Global payments: Expansive growth, targeted opportunities

Share

McKinsey&Company | Oct 2018

Robust growth makes payments a dynamic sector for incumbents—and a draw for new competitors.

Global payments revenues swelled to $1.9 trillion in 2017, the best single year of growth in the last five years (Exhibit 1). In last year’s report, we forecast that payments would become a $2 trillion business by 2020. Indeed, 2017’s market performance was so robust—its 11 percent growth rate fueled by continuing strength in the Asia–Pacific corridor—that global revenues are poised to surpass that $2 trillion threshold in 2018, and to approach $3 trillion within five years.

This rapid growth makes payments an expanding and increasingly important component of the broader banking industry. After an extended period in which payments generated roughly 30 percent of overall banking revenues, this metric has turned sharply upward. The continued prominence of payments in banking revenues might come as a surprise, given the continued pressure on payments fees—increasing competition and regulatory pressure—and ongoing low-interest-rate environments in many developed economies. In contrast, the trend makes sense, given healthy underlying fundamentals, including electronic-transaction and digital-commerce growth, and increasing cross-border activity. The growth of the payments component also points to the imperative for financial institutions to develop and continually refresh sound payments strategies to remain competitive in a market being reshaped by technology, new competition, and customer demands.

Not surprisingly, global payments revenue growth is dominated by the Asia–Pacific region, as has been the case for several years. At more than $900 billion, the region now accounts for nearly half of global payments revenue—compared with less than a quarter just six years earlier—as well as four-fifths of recent growth (Exhibit 2).

Remarkably, double-digit growth has continued even as the base of business has grown. The 20 percent growth rate for 2017, driven largely by liquidity factors, was Asia–Pacific’s strongest ever. Although our forecast calls for inevitable moderation, revenues in the region should continue to grow at low double-digit rates over the next five years, still considerably faster than any other region.

See:  Large Global Payments Processor Unveils Airdropping Campaign Among Users

Latin America’s payments sector has been the fastest-growing among the major regions in the recent past (albeit off the smallest revenue pool); but growth rates flatlined abruptly in 2017. We expect the region to return to average annual growth of 8 percent over the next five years, second only to Asia–Pacific. While several Latin American countries continued to deliver double-digit growth in 2017, Brazil’s payments sector—the region’s dominant revenue engine—was hampered by regulatory action targeting credit-card rates (Latin America is reliant on interest for two-thirds of its card revenues). Credit-card annual percentage rates (APRs) in Brazil fell by more than 60 percentage points as a result of actions restricting the duration of high-cost revolving credit lines. The plan is expected to reduce delinquency rates but will also reduce average APRs, which remain among the world’s highest. Latin America’s underlying fundamentals remain solid, particularly for domestic payments.

Revenues in Europe, the Middle East, and Africa (EMEA) were similarly near flat, continuing a trend that has persisted for the past decade. The developing nations of Africa and Eastern Europe have generated high single-digit growth, offsetting nominal declines in Western Europe. Fee revenues have been the primary factor in the growth that has occurred, while a persistent environment of low interest rates—reaching negative levels in some cases—acts as a drag on growth. A return to a stable rate environment combined with continued transaction growth will result in revenue growth in the middle single digits for Western Europe until 2022, while Africa and Eastern Europe are likely to continue at their present pace. At the same time, individual companies in the European payments arena, such as Adyen and Wirecard, are finding growth areas that lead to substantial valuations.

On the surface, cross-border payments might appear to comprise a low single-digit share of global payments revenues. However, once liquidity factors such as net interest margins are excluded—as many institutions do in analyzing their own payments P&Ls—this growing category of transactions account for a larger share (roughly one-quarter) despite increasing competition from new entrants and solutions. Cross-border transactions also continue to generate unusually high margins for payments products and serve as a foundation for a broader array of client services.

After a period of tepid results, following the financial crisis, North America’s overall payments revenue growth returned to a healthy 7 percent in 2017, and is poised to continue at a similar pace over a five-year horizon. Credit cards comprise more than half of North American payments revenues, far more than any other geography, and will continue to grow faster than other products. More surprising is that the drag on North American revenue growth, from the temporary slowdown in credit-card usage following the financial crisis, has only recently lifted.

