure. To address this risk, 16 Euro-
pean banks have banded together as found- Debit cards still account for the largest
ing members of the European Payments proportion of transactions (44%) in North
Initiative (EPI) with hopes of creating a card America, followed by credit cards (28%) and
scheme, digital wallet, and person-to-person checks (8%). If past patterns hold, debit use
(P2P) instant payments system that will could spike in the near term. Following the
Boston Consulting Group X Swift | 72008–2009 financial crisis, for example, US Across the payments space, fintechs continue
consumers shifted significantly more of their to erode incumbent market share. In addition
spending to debit cards in order to keep to an active domestic scene, several foreign
household debt in check. By 2011, however, fintechs have entered the region over the past
credit expenditures had returned to precrisis few years, including Afterpay, Klarna, Monzo,
levels, and they grew quickly in the years and N26.
that followed.
Asia-Pacific
From a product perspective, buy now, pay From 2014 to 2019, payments revenues in
later (BNPL) providers are gaining traction Asia-Pacific grew at an average annual rate
as a result of the challenging economic of 9.3%, far higher than the global average.
environment and the shift in spending Over the next five years, revenues will con-
toward e-commerce channels. Afterpay, for tinue to rise but at a slower rate. Under our
example, saw a 40% rise in its active user quick-rebound scenario, industry revenues
base in 2020. Partnerships are also growing are likely to rise by a CAGR of 7.3% from
in this area. Examples include QuadPay and 2019 to 2024.
Stripe, Klarna and H&M, and Shopify and
Affirm. Given the region’s diversity, we see markets
falling into three broad clusters (see Exhibit 3):
In A2A payments, peer-to-peer schemes have
seen growing adoption and more diverse •• Almost-Cashless Societies. These
uses, from paying rent to splitting the cost markets, which include South Korea, Hong
of meals. App downloads for Square, Zelle, Kong, and Singapore, should see payments
Venmo, and PayPal all rose by more than 50% revenues grow at a CAGR of less than 5%
in April and May 2020, compared with the over the next five years.
year before. Many players benefited from
crisis-related interventions that allowed •• Societies Transitioning to Cashless.
government stimulus funds to be deposited Malaysia and mainland China should see
directly into these apps, a move that helped payments revenue growth rates of 5% to
position these schemes as the primary trans- 10% over the next five years, with main-
acting account for many consumers. land China especially well positioned.
Exhibit 3 | Three Clusters of Payments Revenue Growth and Cashless-Payments Adoption in APAC
India Philippines
High (>10%)
Almost-cashless societies
Thailand Vietnam Mainland China: high growth with modest growth expectations
Expected payments revenue growth
expectations owing to its quick in the next five years
recovery from COVID-19
Medium (5–10%)
(CAGR, 2020–20251)
Indonesia Mainland
New Zealand Australia
China
Cash-loyal societies
with high growth expectations in the next Malaysia
five years
Societies transitioning to cashless
Japan: an outlier with with mostly strong growth expectations in
Hong Kong
Low (•• Cash-Loyal Societies. India, Thailand, the country’s most widely used payments
Indonesia, and some other emerging service, with transaction values growing at
markets in Asia should see the fastest a dizzying rate of 469% annually, compared
payments revenue growth over the next with just 39% for mobile payments and 23%
five years as their payments infrastructure for credit cards. The UPI’s interoperability
matures and financial inclusion increases, has allowed both foreign tech giants and
with a CAGR of more than 10% likely in local e-commerce players to enter the market
some markets. and build intuitive payment apps targeted at
merchants and consumers.
The Asia-Pacific region Latin America
From 2019 to 2024, payments revenues in
remains a hotbed of Latin America could grow by as much as 4.9%
annually, a rate that is second only to Asia-
payments activity. Pacific—albeit from a much smaller revenue
pool. Drivers include e-commerce innovation
and efforts across the region to promote
Overall, however, Asia-Pacific remains a greater financial inclusion.
hotbed of payments activity. Large
merchants have become major digital Digital wallets are becoming a sizable force
payments players in their own right, more so as top players consolidate their pan–Latin
than in other regions. Examples include American presence. Mercado Pago, for exam-
Alibaba in China and PhonePe (owned by ple, hopes to expand its eight-country foot-
Flipkart) and Amazon in India. Taking a page hold in the region with campaigns to enter
from these giants, ambitious entrepreneurs new markets such as Chile.
