The key to growth is creating disruptive solutions

Over the last decade, the global payments industry has undergone a profound transformation. In this period, both individuals and enterprises have shifted away from conventional cash transactions and embraced a dynamic and interlinked landscape of electronic payment solutions and complementary services. This transformation has greatly improved the accessibility of financial transactions, with innovations such as digital wallets, QR codes, and mobile money assuming a crucial role in broadening financial inclusion in underprivileged areas of developing economies.

These advancements have driven robust revenue expansion and enticed over 5,000 fintech companies to participate in the global payments arena. Nevertheless, when we head into the future, the operational landscape is bound to pose greater challenges. Valuations have seen a significant decline over the past two years, and the macroeconomic conditions have become increasingly volatile. As a result, the anticipated trajectory indicates a deceleration in revenue growth over the next five years.

Tijsbert Creemers, Managing Director and Senior Partner of Boston Consulting Group (BCG) South Africa, contends that this disruption has ushered in a more encompassing approach, and we can anticipate even further developments on the horizon.

“When we look at Africa, the impact and scale of disruption is amplified compared to mature economies. Even though the trends differ for each country, the continent sees more growth in payments, a high degree of disruption, and increased speed of transition. This creates further opportunity for disruption with challenger financial institutions coming into the market and driving new value propositions,” says Creemers.

This was evident with the introduction of Payshap in South Africa in March, with the real time payment solution opening the door to further opportunity in the long run to create deeper financial inclusion solutions, and the promise of more disruption to come.

In unpacking these and other opportunities, BCG’s 21st annual Global Payments Report looks at the opportunities and challenges facing this diverse industry. Offering a comprehensive market outlook, and insights into the four subsectors: acquirers, issuers, wholesale transaction banks, and payments infrastructure providers.

Africa is certainly catching up, with fast growth enabling banks and fintechs to invest in modernising technologies and innovate new breakthrough solutions.

“Our analysis shows that institutions must put aside practices that no longer serve their stakeholders and instead thoroughly modernise their technologies, techniques, and tactics. Those that undertake this work now can turn disruption into a source of long-term advantage,” says Creemers.

Ten key highlights:

1.Total payments revenues across the globe grew at an annual rate of 8.3% from 2017 to 2022, taking the revenue pool to $1.6 trillion at the end of 2022. Of this, $10,3 billion can be attributed to South Africa, which grew from $7.8 billion in 2017 at an annual rate of 6% and is expected to grow to $22 billion by 2032.

2.Globally revenue growth is likely to slow to 6.2% annually through 2027, with the revenue pool reaching $2.2 trillion by then. Of this, transaction revenue from card and account-to-account payments rails is on track to grow by 7.1%. But non-transaction revenue from interest- and fee-based sources is likely to expand by just 5.7%. Given its unique operating environment and opportunities, Africa is expected to continue to see growth in the teen percentages.

3.Slowing revenue growth comes from an expected shift in the retail payments mix from cards to account-to-account transactions, along with compressed card margins in some markets. This trend has been much evidenced in the introduction and adoption of real time payment solution Payshap in South Africa in March this year.

4.Total shareholder returns have plummeted globally. The top 20 largest global payments companies saw their TSR drop by an average of 20% over the past two years. Acquiring and payments processing witnessed the sharpest declines, with TSR falling globally by roughly 40%.

5.Payments-focused fintechs now number more than 5,000 globally and account for about $100 billion of total industry revenues. By 2030, they could command a revenue pool worth $520 billion, intensifying competitive pressure on incumbents. In Africa, the top 6 fintech hubs consist of 681 companies, while the continent is predicted to be the fastest growing fintech market between 2023 and 2030, with revenues rising by 13x versus the global average of 6x.

6.Digital currencies are moving from concept to reality, as more than 90% of central banks actively experiment with them as a complement to cash. At current rates of development, retail and wholesale central bank digital currencies could be operational in some countries in every region in five to ten years.

7.Tech modernisation is intensifying, and GenAI is exploding onto the payment’s scene. Both could transform payments. In product development alone, GenAI-enabled software coding could boost productivity by 20%.

8.Regulatory authorities are increasing their scrutiny of payments, expanding the rule set, and stepping up enforcement. This will put the risk management and compliance practices of both established and non-traditional players to the test.

9.Although Mergers & Acquisitions continue to be an important lever, it is shifting from megadeals to capability-led moves, with a particular emphasis on alternative payments methods, integrated software vendors, value-added services, and loyalty.

10.With disruption likely to intensify, leaders must refresh their strategy, revisit their partnership structure, and modernise their tech infrastructure. Safeguarding shareholder value and cost excellence will be key to preserving and growing shareholder value.

Change is exciting, yet it also brings with it a degree of disruption.