The jump in global revenues in 2017 is a direct reflection of an improved global economic scenario, reinforcing the close link between growth in GDP and payments revenue. According to World Bank data, in 2017, global nominal GDP grew at 6.0 percent year over year, compared with 1.5 percent in 2016. During the same periods, payments revenue increased in similar proportions, from 7 percent in 2016 to 11 percent in 2017.

See:  Meet the fintech entrepreneur who thinks payments are boring

Comparing payments revenues across regions, we observe that payments revenue per unit of GDP (a measure of the cost of payments for consumers and businesses) in Asia–Pacific and Latin America is 50 to 60 percent higher than for Europe and North America. In addition, the share of electronic payments transactions in Asia–Pacific and Latin America is 60 to 65 percent lower than in Europe and North America. In other words, payments are significantly costlier for the economy in Asia–Pacific and Latin America, because the cost of processing cash and check payments is higher, as are the fees paid by consumers and businesses.

Transaction dynamics remain strong

Although the strong recent growth in global payments revenue has been broad-based and diverse, an increasing share is related to transactions. This is a positive development for banks and payments providers, as transaction revenues are more predictable and sustainable, and more readily controlled by financial-services firms. Transaction-based revenue now accounts for 40 percent of global payments revenue, up from 37 percent in 2012. We expect this share to grow to 46 percent by 2022, even in an improving rate scenario.

More specifically, while the overall number of transactions continues to increase, the true revenue driver is the electronification of transactions—namely, away from cash—which more than offsets the downward pressure on fees (Exhibit 3). Over the past five years, the share of the world’s transactions carried out in cash has fallen from 89 to 77 percent. At the same time, the share of combined debit- and credit-card use has nearly doubled, from 5 to 9 percent. The decline of cash usage globally is expected to be even more pronounced over the next five years, due to an increasing range of payments options, the push toward real-time payments, the growth of digital commerce, and continued regulatory focus on payments electronification.

Given that the Asia–Pacific region accounts for more than 60 percent of the world’s population, it is not surprising that it is responsible for two-thirds of global transactions. The fact that Asia–Pacific still lags behind other regions in overall electronification at only 21 percent (despite more than doubling since 2012) illustrates the region’s ongoing growth potential. The move away from cash, as witnessed in markets such as China, will serve as the single-largest cause of global electronification. The share of electronification in China has increased more than tenfold over the last five years, from 4 percent in 2012 to 34 percent in 2017.

See:  Singapore consortium claims breakthrough in DLT payments project

Meanwhile, North America has become the first region to execute more than half of its transactions electronically. At 450 electronic transactions annually per capita, it far and away leads other regions on this dimension. Meanwhile, individual European countries, such as Sweden and Norway, are executing no more than 20 percent of their transactions in cash, while generating 520 noncash transactions per capita per year.

The shifting digital landscape

The growing popularity of alternative payments solutions, and digital commerce in general, further contributes to the electronification trend. Global digital commerce volume exceeded $3 trillion in 2017 and will more than double by 2022. Asia–Pacific already comprises more than half of this $3 trillion and, due to the fast-growing Chinese market, will increase its share to nearly 70 percent by 2022. Mobile commerce, including in-app payments and mobile browser payments, is the dominant factor driving strong digital commerce growth, due to rising smartphone adoption, an increasing shift toward online shopping, and improvements in network bandwidth. Mobile commerce accounts for 48 percent of digital-commerce sales globally as of 2017, and is forecasted to reach 70 percent by 2022 (tripling to $4.6 trillion).

Consumers and merchants alike are increasingly embracing app-based commerce and in-app payments, with retailers ramping up investments in mobile apps with innovative use cases to provide omnichannel shopping experiences for customers. Globally, mobile apps accounted for more than 30 percent of total digital-commerce volume in 2017, and they are expected to continue strong growth across all regions (Exhibit 4). Digital wallets are estimated to have added approximately 40 billion to global payments revenues in 2017.

The outlook for in-store commerce varies significantly by country and region: in countries with near-field-communication infrastructure, tap-and-pay will drive growth; in the United States, in-store app use will grow as consumer use of order-ahead increases; and in emerging markets, the introduction of new payments solutions will influence how people pay. In the United States, in-person use of digital wallets will increase at a 45 percent compound annual growth rate to reach nearly $400 billion in annual flows by 2022. Although most of this growth is expected to be on “pass through” wallets like Apple Pay, private-label wallets such as Starbucks and Walmart Pay—both of which have enjoyed impressive early adoption—will also continue to increase in popularity. Even with these gains, however, digital wallets will comprise less than 10 percent of US consumer in-person point-of-sale payments in 2022. Lack of ubiquitous merchant acceptance will remain a barrier, along with the continued percentage of consumers who do not know how to use their mobile phone to pay at the point of sale.