are applying a “land and expand” strategy,
anchoring the business in a key niche and To date, these merchant-led digital wallets
then building rapidly into adjacent services. have focused on a core set of applications
Grab, for instance, began as a ride-hailing such as food delivery and e-commerce. But
app in Malaysia and followed that up with an regional banking initiatives like the instant-
expansion into mobile payments, cards, and payments system PIX developed by Brazil’s
financing. The company is now competing central bank and a new electronic-payments
to acquire a banking license in Singapore platform called Modo from a consortium of
and Malaysia. South Korea’s Kakao followed Argentinian banks could open up new oppor-
a similar path, beginning as an instant- tunities. Incumbents are also investing in in-
messaging and gaming provider, then moving novation. For example, Itaú in Brazil is scal-
into mobile wallets and payments before ing up its own wallet, Iti, and digital giants
becoming the country’s first internet-only such as WhatsApp are becoming more active
bank in 2017. in the region.
Some countries are also emerging as local In the merchant-acquiring space, the region is
payments champions. Indonesia, for example, seeing a shift away from the single-brand
is fast becoming a major innovation hub, model. This began in Brazil in 2010, spread to
especially when it comes to addressing the Argentina and Chile, and is expected to ex-
needs of Southeast Asia’s large unbanked tend to Peru and Colombia. The region is
populations. The country has launched five now moving toward a multibrand competi-
unicorns in the past several years: Gojek, Ovo, tive market paradigm, opening competition
Tokopedia, Traveloka, and Bukalapak. for third-party players and integrated soft-
ware vendors (ISVs), including Naranja X and
In other countries, regulators have fueled in- Todo Pago in Argentina, Izipay and Vende-
novation. The introduction of the United Pay- Más in Peru, and CompreAquí in Chile. A
ments Interface (UPI), for example, revolu- more competitive market could challenge the
tionized the payments infrastructure in India. dominance of some incumbents and lead to
Since its launch in 2016, the UPI has become greater M&A activity.
Boston Consulting Group X Swift | 9Middle East and Africa But this is changing. As with the Middle East,
From 2019 to 2024, payments revenue growth government, bank, and nonbank payments
across the region is likely to peak at a CAGR players are promoting the use of digital pay-
of 2.2% under a quick-rebound recovery. ments through consumer education, reduced
transaction fees, and product innovations.
In the Middle East, crisis-related headwinds
such as falling oil prices, a slowdown in tour- Roughly 60% of the African mobile payments
ism, and a spike in expatriate migration have market is captured by telco-led solutions.
slowed economic growth and led to more cau- Over the past decade, for example, Kenya’s
tious consumer spending. Although payments M-Pesa has come to dominate the mobile
revenue growth will remain somewhat muted payments space in that country and has be-
as a consequence, electronic transactions come the most prominent telco-led mobile
have seen a surge in interest. A survey com- money solution across Africa. In Ghana, MTN
missioned by the government in Dubai found has achieved strong market penetration with
that 71% of consumers in the United Arab its innovative customer-to-customer offerings.
Emirates increased their use of digital pay- Orange Money has done the same in the
ments for in-store shopping since the start of Ivory Coast. Telcos have also developed at-
the pandemic and 49% shop more online, tractive business services, including a leading
with 61% of them using cards and digital wal- cross-border remittance solution between
lets. More SMEs are also accepting contactless Ivory Coast, Mali, and Senegal.
payments. Other countries in the region have
seen e-commerce adoption accelerate as well. Although banks and non-telco-led payments
solutions are not common in Africa currently,
Governments, banks, and payments service the opportunity is huge. The estimated
providers are helping to propel digital pay- potential market for banks in sub-Saharan
ments adoption further—for example, by in- Africa is $500 billion, nearly all of it in the
creasing access and lowering transaction fees. form of P2P payments. Transactions using
To support economic growth, both Saudi Ara- mobile payments total roughly $300 billion
bia and the UAE plan to launch real-time annually across the continent and are ex-
payments infrastructures sometime in 2021 pected to more than quadruple, reaching
or early 2022. In addition, countries like the $1.3 to $1.9 trillion in 2025.
UAE are allowing more international pay-
ments players to enter the market. These
shifts will push revenue growth higher in the
medium to long term.
