Over the past decade, the combined market capitalisation of specialist payments companies has increased from $400 billion to $1.4 trillion according to Mckinsey.
In addition, more than 384 unicorns with a combined valuation of $1 trillion have emerged, a tenfold increase from 39 unicorns five years ago.
These conditions set the backdrop for the six payment trends the consultancy expect will define the next five years.
1. The decline of cash will continue unevenly
Global cash usage now stands at 80% of 2019 levels and continues to decrease at 4% a year.
The $26 trillion in payments still made in cash represents a massive opportunity for digitisation, but the transition will unfold differently in different regions.
Instant payments are rapidly replacing cash in developing markets with low card penetration, such as India, Malaysia, and Indonesia.
In India, the share is expected to decline from 23% of consumer spending to less than 10% by 2028.
In card-dominated markets such as the US, where cash transactions represent just 5% of the value of consumer payments, cash usage will continue the gradual decline initiated by the COVID-19 pandemic.
The decline will also continue gradually in developed economies with a strong cultural preference for cash, such as Germany and Japan.
2. Instant payments will continue to displace others
Real-time payments infrastructures have now been established in almost every major market, and it is believed they will accelerate the phasing out of cash and checks.
In card-concentrated markets, such as the UK and the US, instant payments will not easily displace cards.
In historically cash-heavy markets, such as Brazil and India, instant payments will likely capture C2B share over the next few years.
In these markets, regulatory mandates have enabled interoperability, which – combined with more competitive merchant propositions and compelling consumer offerings, including higher transaction limits and wider availability – is helping instant payments gain share.
We expect similar interventions in the European Union to boost adoption there.
It is estimated that the number of instant-payment transactions in the European Union will increase from around 3 billion today to almost 30 billion by 2028, an average annual growth rate of 50%.
3. Growing digital infrastructures will catalyse digital payments
Digital public infrastructure (DPI) initiatives in markets like Brazil, Estonia, and India have supported competitive, robust, inclusive, and efficient digital payments ecosystems.
Critical prerequisites for a DPI are a comprehensive digital ID system, common standards for application interfaces, interoperability among financial services providers, and the inclusion of non-traditional data sources.
It is expected that a broader rollout of DPI initiatives in emerging markets like Indonesia, Nigeria, and Peru through a combination of imported technology, such as India’s DPI solution, and domestic builds, such as the Singapore Financial Data Exchange.
Developed economies without such initiatives may be constrained in their ability to combat fraud or support the digitisation of services.
4. Intermediaries will continue to take share from incumbents
Commerce is aggregating onto platforms such as Shopify, Square, and Toast, as well as marketplaces like Amazon, eBay, and Etsy.
It is thought that platforms and marketplaces process 30% of global consumer purchases today (see chart).
The share is higher in the small and medium-size enterprise (SME) segment, where players including Square, SumUp, and Toast offer integrated solutions.
McKinsey survey data shows that vertical-specific software solutions captured more than 50% of SME spending in 2023 in the US.
Incumbent scale acquirers and banks are responding with their own ISV solutions, such as Clover from Fiserv and Talech from Elavon, a subsidiary of U.S. Bank.
On the enterprise side, digital-native merchants like Airbnb and Netflix are growing more rapidly than their offline counterparts, capturing a larger share of total commerce and driving down acquiring fees.
They are turning to modern global acquirers such as Adyen and Stripe, thereby increasingly relegating traditional acquirers to commoditised payment processing.
5. Transaction banking will mimic consumer experiences
In recent years, transaction banking has become a differentiator for leading institutions, capturing a larger share of revenues and strengthening client relationships.
Some, such as Santander with its PagoNxt offering, have taken steps toward running payments as stand-alone businesses.
Others, such as Goldman Sachs and Royal Bank of Canada, have launched new transaction banking business units.
Commercial customers of transaction banking services will demand and receive intuitive interfaces like those they encounter in their personal lives.
Meanwhile, technological advances will help solve reconciliation problems and streamline supply chain finance with faster and deeper integration of bank and corporate systems.
As competition for this business increases, including from disrupters, corporates should see a substantial improvement in functionality and user experience in the corporate back office.
6. CBDCs will set the baseline for digital currencies
And the controversial one…more than 90% of central banks are pursuing or considering central bank digital currency (CBDC) projects, and more than 30 have rolled out pilots.
However, the initial excitement about the disruptive potential of CBDCs has waned, given its limited uptake so far.
Nonetheless, CBDCs will play three roles in payments: First, they will set the minimum base level of functionality, cost, and services that users can expect from a digital currency.
Second, they will provide an alternative to help keep the price of commercial offerings in check.
And finally, they will serve as an alternative to large but often opaque private-sector stablecoins.
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