Power Struggle in Payments as Banks Duel with Fintechs and Digital Giants

Facing tough challenges both from small fintech startups and from global digital giants, incumbent transaction-banking leaders must improve customer journeys, maximize security, minimize complexity, and add value beyond pure payments if they hope to survive and thrive, says a new report by The Boston Consulting Group (BCG).

According to the report, Global Payments 2016: Competing in Open Seas, payments industry revenues hit $1.1 trillion in 2015, representing 29% of global banking revenues. By 2025, they are projected to reach nearly $2 trillion, a compound annual growth rate of 6.0%.

The growth engines will be transaction-related revenues (an estimated 40% of the total) and account revenues (34%).

The report also says that a confluence of forces is reshaping the payments industry and that three forces in particular will continue to influence the pace and path of transformation: technological advances, shifting customer expectations and behavior, and regulatory initiatives.

Further, current pain points and poor user experiences with many types of transactions have made payments businesses ripe for ongoing disruption by fintechs and digital giants, as well as for the emergence of new industry dynamics. However, disrupters will not necessarily triumph over banking incumbents, BCG says.

Wholesale transaction banking

Wholesale transaction banking—which includes payments, cash management, and trade finance—generated about $370 billion in revenues globally in 2015, according to the report, Global Payments 2016: Competing in Open Seas.

Account and payment revenues generated $290 billion and are expected to reach $548 billion by 2025, a CAGR of nearly 7%. Although shortcomings in banking services—along with the wish of some corporations to be “bank agnostic”—have opened the revenue doors to fintechs and digital giants, banks can combine their financial expertise with their tech acumen to fulfill the trusted advisor role, simplify treasurer’s lives, and fuel growth through what BCG calls “smart selling.”

“Ultimately, the payments industry is being transformed in ways that can play to the strengths of not only fintechs and digital giants but also bank incumbents themselves,” says Stefan Dab, coauthor of the report and the global leader of BCG’s transaction-banking segment.

“Although ongoing change and disruption in the industry are here to stay, the exact types of players that will emerge as true long-term winners is not yet clear. One fact remains certain: Inaction is not an option for players that wish to achieve or maintain market-leading positions. In order to prevail, institutions must find a smart way to compete in today’s wide-open payments seas.”

 

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