Note
Africa has its own market characteristics. His- 1. Based on the adoption levels observed for major
digital wallets (Apple Pay, Google Pay, Samsung Pay,
torically, cultural norms and the fact that 65% Walmart Pay) in the US during the first few years after
of the population is unbanked contributed to launch.
a heavy reliance on cash across the continent.
10 | Fast Forward into the FutureSECURING FUTURE
GROWTH IN RETAIL
PAYMENTS
R etail payments revenue growth
will slow down from 2019 to 2024 as
consumers, merchants, and the global
Merchants face their own challenges. Wooing
customers back into physical stores, finding
the best ways to reach them online, and
economy recover from the COVID-19 crisis. discerning what promotions are likely to
(See Exhibit 4.) In a quick-rebound scenario, appeal most will require soul-searching and
payments revenues would grow by 4.9% over experimentation.
the next five years, well below the 8.0%
CAGR achieved from 2014 to 2019. Much of
the revenue shortfall will come from lower How Issuers Can Prepare for a
deposit volumes and interest rates. Healthy Recovery
Understanding what revenues are at risk,
Credit cards will account for roughly 50% of which segments are most exposed, and how
retail payments revenues, but debit cards and to enter the postcrisis period on a strong foot-
credit transfers will see the highest rates of ing will require different types of analysis
growth. and a willingness to experiment. These ac-
tions can help issuers reduce their exposure
Revenue growth will vary by region. (See Ex- and protect their revenue streams.
hibit 5.) The global revenue pool will see a
rebalancing, with Asia-Pacific likely to ac- Manage Customers as They Come Out
count for around 40% of total retail payments of Forbearance
revenues by 2024 under most scenarios. Latin In the early months of the COVID-19 crisis,
America is also poised to see solid growth, short-term debt deferral and loan extensions
with revenues across the region expected to held total delinquencies at bay. As deferral
rise at a CAGR of 1.4% to 5.1% under the terms expire, however, issuers could face new
three scenarios. By 2024, revenues in the re- exposures. They can significantly reduce
gion could total $144 billion, putting Latin those risks by taking proactive measures.
America’s retail payments pool within range
of more established markets such as Europe. Adapt segmentation to account for COVID-
19-related risks. Instead of the broad risk
In the near term, issuers and merchant categories (such as low, medium, and high)
acquirers in most markets face a greater traditionally used, issuers should incorporate
likelihood of delinquencies and chargebacks second-order factors such as deferral-program
as customers and businesses struggle with status, the regularity of payments during
the financial fallout from the pandemic. forbearance, and customer responsiveness to
Boston Consulting Group X Swift | 11Exhibit 4 | Three Growth Scenarios for Retail Payments
Quick rebound Slow recovery Deeper impact
4.9% 5.7% 2.9% 5.0% 1.1% 4.6%
Revenue ($B)
1,785
1,568
467
1,356 1,409
8.0% 440
70 1,229
5 1,127 405
1,066 370
237 62
351 5
45 331 53
202
321 4 42 4
161 188
727 30 144
4 38
3
113 3 135
247
22 1,006
76 4 776 860
688 760
598 619
379
2014 2019 2024 2029 2024 2029 2024 2029
Current accounts Others Credit cards CAGR 2019–2024 CAGR 2024–2029
Credit transfers (electronic, paper) Debit cards
Source: Global Payments Model 2020.
Note: Please refer to the appendix for GDP growth relative to each scenario. “Others” include direct debit and checks. “Credit cards” includes
charge cards, and “debit card” includes prepaid cards. Rounding effects may occur.
company communications (especially digital potential segments at risk, and preparing
outreach). These insights can help businesses sample outreach can improve speed to mar-
better understand customer-level risk and can ket for new strategies.
influence the outreach strategy for exiting
customers. For issuers with large deferred Rehabilitate Modeling to Reenter
populations, treating that group as its own Lending Safely
specific risk segment with a particular stra- In May 2020, US credit card originations
tegy may be even more helpful. dropped by more than half from what they
were in 2019, according to the credit bureau
Take a personal approach to outreach and Equifax, with some issuers ceasing to give
communications. Proactive and personalized out new cards altogether. Rather than cutting
communications can lead to improved pay- off lending, however, issuers can build back
ments capture from exiting customers. Lend- the lending book by reinforcing their early-
ers should track their customers’ preferred warning systems. Updating analytics to
channels and should tailor messaging to include credit bureau alerts on trade line
their specific situations, with the tone and events like mass closures, internal data such
content reflecting an individual’s affinity and as deviations in normal checking-account
engagement. behavior, and new data assets on variables
like employment levels can help issuers iden-
Enable quick changes to the collections tify distressed customers.