See:  The lending revolution: How digital credit is changing banks from the inside

In the United Kingdom, a total of 38 million contactless transactions were conducted using a mobile device in 2016 (representing roughly $358 million in spending). While this is significant in absolute value, it accounts for only 1.2 percent of in-store payments, indicating a huge opportunity for growth. China leads on this front with 40 percent of in-person spending already on mobile digital wallets. However, unlike the United States, almost all of this is on closed-loop systems like Alipay and WeChat Pay. China’s ratio is projected to continue to increase to nearly 60 percent by 2022. Within the same region, Japan remains a largely untapped market. Research has found that close to 70 percent of Japanese consumers across all age groups still prefer to use cash when making in-store purchases, mainly due to security concerns with mobile payments. It is interesting to note, however, that despite the preference for cash, prepaid-card solutions like Suica have found high adoption in Japan. In the third section of this report, we look in more depth at the digital landscape.

Continue to the full article --> here


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, 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

Jazzovation | Tim Booth | April 22, 2019 Wednesday, April 24, 2019 | 8:30pm Tim Booth’s Toronto Art Orchestra Advance $20.00 / Door $25.00 * One of Canada’s top jazz orchestras is returning to the Toronto stage in what will truly be an all-star event. Toronto Art Orchestra (TAO), led by bass trombonist and jazz educator Timothy Booth, includes many of Canada’s first-call jazz players, including Colleen Allen, Bruce Cassidy, Andrew McAnsh, and John McLeod. The ensemble features vocalists Jessica Lalonde and Tanya Wills. TAO will present the works of two of the greatest jazz orchestra composers of all time: Maria Schneider and Bob Brookmeyer. Attend in-person or online The Toronto Art Orchestra concert will also be video-streamed with professional production values by JazzOvation.org (formerly TheJazzBox.ca) — a platform for Canadian jazz composers and performers that currently serves more than 60 artists. Be on the lookout for a growing series of upcoming JazzOvation concerts, featuring the best of Toronto’s – and Canada’s – jazz artists, as they perform at our finest jazz venues. About Tim Booth Tim Booth has been on the Canadian music scene for over 30 years, performing with a wide array of groups in the Montreal and ...
Read More
April 24, 2019 (Toronto Live Jazz and Jazzovation launch):  Tim Booth’s Toronto Art Orchestra
US News | By Ben Luthi | Apr 12, 2019 Apple Pay is secure and convenient, as long as you use it correctly. No payment method is entirely safe from fraud. But Apple Pay provides cardholders with several layers of security that can protect against some common forms of credit card theft. If you want to try Apple Pay, knowing how it works is important as well as how your credit card information is safeguarded and what you can do to stay protected while using it. What Is Apple Pay? Apple Pay is a mobile wallet for Apple devices such as iPhones and Apple Watches that allows you to make purchases in stores, in apps and online securely without handing over your credit card information every time. See:  The growing cost of cybersecurity In a store, the mobile wallet uses near-field communication technology – it allows two devices placed within a few centimeters of each other to exchange data – to transmit your card information. You just need to verify your identity with the Touch ID or Face ID feature, then tap your device to the store's card reader to process the payment. To keep your information private, Apple Pay ...
Read More
Is Apple Pay Safe?
NCFA | Team FFCON19 | April 16, 2019 5th annual Fintech and Financing Conference in Toronto addressed challenges and successes of entrepreneurs and innovators transforming the financial industry TORONTO, ON / ACCESSWIRE / April 16, 2019 / The National Crowdfunding & Fintech Association (NCFA), the non-profit cross-body organization that promotes and supports fintech and funding throughout Canada, closed its 5th annual flagship Fintech and Financing Conference - FFCON - which featured numerous fintech market leaders, as well as industry experts, government officials, and prominent tech investors. "FEARLESS" was the theme for this year's conference, celebrating the boldness and innovative nature of the FinTech industry, where entrepreneurs constantly challenge pre-existing financial systems with innovative new products and services. The conference brought together more than 500 attendees who experienced keynote speeches, immersive learning, workshops, startup pitch presentations and awards, an exhibitor floor, and networking receptions. Key themes explored at FFCON19: FEARLESS: RISK is a conscious choice and necessary to innovate; Digital trust and security are essential for mass adoption; The digital bank and future of fintech is already here; Collaboration and new social (decentralized) models can revitalize markets controlled by incumbents with too much power and no incentive to change; Private-public market ...
