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Banks’ Payments Businesses Are Facing New and Tall Challenges

Disruptions Are Numerous as Digital Technologies, Regulation, Intensifying Competition, and New Market Entrants Shift Economic Models; Banks Must Act to Gain Market Leadership, Says Report by The Boston Consulting Group.

Although the next ten years should bring substantial growth in the payments and transaction-banking businesses, banks will grapple with a host of forces that will require them to sharpen their capabilities, according to a new report by The Boston Consulting Group (BCG). The report, Global Payments 2014: Capturing the Next Level of Value, is being released today.

The report, BCG’s twelfth study of the global payments business, provides a comprehensive overview of the industry. It takes a regional look at retail (consumer) payments—exploring key trends in Europe, North America, and rapidly developing economies (RDEs)—before closing with a global examination of the wholesale transaction-banking business. In preparing the report, BCG for the third consecutive year collaborated with SWIFT, the global provider of secure financial-messaging services.

In conjunction with the report, BCG is launching its first Global Payments Model Interactive, to be found on, which explores how regions and segments of the payments market will shift from 2013 through 2023. The interactive provides extensive detail on the volume and value of noncash transactions worldwide.

“Never in the history of the payments industry has there been a time of such disruption and opportunity across regions,” said Stefan Dab, a coauthor of the report and the global leader of BCG’s transaction-banking segment. “Payments players, depending upon their strategic decisions over the next ten years, will have much to lose or gain.”

Global Overview. In 2013, payments businesses generated $425 billion in transaction revenues, $336 billion in account-related revenues, and $248 billion in net interest income and fees related to credit cards, according to the report. The total represented roughly one-quarter of all banking revenues globally. Banks handled $410 trillion in noncash transactions in 2013, more than five times the amount of global GDP. The value of noncash transactions will reach an estimated $780 trillion by 2023, a compound annual growth rate (CAGR) of 7 percent. Payments revenues will reach an estimated $2.1 trillion, a CAGR of 8 percent. The report says that in order to succeed, banks must broadly take three actions: approach payments as a platform, not simply as a product; identify the key initiatives that warrant investment; and pursue multiple paths in order to gain both broader experience and new customer insight.

Retail Payments in Europe. The report says that four transformational forces are affecting the European payments landscape: heterogeneous growth patterns, digital innovation, evolving merchant payments needs, and widespread M&A activity. In addition, regulation continues to take a toll. The cap on interchange rates will have a significant negative impact on issuer economics in Europe, with issuers standing to lose roughly €8 billion per year (beginning in 2015) out of a pool of €60 billion in card revenues. In addition, the revenue challenges facing issuing banks will require them to sharpen their pricing models on both current accounts and payments transactions as part of a broader effort to reshape their strategic priorities. They will also need to review their operating models.

Retail Payments in North America. After several years of being battered by regulatory measures, retail payments revenues in North America (the United States and Canada) rebounded to $222 billion in 2013, up 4 percent from 2012, representing 30 percent of global retail-payments revenues. Transaction revenues accounted for $104 billion, credit-card net interest income and fees accounted for $93 billion, and demand-deposit products represented $25 billion. Retail payments revenues in North America are expected to reach $323 billion in 2023, with account revenues showing the strongest growth (6 percent annually), followed by transaction revenues (5 percent). The report says that the principal opportunities for banks lie in two areas: leveraging new digital technologies to deepen customer relationships by way of the checking or demand deposit account (DDA), and forging new and innovative strategies in credit cards.

Retail Payments in RDEs. According to the report, despite the high-growth environment and the fact that the payments business is still very profitable in most RDEs—featuring substantial margins for acquirers, issuers, and card schemes—the outlook is not all blue skies. Prospects for incumbent players are clouded by falling interest rates, declining merchant discount rates and interchange (in response to regulatory pressure), and the emergence of new competitors. One way that banks and other payment institutions can fight back is by redoubling their efforts to increase customer engagement, achieved by motivating customers to direct-deposit their paychecks and to routinely use their bank’s noncash payments products, especially cards.

Global Wholesale Transaction Banking. Wholesale transaction banking is expected to outperform retail payments over the next ten years across all markets, at 9 percent compound annual revenue growth (compared with 7 percent in retail), including small-business credit and debit cards. Of the projected $345 billion in revenue growth, emerging markets will account for about 72 percent (a CAGR of 11 percent, compared with 6 percent for mature markets). In order to move forward effectively, wholesale transaction banks need to focus on several areas: achieving sustainable regulatory compliance, seizing the working-capital opportunity, and capturing growth in RDEs. In addition, the report says that pricing is an underleveraged silver bullet for boosting top-line growth.

“Overall,” said Carl Rutstein, a coauthor of the report and the leader of BCG's North American transaction-banking segment, “the growth in payments and transaction banking is driving stiff competition among not only traditional players but new entrants as well. Consequently, financial institutions must differentiate themselves, refine their strategies, and raise their execution skills if they want to remain competitive. In this environment, no institution can afford to stand pat.”

To download a copy of the report, please go to

SWIFT is a member-owned cooperative that provides the communications platform, products and services to connect more than 10,000 banking organizations, securities institutions and corporate customers in 212 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

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About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 81 offices in 45 countries.

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Lundi 22 Septembre 2014