strategy. Given the volatile economic environ-
ment, lenders need to adapt more rapidly. Issuers should then prepare a suite of credit
They should use this time to create processes actions: for example, issuers can extend cred-
that allow them to accelerate offer develop- it and deepen relationships through cross-
ment. Streamlining approvals, anticipating product targeting and at the same time build
12 | Fast Forward into the FutureExhibit 5 | APAC and LatAm Will See the Fastest Retail Payments Revenue Growth
2024 REVENUE OUTLOOK
Revenue ($B) Quick rebound Slow recovery Deeper impact
2014 2019 CAGR CAGR CAGR CAGR
2014–2019 2019–2024 2019–2024 2019–2024
Europe 167 190 174 161
140
3.6% 2.6% 0.8% –0.8%
356 402 376 352
250
North America 7.3% 2.5% 1.1% –0.3%
565 497 447
383
Asia-Pacific 227 11.0% 8.1% 5.3% 3.1%
77 113 144 132 121
Latin America 7.8% 5.1% 3.3% 1.4%
33 48 54 51 48
Middle East and Africa 8.0% 2.4% 1.0% –0.4%
Source: Global Payments Model 2020.
Note: Please refer to the appendix for GDP growth relative to each scenario. Rounding effects may occur.
appropriate risk mitigations such as lower operations, marketing, and technology. ZBB
credit lines and stronger authentication rules. provides a framework for business leaders
Recalibrating lending models and policies to to separate pet projects from strategic
the new postcrisis reality can help issuers initiatives and create dual accountabilities
make informed decisions and maintain between the cost owner and demand
appropriate oversight. generator. COVID-19 can be a catalyst for
this type of examination, giving leaders
Accelerate Cost Transformation an opportunity to reconsider their site
Winning in the postcrisis period will come strategies, revisit contracts with marketing
down to scale and dexterity. Gaining both will agencies, and reinforce the shift to paperless
require issuers to become leaner. But banks processes.
need to be careful to trim fat, not bone, lest
they hamper their ability to ramp up service Prioritize Simplicity and Value
when the economy recovers. To capture the expected growth in contactless
and e-commerce payments, issuers need to
take measures to make sure that their cards
Winning in the postcrisis are the top-of-wallet choice.
period will come down to Enable contactless integration. Issuers need
to ensure that their cards can be added to a
scale and dexterity. customer’s digital wallet in a no-hassle way
by seamlessly integrating with merchant
mobile payments journeys. Awareness-
By taking a zero-based budgeting (ZBB) building efforts that educate customers about
approach, banks can reallocate funds to the value of contactless payments are also
enhance productivity while protecting important. For example, an issuer ran a
initiatives that are key to unlocking long- campaign for its high-spending segments by
term growth. Cross-functional collaboration encouraging them to provision their card in
is essential because many costs flow across the wallet.
Boston Consulting Group X Swift | 13Tailor value to the new reality. Some issuers •• Fraud risk due to a surge in e-commerce
in the US have shifted from promoting business, where fraud is more prevalent.
travel-related rewards to providing points for
grocery shopping. Others have extended Merchant acquirers need to approach risk in
eligibility windows, such as for travel-related a more incisive way and reposition their busi-
cobranded cards, to maintain current rewards ness for the rebound. Here’s how they can
tiers. But issuers should seize the opportunity meet that challenge.
to go further and rethink their rewards
programs. Creating unique and tailored Deaverage, Triage, and React
experiences—for example, using points for a Acquirer portfolio composition can vary wide-
celebrity-hosted book club or a virtual ly. Those with a heavy concentration of cus-
cooking class with a high-end chef—can tomers in sectors hard hit by the crisis face a
inject new value and gain fresh interest from significantly higher risk of chargebacks from
key customers. businesses that cannot meet their customer
refund obligations. Merchant acquirers
should take several measures to understand
Merchant acquirers need where and how they are most exposed.
to approach risk in a more Construct a 360-degree customer view.
