BOSTON, MA--(Marketwired - Oct 9, 2015) - As payments and transaction-banking businesses evolve at a dizzying pace amid a toughening regulatory climate and digital innovations, banks can prevail over rivals by using their own vast infrastructure and customer knowledge, according to a new report by The Boston Consulting Group (BCG). The report, Global Payments 2015: Listening to the Customer's Voice, is being released today.
The report, BCG's thirteenth study of the global payments business, offers a comprehensive overview of the industry. It also discusses the findings of a recent BCG survey of nearly 5,500 consumers in four countries concerning payments preferences, and takes a detailed look at the wholesale transaction-banking market. In preparing the report, BCG for the fourth consecutive year collaborated with SWIFT, the global provider of secure financial-messaging services.
In conjunction with the report, BCG is launching the second edition of its Global Payments Model Interactive, available on bcgperspectives.com, which explores how regions and segments of the payments market will shift from year-end 2014 through 2024. This feature provides interactive charts on the volume and value of noncash transactions worldwide.
"There will be both significant disruption and immense opportunity over the next decade in payments," said Stefan Dab, a coauthor of the report and the global leader of BCG's transaction-banking segment. "While banks face intensifying competition, they actually have the assets to play a critical role in how markets evolve. To continue to extract value from their payments businesses, they must take decisive action along multiple dimensions: improving the richness of their digital interfaces, broadening their range of services, raising the effectiveness of their operations, and forming partnerships in the larger payments ecosystem. Banks also need to recognize that the value of payments will increasingly be realized by deepening customer relationships, not just by direct revenue generation."
Industry Overview. According to the report, global transaction-banking revenues in 2014 were nearly $1.1 trillion, or about 27 percent of total global-banking revenues. By 2024, they are projected to reach nearly $2 trillion, with growth driven by a combination of account revenues (40 percent), transaction revenues (34 percent), and non-transaction card revenues (26 percent). Rapidly developing economies (RDEs, also commonly referred to as emerging markets), most of which are moving toward higher rates of financial inclusion and greater migration from cash to e-payments, are enjoying stronger growth in all metrics than mature markets and will continue to do so. Although retail payments accounted for a small fraction of global transaction values in 2014 (11 percent), they generated 78 percent of total payments revenues and will account for a projected 73 percent of total revenue growth through 2024. North America remains the largest payments and transaction-banking market globally, generating $238 billion in total retail-payments revenues in 2014 (28 percent of the worldwide total), with a projected CAGR of 4 percent through 2024.
Survey: Unlocking the Potential of Consumer Digital Payments. According to BCG's survey, the primary reasons for the slow uptake of digital payment methods are threefold: a lack of compelling value propositions that outperform traditional payment methods and reward structures; persistent security and privacy concerns; and, as a consequence, insufficient merchant acceptance and consumer comfort. BCG says that banks, at the highest level, must educate consumers about digital payments and their added value. In BCG's survey, 55 percent of respondents either found no value in m-wallets or had never heard of them. The banking industry, working with card networks, also has an important role to play in ensuring that security and communication standards are implemented, protocols are followed, and platforms are built with full transaction visibility. In addition, the report says, in order to sufficiently differentiate themselves and prosper in the new digital world, individual banks need to form smart partnerships, enhance consumer engagement linked to payments, optimize the overall consumer-banking experience, and experiment with next-generation technology.
Wholesale Transaction Banking. According to the report, wholesale transaction banking generated close to $330 billion in revenues globally in 2014. Account and payment revenues were $243 billion and are expected to nearly double to about $480 billion by 2024, a CAGR of 7 percent. Trade finance added $45 billion, and value-added services (such as information reporting) contributed another $40 billion. Trade finance revenues should reach nearly $100 billion by 2024, a CAGR of 8 percent. In general, growth will be driven by increasing volumes and deposit balances, as well as by improving spreads. The importance of all these drivers, however, will vary by region.
Although revenue-pool growth projections are strong, the report says, excelling in wholesale transaction banking is becoming increasingly difficult. The attractiveness of the business has heightened competition among banks, while deficiencies in bank services and the rise of multibank platforms have opened the door to nonbank competitors. In addition, the regulatory compliance burden has grown dramatically, adversely affecting client relationships, bank operations, product development, and international expansion. BCG says that there are four critical steps to overcoming current challenges and becoming a transaction-banking champion: focusing on the true needs of treasurers and CFOs, excelling in the basics, differentiating along key dimensions, and outperforming in go-to-market strategies.
"With so much change in the industry, one thing that has not changed is that payments and transaction-banking businesses remain a critical source of reliable revenues and a linchpin of customer relationships and loyalty," said BCG's Stefan Dab. "Their importance will only continue to grow in a digital world."
A copy of the report can be downloaded at www.bcgperspectives.com.
To arrange an interview with one of the authors, please contact Jenelle Tortorella at +1 617 850 3927 or Tortorella.email@example.com.
About The Boston Consulting Group
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SWIFT is a member-owned cooperative that provides the communications platform, products and services to connect more than 10,800 banking organizations, securities institutions and corporate customers in over 200 countries and territories. SWIFT enables its users to exchange automated, standardized financial information securely and reliably, thereby lowering costs, reducing operational risk and eliminating operational inefficiencies. SWIFT also brings the financial community together to work collaboratively to shape market practice, define standards and debate issues of mutual interest. For more information, please visit swift.com.