Global payments revenue pool is expected to rise at a slower rate and reach $2.2 trillion by 2027

Global payments revenue pool is expected to rise at a slower rate and reach $2.2 trillion by 2027

Global payments revenue pool is expected to rise at a slower rate and reach $2.2 trillion by 2027

According to a recent BCG analysis, businesses in the payments sector are dealing with a number of upheavals and need to move quickly to stay ahead of the curve.

Boston:The worldwide pandemic, supply chain disruptions, and escalating geopolitical tensions notwithstanding, the payments sector is expected to generate $1.6 trillion in revenue between 2017 and 2022, an 8.3% annual growth rate. However, according to recent data from Boston Consulting Group (BCG), slower growth is on the future. Global Payments Report 2023 is the name of the report that is being made public today.

According to BCG's 21st annual review of the global payments sector, between now and 2027, the worldwide revenue pool is expected to reach $2.2 trillion, with overall revenue growth slowing from current levels to a compound annual growth rate (CAGR) of 6.2%. Will go. In addition to examining the difficulties encountered by acquirers, issuers, wholesale transaction banks, and suppliers of payments infrastructure, the paper offers a thorough market perspective.

“This is the moment of truth for investors and merchant service providers, issuers, wholesale transaction banks as well as payments infrastructure providers,” said Yan Senant, global head of BCG's payments and fintech business and co-author of the research. "The payments industry is poised for a revolution driven by artificial intelligence (GenAI), which has the potential to revolutionize customer journeys and better target products, ultimately leading to improved services and profitability."

The tailwinds are shifting

Over the last five years, the global payments sector has seen growth primarily from the continuing conversion of cash to non-cash, increase in non-transaction revenues including income connected to deposits, and the increasing and faster adoption of digital commerce. installation of a contemporary payment system.

A change in the payments mix with consumer digital account-to-account revenues is predicted to drive a 7.1% growth in transaction-related revenues through 2027, down 1.9 percentage points from the previous five years, the paper said. By 2027, payments are predicted to surpass card use (by half the pace of the previous five years). Furthermore, certain markets are seeing a decline in card margins, and in some paperless societies, cash-to-noncash conversion may eventually attain maturity. Non-transactional revenues are predicted to rise by 5.7% between 2022 and 2027, a much lower rate than the previous five-year CAGR of 7.9%.

The payments industry is seeing a variety of upheavals that will test the resilience of even the most seasoned players. These include the fast expansion of real-time payments and value-added services, as well as the commoditization of payment processing services. The continual influx of new players into the payments market, which has resulted in over 5,000 fintech companies operating worldwide and accounting for over $100 billion of industry revenue, is another disruptive factor. According to the BCG analysis, these companies are expected to generate up to $520 billion in sales by 2030 and continue to put incumbents under competitive pressure.

A changing environment for businesses

According to the analysis, revenues for the acquisitions business might expand 6.9% annually over the following five years, increasing the worldwide revenue pool to $100 billion by the end of 2027. On the other hand, issuers have been riding this growing wave for a while. breaking down in the process. Issuer revenues increased at a compound annual growth rate (CAGR) of 8% internationally between 2017 and 2022. However, the analysis projects that issuer revenues will only rise at a 5.5% CAGR globally between 2018 and 2027. The worldwide market for transaction banking is now valued at $536 billion, and it is projected to expand at a 6.6% annual pace to reach $738 billion by 2027.

There is a rare chance for infrastructure firms and other payments market stakeholders to describe a the future of payments and their roles in it, as almost every aspect of the global payments ecosystem is reorganizing. According to the research, from 2022 to 2027, the growth of alternative payment methods is expected to be approximately three times higher than that of card payments. Since more than 90% of central banks are actively experimenting with digital currencies as a supplement to cash, they are quickly transitioning from an idea to a reality. To the International Settlements Bank. Retail and wholesale digital currencies issued by central banks might be available in several nations around the globe in five to ten years, if present growth trends continue.

converting uncertainty into a chance

In addition to outlining the short- and long-term steps that organizations should take to overcome the challenges that lie ahead, the paper identifies four themes that are influencing the leadership agenda:

Operational Resilience: Over the last 24 months, payment providers have shown strong operational performance. A worldwide sample of 20 major issuers, acquirers, payment processors, and card schemes showed average net revenue growth of 7.5% between 2021 and 2023. However, between 2021 and 2023, total shareholder returns (TSR) for the major firms fell by 20%. The highest loss (almost 40%) was seen in subsectors including acquisitions and payment processing. Organizations should prioritize operational flexibility and cost excellence when developing finance and investor strategies in order to enhance operating outcomes. In the near term, this means building an integrated company to raise TSR in the long run.

Payments experts are already beginning to employ generative artificial intelligence (GenAI), which has the potential to revolutionize many elements of the industry and help businesses and their clients greatly. GenAI may have a significant effect on several payment operations. According to BCG data, businesses may boost productivity in product development alone by more than 20% at various coding journey phases. To start using GenAI in the near future, businesses should pinpoint two or three high-impact use cases and develop the necessary technological architecture, governance, and personnel to carry them out. Long-term, businesses should use GenAI across the whole enterprise, concentrating on the most crucial customer journeys.

Risk management and Compliance: Regulatory bodies are adopting a tougher stance and stepping up enforcement in reaction to previous wrongdoing and non-compliance by some payment institutions. In order to overcome the most serious shortcomings, the study advises businesses to do an incredibly candid self-assessment of their risk and compliance capabilities. Establishing and executing a goal operating model is vital for organizations to facilitate enduring adaptability and elevate their long-term risk mitigation and compliance procedures.

Acquisitions and Mergers: With the exception of Stripe's latest transaction, equity investment from strategic investors and private equity firms in the payments fintech industry has decreased to $1.5 billion by Q1 2023 from $5 to $8 billion each quarter. It's not that much. Fintech payments were implemented in 2021 and the first part of 2022. According to BCG's analysis, M&A activity will continue to be robust, but capability-based acquisitions will replace mega-deals involving loyalty, integrated software providers, value-added services, and alternative payment methods. Program. It suggests that companies update their partnership strategy in order to recognize and seize on available M&A possibilities at competitive prices, and integrate partnerships with M&A to eventually strengthen internal capabilities.

As co-author of the research and partner at BCG, Markus Empenberger said, "The turbulence of recent years has underlined how exceptionally adaptable and resilient the payments industry is; however, these continued disruption is beginning to take its toll." "Organizations need to take decisive action and confront disruption head-on in order to enable sustainable growth and turn disruption into an important form of long-term profit in order to meet the challenges ahead."