Although acquirers typically manage credit
incisive way. risk through portfolio diversification and by
maintaining appropriate collateral, these
efforts won’t be sufficient to protect them in
Innovate the offer. Traditional incentives such the current crisis. Instead, acquirers need to
as a low introductory interest rate have their gain a granular understanding of their
place, but banks that capitalize on their rich customers’ inflows, outflows, liquidity, and
data repositories can further differentiate collateral.
their products. For example, banks looking to
expand into installment loans can use custom- They can do this by mining more types of
er data to get a fuller picture of a customer’s data including pooled insights from industry
cash flow and trade lines in order to extend experts on the expected speed of recovery
the most appropriate offer. Longer term, per industry vertical and by analyzing cus-
issuers will need to build on these steps in an tomers on an individual and segment basis.
effort to stave off the growing fintech threat. For example, regular reporting on the top 100
merchants on metrics such as free cash flow
expectations, debt service capacity, and de-
How Merchant Acquirers Can fault risk can allow management to keep an
Derisk and Reboot eye on the most valuable customers. Like-
For merchant acquirers globally, COVID-19 wise, acquirers should assess what percentage
was a black swan event that resulted in an of their SME base is at risk (since this seg-
abrupt drop in payment volumes and record- ment can account for 40% to 50% of total rev-
high chargebacks across multiple industries. enues for some acquirers). For bank-owned
Suddenly, acquirers found themselves facing acquirers, data from the business’s checking
significant exposure. Vulnerabilities included: account is a rich source of inflows and out-
flows and should be used accordingly.
•• Business risk due to reduced payment
volumes in some industry verticals. Monitor continually. Given how quickly
economic parameters can change in a crisis,
•• Credit and liquidity risk due to high acquirers need to establish regular reporting
rates of canceled trips and orders in the and review processes. In some cases, merchant
travel and tourism sector that resulted in acquirers may need to refresh initial short-
above-average volumes of refunds, putting term crisis measures and increase collateral
substantial pressure on the liquidity of and rolling reserves on an individual-merchant
these businesses. basis. They also need to keep an eye on a
14 | Fast Forward into the Futurepotential wave of business defaults once ple, SMEs tend to have significant unmet
short-term government aid programs expire. needs and are often less price-sensitive than
larger merchants. Expected structural im-
Professionalize the risk management operat- provements such as payments infrastructure
ing model. Acquirers must ensure that their upgrades could open other opportunities in
risk management function is staffed with the certain regions and industry sectors, such as
right number of individuals, with the right payments acceptance for governments and
skill sets and expertise to manage their public institutions.
exposures. In addition, they should formalize
their risk management operating model to Strengthen e-commerce positioning. Retail
improve efficiency and risk reporting. Estab- e-commerce volumes are expected to rise by
lishing industry-specific risk policies is also a CAGR of 16% until 2023—about three to
important. These can include setting risk- four times faster than physical point-of-sale
adjusted collateral requirements and pricing growth. Acquirers that make their product
for specific companies and sectors as well as easy and convenient to use will capture the
risk policies that prohibit the acquirer from lion’s share of that growth. For example,
doing business with industries whose risk- offering “plug and play” omnichannel pay-
return profile is above a specified threshold. ments solutions would give SMEs a simpler
Such practices can help merchant acquirers and more appealing way to integrate pay-
continue to serve a broad client base while ments functionalities into their web shops.
securing their own financial health.
Prepare for tighter risk management and
compliance regulations. Finally, acquirers
Winning—and holding
should be alert to the prospect of increased onto—key customers
regulatory scrutiny, both as a result of the
pandemic and from the massive Wirecard
requires having the right
accounting fraud, an incident that took many sales organization in place.
auditors and regulators by surprise. Authori-
ties are likely to pay much closer attention to
acquirer compliance with industry regula- Provide value-added services. With fees in
tions and standards going forward. the payments acceptance and transaction
business under pressure, acquirers can drive
Price according to risk. Traditionally, most down costs and improve the customer experi-
acquirers have not priced for the risk posed ence by expanding their use of high-margin
by individual merchants, but they need to VAS offerings. The possibilities are vast,
start doing so now. We recommend that including industry-agnostic solutions (such as
acquirers create a framework to quantify dynamic currency conversion, real-time
risk-return tradeoffs and use that analysis to merchant reporting, and fraud prevention),
set pricing levels. industry-specific solutions (including partial-
refund options in the apparel e-commerce
Prepare for the Rebound sector), and white-label offerings (consumer
Engaging proactively in several important ar- finance, for example).
