Mahi Sall, Advisor, Fintech-Bank Partnerships, Payments and Financial Inclusivity
January 25th, 2023
Mahi Sall is the CEO & Founder of FinXpair, a Berlin-based strategic advisory boutique firm focu[...]
BCG: APMs Set to Outpace Market Growth by 2X
Payments | Sep 18, 2023
Image: BCG Global Payments 2023 Report
The global payments landscape is on the brink of a major transformation with non-cash alternative payment methods (APMs) to grow twice as fast as the market.
In an era marked by rapid technological advancements, the global payments landscape is undergoing a monumental shift. As we stand at this crucial crossroads, the recent BCG report on Global Payments 2023 'Investor Scrutiny Provokes Moment of Truth' sheds light on the transformative trends shaping the industry. Dive in as we delve deeper into the key takeaways from the BCG report and explore the future of payments.
1. Growth of Alternate Payment Methods (APMs) is pressuring infrastructure providers to diversify
See: Autonomous IoT Transactions and Micropayments
With the global shift towards digitalization, APMs are gaining significant traction. From person-to-merchant transactions to cross-border payments, APMs are expanding their reach. Initiatives like the Immediate Cross-Border Payments (IXB) pilot and the Asian Payments Network (APN) are testament to this growth. As APMs continue to evolve, infrastructure providers must adapt to cater to diverse use cases, from consumer transactions to government payments.
2. Central banks are all over Central Bank Digital Currencies (CBDCs)
Over 90% of central banks are currently exploring the potential of CBDCs. Predictions from the Bank for International Settlements suggest that by 2030, we could witness up to 15 retail and 9 wholesale CBDCs in circulation. These digital currencies promise to reshape the payments ecosystem, offering benefits like enhanced monetary autonomy, financial inclusion, and broader industry applications, including programmable payments and integration into decentralized finance.
3. Open banking is unlocking new possibilities
Open banking is set to revolutionize the way financial data is shared and accessed. With its potential to streamline processes, from customer onboarding to digital identity verification, open banking is poised to offer a plethora of opportunities for both banks and fintechs. Infrastructure providers can play a pivotal role by offering solutions that simplify regulatory compliance and leverage open banking innovations for commercial applications.
See: NatWest Group’s Vision for the Future of Open Banking and 3 Potential Ways Forward
4. Regulators are setting new standards that balance innovation and security
As the payments industry evolves, regulatory bodies worldwide are stepping up their efforts to ensure a secure and level playing field. From the European Commission's draft proposals for Payment Service Regulation to local data storage rules, regulators are setting new standards. Infrastructure providers must stay abreast of these changes, ensuring compliance while also advocating for policies that foster innovation.
Strategic Recommendations for the Future
Choose a Strategic Direction
- Amidst the myriad of opportunities and challenges in the evolving payments infrastructure, it's crucial for players to identify a primary focus.
- While card schemes have built robust networks over the years, diversification is now essential. Exploring areas like B2B payments, account-based payments, and open banking will be vital for sustained growth.
See: UK Government Publishes Recommendations for the Next Phase of Open Banking
- Banks and financial institutions need to ensure their ongoing infrastructure projects are aligned with value creation.
- Tech players should be poised to address emerging trends in decentralized finance and related innovations.
Facilitate Modernization
- Infrastructure providers, with their deep insights into the payments ecosystem, are uniquely positioned to drive modernization.
- They can offer specialized solutions, whether "as a service", embedded finance, or other models.
- Leaders can customize data for open banking, CBDCs, and other explorations to cater to specific target groups.
Forge Partnerships with Policymakers
- Collaboration between industry stakeholders and regulators is paramount to shape the future of payment infrastructure.
- Entities like banks and card schemes can play a pivotal role in enlightening policymakers about the potential risks and rewards of CBDCs, tokenized deposits, and other advancements.
- Regulators, in turn, should be receptive to industry insights, ensuring that their policies bolster rather than hinder innovation and promote the adoption of new payment infrastructures.
Diversify Revenue Streams
- Given the potential commoditization of core infrastructure strategies, providers should pivot towards orchestration-layer propositions and value-added services (VAS) at scale.
- Card schemes have already demonstrated the advantages of transitioning to VAS.
See: The Transformative Impact of Instant Payments on Financial Crime Mitigation
- A diversified solution portfolio can serve as a safeguard against downturns in any specific product segment.
- To deliver these enhanced offerings, a shift from a business-centric approach to a product-centric one is essential, fostering continuous innovation and ensuring consistent value delivery to clients.
The New Payments Landscape is Here
The payment infrastructure revolution is here, and it promises to reshape the future of finance. By staying informed, being strategic, and embracing innovation, industry stakeholders can navigate this transformative era and emerge as leaders in the new financial landscape.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, artificial intelligence, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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