Read More
NCFA 2019 Conference Closes with Renewed Focus on Fostering Innovation in Fintech
Business Insider | Dennis Green | March 25, 2019 Stores that do not accept cash are on the rise, from quick-service lunch spots to Amazon's Go stores. Not accepting cash can speed up lines and make life easier for card-carrying consumers. But a backlash has grown, as the cashless trend leaves out lower-income customers who may not have a bank account. Massachusetts, Philadelphia, and New Jersey have already barred stores from rejecting cash as payment, and New York City and San Francisco are considering similar measures. This could affect the growth of Amazon's physical stores, which do not accept cash. Cashless stores are becoming controversial. See:  Under pressure Amazon plans to accept cash at cashless Go stores Bank Customers Are Primed And Ready For Amazon Stores that do not accept cash are on the rise, from quick-service lunch spots to Amazon's physical stores. Not accepting cash can speed up lines or eliminate them altogether, making life easier for card-carrying consumers. Not everybody is on board with this cashless utopia, however. Backlash has started, as the cashless trend leaves out lower-income customers who may not have a bank account. As of last year, an estimated 15.6 million people in the US ...
Read More
Cities and states around the country are banning stores from refusing to accept cash, and it's a troubling trend for Amazon
Public Policy Forum | Robert Asselin and Sean Speer | April 4, 2019 Rise of the intangibles When New England Patriots quarterback Tom Brady played in his first Super Bowl in 2002, there was no iTunes store, no Facebook, no Instagram, no Airbnb, no Gmail and no Skype. Today the companies who own these intangible assets are worth more than $4 trillion. The rise of the intangibles economy will have sweeping policy implications that will become clearer over time. Nobody knows for sure where this is heading. Our overriding objective in this paper is to help catalyze a bi-partisan policy discussion about a new “north star” for Canada’s economic competitiveness and the types of policy reforms needed to start us on this path. As part of this process, we set out a series of policy recommendations that cover the classic drivers of competitiveness such as taxation and regulation and drivers for the intangibles economy such as data governance, intellectual property retention, and the race for talent. But as important as these prescriptions are, the main takeaway for policymakers and the Canadian public is that the rise of the intangibles economy requires that we test old assumptions and are open to ...
Read More
[Report] A New North Star:  Canadian Competitiveness in an Intangibles Economy
NCFA Canada | April 12, 2019 JOIN US ON A STORYTELLING JOURNEY EVERY FRIDAY. Ep30-Apr 12:  The Future of Canadian Crypto With Andrei Poliakov About this episode:  On this episode of the Fintech Fridays Podcast, our Host Manseeb Khan sat down with Andrei Poliakov the CEO of Coinberry. They chatted about the future of Coinberry, the power of blockchain and his favorite failure.  Enjoy! HOST: Manseeb Khan, Fintech Friday's show host GUEST:  ANDREI POLIAKOV, CEO and Co-Founder, Coinberry (Linkedin) BIO:  Andrei is a seasoned entrepreneur having previously launched and managed various start-ups with a strong focus on implementation and early-stage strategy development. Having finished the University of Toronto with a bachelor in Electrical Engineering, Andrei worked in Business Consulting before completing his IMBA at York University, Schulich School of Business. Andrei brings to Coinberry +10 years of algorithm design, management and strategy development experience in various corporate settings with leading multinationals around the world. Subscribe and tune in each Friday to check out the latest movers and shakers in fintech. Listen to more podcasts here: Season 1 | Season 2 Transcription of Interview Intro: Welcome fintech Friday's a weekly podcast brought to you by the National Crowdfunding and Fintech Association of ...
Read More
Ep30-Apr 12:  The Future of Canadian Crypto With Andrei Poliakov