eas can help merchant acquirers reboot faster
and capitalize on green shoots of growth. Realign sales capabilities. Winning—and
holding onto—key customers requires having
Rebalance the merchant portfolio. Merchant the right sales organization in place. For
acquirers should examine their portfolio example, shifting from a branch-based sales
from an industry, merchant size, and geo- approach to a telesales model backed by
graphic lens to assess where they might be advanced analytics would allow highly skilled
overindexed. Likewise, acquirers should sales personnel to focus their time on serving
assess which segments, markets, and regions the more complex needs of large merchants
could become new growth hotspots on the while enabling greater self-service for smaller
basis of customer characteristics. For exam- customers. Acquirers should also consider
Boston Consulting Group X Swift | 15sales partnerships, such as collaborating with an ongoing and manageable way. While a
banks that lack their own merchant-acquiring reimagination of the purchasing journey
business as well as with ISVs. The result could may take time to complete, several tactical
help acquirers deliver a richer customer changes can be implemented relatively
experience in a time- and cost-efficient way. quickly. For example, minimizing signa-
ture requirements, introducing contactless
checkouts, and offering multiple payments
How Merchants Can Use options (such as BNPL) can help mer-
Payments to Drive Efficiency and chants improve conversion rates—and
Growth address customer concerns about conta-
During the initial whiplash period of the cri- gion risk. Similarly, merchants operating
sis, merchants did what they could to expand in Europe that devise a seamless way to
their omnichannel capabilities, developing support the two-factor authentication
new processes on the fly with admirable required by PSD2 can earn significant
speed. Still, many encountered hiccups. With competitive differentiation.
the first heady months behind them, now is a
good time for merchants to reassess their pay- •• Strengthen financial services offerings.
ments priorities and make two key changes: Providing financial services is an un-
tapped opportunity for many merchants.
•• Integrate payments into the purchasing Players like Alibaba and Tencent have
journey. Merchants that create a friction- shown the strategic potential of doing so,
less experience for their customers can winning customers and value by offering a
gain significant advantages. Given techno- variety of financial products over their
logical advances, for example, it’s not platforms. Large merchants that operate
farfetched to imagine a model in which in favorable market conditions can do the
customers would receive a prompt over same. For instance, better use of data can
their mobile phone letting them know allow merchants to go beyond standard,
that a favored takeout restaurant was no-frills insurance on big-ticket purchases
running a special family meal promotion. and tailor products according to the
The app could enable a one-click order individual’s intended use, past experience
using a preauthorized card at the mer- with similar products, or the average
chant’s website and set the delivery time product shelf-life. More broadly, assessing
according to a customer’s location. customers by total lifetime value can help
merchants determine the most relevant
Experimentation is key. Creating room for type of payment or VAS to issue (such as
sandbox initiatives can allow merchants a cobrand card or installment loan).
to refresh their purchasing experience in
16 | Fast Forward into the FutureSOLVING PAIN POINTS IN
WHOLESALE PAYMENTS
T he COVID-19 crisis is likely to acceler-
ate the digitization of wholesale trans-
action banking—a set of services that
revenues will rise by a CAGR of 2.7% in a
quick-rebound recovery. This compares with
5.5% from 2014 to 2019. (See Exhibit 6.)
includes domestic and cross-border pay-
ments, cash management, trade finance, Some product categories, regions, and sec-
and working-capital solutions. The mission- tors could see above-average growth. For
critical nature of these activities for corpora- example, about one-third of wholesale
tions and the expertise required to support payments revenues over the next five years
them will drive revenue growth in most will be primary revenues from processing
major markets. Our outlook suggests that, transactions. Secondary revenues, fees, and
from 2019 to 2024, wholesale payments interest rate revenues from account and
Exhibit 6 | Three Growth Scenarios for Wholesale Payments
Quick rebound Slow recovery Deeper impact
Revenue ($B) 2.7% 5.3% 2.1% 4.9% 0.9% 4.0%
589
559
62
55 506
5.5% 455 441 47
397 126 107 415
47 43 94
35 39
303 72
94 84 76
29
52
400 397 365
289 314 314 301
222
2014 2019 2024 2029 2024 2029 2024 2029
Primary cross-border Primary domestic Secondary CAGR, 2019-2024 CAGR, 2024-2029
Source: Global Payments Model 2020.
Note: Please refer to the appendix for GDP growth relative to each scenario. “Primary” relates to transaction-based revenues, and “secondary”
relates to checking-account and credit card–related fee and interest revenues. Rounding effects may occur.
