Incumbent transaction banking players need to improve security, minimise complexity, and add value beyond pure payments to survive the onslaught of fintech startups and global digital giants, according to a new report by The Boston Consulting Group (BCG).
Findings from the Global Payments 2016: Competing in Open Seas report revealed that payments industry revenues reached $1.1 trillion in 2015, accounting for 29% of global banking revenues.
The revenues are expected to reach about $2 trillion by 2025, a compound annual growth rate of 6%.
Retail payments trends will, however, differ by region, the study said. In the Europe, the PSD2 regulation will cause the retail banking landscape to become more open and competitive by supporting new value propositions and business models.
North America accounted for 60% of payments-related investment in fintechs from 2010 through 2015, with the largest source of revenue being generated by the credit-card value chain. According to BCG, incumbents should dedicate more resources to faster-payments initiatives that are expected to be mainstream in the US and Canada within five to ten years.
Rapidly Developing Economies are showing overall expansion in payments-related businesses in spite of the sluggish GDP growth in some countries. The estimated annual growth in the value of bank-card payments in emerging markets from 2015 through 2025 is expected to be nearly double the rate in mature markets (11% versus 6%).
The study further highlighted that wholesale transaction banking that includes payments, cash management, and trade finance generated about $370bn in revenues globally in 2015. Account and payment revenues generated $290bn and are projected to reach $548bn by 2025.
BCG transaction-banking segment global leader and coauthor of the report Stefan Dab said: 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.
“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."