SEC | April 3, 2019 Bill Hinman, Director of Division of Corporation Finance Valerie Szczepanik, Senior Advisor for Digital Assets and Innovation Blockchain and distributed ledger technology can catalyze a wide range of innovation.  We have seen these technologies used to create financial instruments, sometimes in the form of tokens or coins that can provide investment opportunities like those offered through more traditional forms of securities.  Depending on the nature of the digital asset, including what rights it purports to convey and how it is offered and sold, it may fall within the definition of a security under the U.S. federal securities laws. As part of a continuing effort to assist those seeking to comply with the U.S. federal securities laws, FinHub is publishing a framework for analyzing whether a digital asset is offered and sold as an investment contract, and, therefore, is a security.  The framework is not intended to be an exhaustive overview of the law, but rather, an analytical tool to help market participants assess whether the federal securities laws apply to the offer, sale, or resale of a particular digital asset.  Also, the Division of Corporation Finance is issuing a response to a no-action request, indicating that ...
Read More
Statement on “Framework for ‘Investment Contract’ Analysis of Digital Assets”
TechDaily | Stefan Palios  | April 8, 2019 To be fearless, you have to set up the right conditions and environment. Taking this perspective to heart, #FFCON19, a conference put on by the National Crowdfunding & Fintech Association, pondered how to create the right conditions so entrepreneurs can be fearless in their work. From conversations about AI creating fake videos to open banking, the wide-ranging conference detailed that fearlessness comes from using the right tech at the right time, desiring a positive outcome more than wanting to avoid a negative outcome, and putting the right regulations in place. Deep fakes and identifying what’s real Kicking off the conference, entrepreneur Toufi Saliba brought the idea of ‘deep fake’ to the conversation, the premise that artificial intelligence technology can make videos appear to be of certain people. See:  The growing cost of cybersecurity “Deep fake enables everyone with a computer to download software to enable you to put someone speaking in a video, saying something they did not actually say,” Saliba explained. While innocently used in gag videos, the negative side is much more concerning. With this technology, said Saliba, hackers and other malicious actors can declare war, pretending to be a ...
Read More
#FFCON19 talked about how to build trust in the 21st century
Crowdfund Insider | JD Alois | Apr 4, 2019 Canada may be a smaller market but it has a robust, highly sophisticated economy and a vibrant Fintech sector. Toronto, the financial center of the country, is home to dozens of Fintechs including payment firms, online lending, AI, wealth management, blockchain and more. Yet while there are promising indications of financial innovation and a good number risk-taking Fintech entrepreneurs, a recent Canadian report noted a “need for a clear Fintech strategy by the federal and provincial governments with the intent of supporting innovation and growth for the Canadian financial services sector.” Like most other industries, competition in financial services is intense. As it is a highly regulated sector of industry, participants must continuously manage compliance demands while interacting with diverse public officials and regulatory requirements. These same rules, if duplicative or misaligned, can act as a barrier to positive innovation and change that challenges established firms and entrenched orthodoxies. The emergence of Fintech and the digitization of financial services, from banking and beyond, has seen multiple Fintech centers of prominence emerge. The UK has long been known for its Fintech friendly regulatory environment. Regulators frequently engage with emerging new business models ...
Read More
Canada’s Regulatory System for Fintech is Complex, Costly and Chaotic. It is Stifling Fintech Innovation
LAST CHANCE FOR TICKETSApril 3 SOLD OUTApril 4 last block of tickets >90%#FFCON19 “Motivation is the catalyzing ingredient for every successful innovation. The same is true for learning.”  Clayton Christensen FFCON19 is here and officially kicks off tomorrow!  Congrats on the 9 pitching finalists announced Some more speakers added! Brady Fletcher, Managing Director and Head of TSX Venture Exchange Jon Medved, CEO, OurCrowd Fred Pye, CEO, 3iQ Corp Neha Khera, Partner, 500 Startups Alixe Cormick, President, Venture Law Corporation Sandi Gilbert, CEO, InterGen and Chair of NACO David Lucatch, Chairman, Pegasus RJ Reiser, Chief Growth Officer, Polymath Keren, Moynihan, Co-Founder, Boss Insights Check out all 50+ speakers here Please meet FFCON’s Incredible Master of Ceremonies April 3:  Chantel Costa    April 4:  Amy ter Haar Look who’s coming to #FFCON19?  JOIN US!   THANKS TO OUR AWESOME FFCON19 PARTNERS!   HOST: PLATINUM: GOLD PARTNERS: SILVER PARTNERS: ...
Read More
Look Who's Coming to FFCON19!  Last Chance to get Tickets

 

Share