Boston Consulting Group X Swift | 17credit cards will also be significant, as will revenues higher and leading to less vari-
cash pooling from across legal entities, ance in the growth outlook between these
currencies, and jurisdictions. scenarios.
The primary-revenue outlook varies consid-
erably across regions. (See Exhibit 7.) A Growing Role for Transaction
Asia-Pacific and Latin America, with their Banking Solutions
many rapidly emerging countries, will Most wholesale payments providers will face
account for the highest share of growth in revenue challenges in 2020 and 2021 as a re-
wholesale payments. Europe will see modest sult of pandemic-related reductions in trade
growth, as will the Middle East and Africa, volumes, business spending, and interest in-
albeit off a smaller revenue pool. North come. At the same time, CFOs and corporate
America, however, will face the toughest treasurers will be looking for wholesale pay-
challenges over the next five years. The ments providers to give them up-to-the-
economic consequences from the greater minute visibility into their account balances
scale of the COVID-19 outbreak in the US and credit lines and help them gain more
are likely to drive down payments revenues, accurate cash flow projections.
with limited growth—or even a decline—un-
der the three recovery scenarios from 2019 These needs will heighten the demand for
to 2024. transaction banking solutions. In addition,
elevated uncertainties around international
In some regions, interest revenues would trade are likely to generate increased interest
actually grow at a faster rate under a slow- in documentary trade finance instruments in
recovery scenario than in a quick rebound. order to mitigate risks. The need for working
This would occur because companies would capital and supply chain finance will also rise
hold onto more cash owing to the ongoing as businesses pursue ways to shore up their
economic uncertainty driving deposit-related cash position and stabilize their supply chains.
Exhibit 7 | APAC and LatAm Will Outpace Other Regions in Wholesale Revenues
2024 REVENUE OUTLOOK
Quick rebound Slow recovery Deeper impact
Revenue ($B)
2014 2019 CAGR CAGR CAGR CAGR
2014–2019 2019–2024 2019–2024 2019–2024
Europe
64 63 68 65 59
–0.4% 1.5% 0.4% –1.3%
135 139 138 130
North America 87 9.3% 0.5% 0.5% –0.2%
195 187 176
116 153
Asia-Pacific 5.6% 5.0% 4.1% 2.8%
Latin America 18 23 4.9% 28 4.0% 26 2.6% 23 0.2%
Middle East and Africa 18 23 5.1% 24 1.6% 24 1.3% 23 0.6%
Source: Global Payments Model 2020.
Note: Please refer to the appendix for GDP growth relative to each scenario. Rounding effects may occur.
18 | Fast Forward into the FutureThese shifts could open important opportuni- tions for the SME segment, and the Falcon
ties for wholesale banks, allowing them to Group has created new inventory manage-
play a deeper role—not just as a purveyor of ment and finance solutions.
products but as a thought partner, trusted ad-
visor, and provider of transaction banking In other areas, OnDeck, Kabbage, and Fund-
solutions. But incumbent banks will have to ing Circle have introduced advanced-lending
work harder to retain and expand high-value and working-capital finance solutions for cor-
B2B relationships in a field that has become porate clients. Fintechs are also attacking oth-
far more crowded. er wholesale banking strongholds such as
cross-border payments and foreign-exchange
risk management. (See the sidebar, “It’s Time
Fierce Competition Across the for Banks to Revamp Their Cross-Border
Value Chain Business.”) In addition, several big-tech plat-
Not only has competition among banks forms such as PayPal, Amazon, and Alibaba
intensified—for example, with Goldman have begun offering working-capital finance
Sachs entering the transaction banking busi- and lending products targeted at the SME
ness—but the number of nonbanks compet- segment.
ing in the wholesale market continues to
grow. This diverse group includes enterprise But banks still command many advantages,
resource planning (ERP) and treasury man- including their longstanding customer rela-
agement system (TMS) providers as well as tionships, balance sheet strength, and ability
card networks, like Visa or Mastercard, that to offer a full range of services. Moreover,
have extended their offerings in B2B pay- BCG’s corporate treasury survey continues to
ments and open banking. show that CFOs and treasurers view banks as
their most trusted partners. To continue to
earn that trust, however, wholesale banks
The number of nonbanks need to update their strategic playbook, en-
hance the customer experience, and adapt
competing in the wholesale more quickly to changing events.
market continues to grow.
