Global Payments Report 2022: The New Growth Game – identifying and addressing trends in the payments industry

The financial world continues to evolve at an accelerating pace, which in some cases brings additional challenges. Fortunately, the resilience of the payments industry is enormous. Global payment revenues (about $1.5 trillion in 2021) are expected to grow by 9 percent in 2022, despite current macroeconomic challenges. This is one of the conclusions from the Global Payments Report 2022: The New Growth Game, the market leading annual publication about the payments industry. Markus Ampenberger and Stanislas Nowicki from the Boston Consulting Group (BCG) – two co-authors of the report – elaborate on the results.

The twentieth edition of the report provides a comprehensive market overview from a global and regional perspective. It also describes the key players in the payment ecosystems, current trends and challenges. Finally, the Global Payments Report suggests actions for the payments industry to address key challenges.

These initiatives, the report says, can help companies to identify, shape and implement their strategies to gain and maintain competitive advantage. Let’s take a closer look at two of the most significant trends:

1. Growing demand for electronic payments

There is an ongoing cash to non-cash conversion, for several reasons. First, more and more populations are gaining access to electronic payments, especially the large populations in emerging markets that do not have easy access to banking or are now gaining access in some form. Moreover, during the COVID-19 pandemic, consumers relied more on card payments and their digital technology to make payments. This happened mostly on mobile devices. Secondly, the ongoing, significant growth of e-commerce has increased the share of digital payments globally.

The third reason is that the market is witnessing a very high degree of innovation and a systematic upgrade in market infrastructure. Across the globe, many real-time account-to-account payment systems are increasing in uptake. In this context, two instant payment systems, for example, are growing very fast: Brazil with PIX and India with its Unified Payments Interface (UPI). 

2. Significant risks and increasing compliance scrutiny

BCG sees four types of risk for payment players. The first is financial risk, the possibility of losing money as a business (e.g., in merchant acquiring or credit card issuing). There are also non-financial risks such as compliance risks, cyber risk including fraud and crypto risk. This last type of risk has many dimensions including stability of the currency system, data privacy and consumer protection. As a payment service provider, you have to deal with these risks. Key actions to take may include making risk and compliance management a C-Level priority, reviewing and optimizing the risk management target operating model (TOM) and strengthening the organization-wide risk management culture with a strong “tone from the top”.

What about the future?

First, there is no ‘one-answer’ for the entire industry. But there are some overarching topics. Suppose you look closely at regional development in the short and mid-term. In that case, BCG expects Latin America, the Middle East, Africa and Europe to be the regions with the strongest growth over the next five years. The first two are not that surprising, given their economic growth and importance in recent years. Europe presents more of a surprise, but BCG believes the region will benefit from the change in the interest rate environment and that it will benefit banks in the interest income they derive from deposits.

When it comes to global development, there are four topics that will have a significant impact on industry development:

1. Intensified competition: In the coming years, we will continue to see increased competition across the entire payment ecosystem. For instance, the emergence of Independent Software Vendors (ISVs)with integrated payment capabilities or new players initially targeting the online segment increase the pressure on traditional acquirers to exploit new opportunities.

2. Opportunities beyond payments: Payment players are increasingly exploring opportunities beyond their core businesses. One example: transaction banks are investing in cash management and advisory services beyond offering the current account and the execution of domestic and cross-border payments.

3. Specific product/service offerings: Specific product offerings targeted either on the needs of a particular customer segment or industry are becoming increasingly important. For instance, both acquirers and networks are developing solutions aimed at specific industries, or fintechs are increasingly offering banking, payment, and expense management solutions targeted at the SME segment.

4. Balancing growth with profitability: Given the significant deterioration in company valuations for payment players, the coming years will see a strong focus on profitability. fintechs will balance growth with profitability, established payment players and banks will seek not only to grow revenue, but also to control the cost base. 

To conclude, in addition to many findings that followed the predictions of the 2021 report, this year's report also yielded some unexpected results. Throughout the last years, we have seen the rise of central bank digital currencies gain momentum, partly as a response by many banks to the question of how to design and implement a digital currency. For example, the ECB is making plans for a digital Euro and the central bank of China is already piloting a digital Chinese Yuan in multiple cities.

Central banks recognize that in this digital world, they must think about a digital central bank money alternative to the traditional cash notes. They cannot leave this field untapped only to the private sector, or risk falling behind competitors. Many questions about this new digital currency remain to be answered: what is the right technology, how do you introduce it to the market, and so on? But all start with exploring the market needs. To be on time and take full advantage, now is the moment to start assessing your place in this exciting and evolving landscape.

To read the full report, download it here.

Read more about how Worldline is supporting the ECB in developing a digital euro here.