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74% of consumer payments to be handled by non-traditional financial service providers

According to a new study, 74% of consumer payments will be handled by non-traditional financial service institutions (FSIs) by 2030.

This figure is an increase from 60% in 2020, putting added pressure on incumbents such as banks, insurers and credit unions.

The IDC InfoBrief, Future Ready Payments Technology Reshapes the Playing Field for the Industry, highlights that while the payments world is changing FSI PayTech is not, pushing lucrative consumer payment volumes to non-FSIs.

FSI processed payments are growing at 6% annually compared to 16% for non-FSIs. By 2030, non-FSIs are predicted to process 74% of global consumer digital payments.

The structure of the payments industry is fast evolving, with global innovators in payments rapidly acquiring market share through superlative payments experiences that have driven incumbent FSIs to reposition themselves in the payments ecosystem.

In 2020, 40% ($55.9 trillion) of global consumer payments were handled by FSIs and 60% ($83.3 trillion) were handled by non-FSIs.

By 2030, the situation will tip even further in favour of non-FSIs (FinTech disrupters, non-financial brands, emerging decentralised finance players), with only 22% ($102.9 trillion) processed by FSIs and 74% ($354.6 trillion) processed by non-FSIs. Digital payments value in 2030 is projected to soar to 3.4X its size in 2020, reaching $476.1 trillion.

FSI processed payments will grow at only 6% from 2020 to 2030, compared to non-FSI payments at 16%; much of this growth is through mobile wallets and other digital online payments such as buy now pay later (BNPL), which are displacing cards in developed markets and displacing cash in emerging economies.

The latest entrant is central bank digital currencies (CBDCs), with China being the global pioneer and other markets such as Norway and the United Kingdom also exploring this possibility. This segment is predicted to be the fastest growing, up from 0% of digital payments in 2020 to 4% ($18.6 trillion) by 2030.

While non-FSI payments will be dominant by 2030, FSIs are far from out of the payments space – they need to reshape the role they can play in payments of the future.

Driving Change

Factors driving this change include a rise in new (or emerging) digital asset classes, real time payments and new point of sale payment options such as Buy Now Pay Later (BNPL):

  • By 2030, 60% of global consumers will have made a transaction using an asset class other than fiat currency.
  • 95% of physical non-cash payments will be through contactless methods and BNPL. BNPL grew 79% compared to 5% for cards in 2020 and is set to continue to grow by 15% annually through 2030. Cards will grow at 4% per year.
  • Regulation is also playing its part, with the study exploring how Open Banking, domestic real time payments schemes and CBDCs are adding pressure to incumbent FSIs by shaking up traditionally safe revenue streams.

The payments landscape is changing at pace, but the IDC InfoBrief finds that 73% of FSIs globally currently have PaytTech infrastructures that are not well equipped to handle payments for 2023 and beyond.

IDC deemed only 3% of FSIs to have ‘future ready’ PaytTech – meaning payments infrastructure that enables payments anywhere and everywhere for any possible present and future asset class.

Future ready PaytTech also gives FSIs the ability to configure and reconfigure payment products to stay ahead of new entrant competition and consumer demands.

And while IDC predicts that global FSI spending on PaytTech will double to $80.3 billion in 2030 (from $39.7 billion in 2020), FSIs are not investing enough in the infrastructure that enables them to compete with non-FSIs. Failing to adapt to future ready PaytTech will cost the FSI industry $250 billion in payments revenue.

“The world of consumer payments is rapidly evolving; from the way we make them to the companies that handle them,” says Michael Yeo, Associate Research Director at IDC Financial Insights.

“What this change presents is both a challenge and opportunity for incumbent FSIs. Despite the trends which are unfolding, FSIs can fight their displacement from consumer payments by reshaping the role that they fulfil in the payments landscape of tomorrow.

To achieve this, their focus and spending must be on future ready PaytTech solutions – otherwise they risk continuously playing catch up with digitally native non-FSIs”.

 

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