Strategies to Drive Differentiation
To hold onto and expand valuable relation-
A key factor in the expanding playing field is ships during the crisis and in the postpan-
integration. More companies from inside and demic environment, banks and new entrants
outside traditional banking spheres are em- alike need to go beyond their current level of
bedding payments capabilities into their of- service. SMEs, for example, generally lack the
ferings and ecosystems. Coupa’s acquisition sophisticated treasury capabilities of large
of Bellin in 2020, for example, allowed Cou- corporations. These businesses are looking
pa to add cloud-based treasury management for wholesale payments providers to lighten
and payments capabilities to its enterprise- the administrative load, enable straight-
spending management platform. through processing, and offer transparency
on their overall cash flow picture.
Some of these newer entrants have devel-
oped sophisticated capabilities that target Likewise, large corporations want wholesale
underserved segments and provide corporate payments providers to deliver a fully auto-
customers with more favorable price struc- mated, secure transaction experience that
tures. In the trade and supply chain finance plugs neatly into their corporate ERP and
space, for instance, Greensill Capital and accounting systems and want them to offer
Demica each created a digital originate-to- complete transactions digitally in real time.
distribute business model that gives medium At the same time, CFOs and corporate trea-
to large corporates expanded access to supply surers want to engage with experienced
chain finance offerings. BlueVine and C2FO human relationship managers when needs
have developed invoicing and factoring solu- arise, whether on technical issues, payments
Boston Consulting Group X Swift | 19IT’S TIME FOR BANKS TO REVAMP THEIR CROSS-BORDER
BUSINESS
Card networks, fintechs, and infrastructure To support these changes, banks need to
providers such as Ripple and Earthport lower their cost base. Increasing operation-
have entered the cross-border payments al efficiency, especially in core transaction
space in recent years. These challengers processes, and modernizing IT infrastruc-
often outperform banks in speed, pricing, ture are vital. Banks may also wish to
API integration, and the overall customer explore fintech partnerships in order to
experience. To stay competitive, banks will serve more exotic trade and payments
need to change their approach. corridors effectively. In addition, as part of
their correspondent banking realignment,
Innovation is one requirement. Many banks wholesale banks should consider rationaliz-
have introduced SWIFT gpi to improve the ing the number of correspondent banks in
speed and tracking of international high-risk jurisdictions in order to minimize
payments. But with challengers providing the compliance risks and costs. They
convenient solutions like “request to pay” should also consider applying global
that facilitate remittance and reconcilia- standards for know your customer (KYC),
tion, banks need to continue refreshing sanctions screening, and transaction
their own offerings. monitoring to identify money-laundering
and terrorism-financing attempts.
Structural changes are also needed. Banks
should align their correspondent banking These steps can help wholesale banks
network along core trade and payments defend their cross-border business and
corridors to ensure that they can provide deepen high-value customer relationships.
customers with support in the regions
where they trade. Offering competitive
pricing is another must.
investigations, or questions that require ex- pooling solutions to improve liquidity
pert guidance. In addition, many customers optimization. Working-capital and supply
are looking for enhanced digital reporting chain finance offerings will also become
and tracking tools as well as advisory capabil- increasingly important to address corpo-
ities that can help optimize their currency rate liquidity needs. These are priorities
hedging or working-capital finance strategy. for large and small companies in nearly
every market.
By focusing on a few near-term actions, banks
and wholesale payments providers have an •• Collaborate for speed and scale. Given
opportunity to become part of the overall the time-sensitive cash and liquidity needs
crisis solution, establishing relationships that of many customers, payments providers
can pay long-term dividends: have a critical window in which to demon-
strate value to them. Forging strategic
•• Become a go-to partner in crisis man- partnerships and B2B ecosystems compris-
agement. Just as banks and payments ing banks, ERP and TMS providers,
service providers played a vital role in fintechs, and other players (such as big-
helping to dispense government stimulus tech companies or procure-to-pay plat-
payments, they can also reduce pandemic- forms) could allow wholesale payments
related stressors for customers in other providers to do more, faster, such as
ways. Account aggregation (within the accelerate the development of digital
primary banking relationship and across platforms in order to facilitate supply
multiple banking relationships) should top chain and trade finance, access white-label
the list along with cash management and products, and gain critical capabilities.
20 | Fast Forward into the FutureYou can also read
