Analyzing World Payments Report 2021 on the rapid growth of alternative payment methods
In June, I reviewed Capgemini’s previous report on 2020 payments market results and trends. Then, among the trends, the authors highlighted the automation of payments, as well as customer focus and adaptability. These two components have been successfully implemented by the leaders not only of the fintech market. For example, Netflix has automated the payment system, and Apple sells its devices through the BNPL. Ukrainian Megogo, Stylus, Monobank and others have also joined the new trends.
Capgemini’s World Payments Report 2021 focuses on the rapid growth of the payments market. Let’s talk in numbers. By 2025, instant and e-money payments will account for over 25% of global transactions, up from 14.5% in 2020. The report found that nearly 45% of consumers use mobile wallets to make payments (> 20 transactions per year), up from 23% in the 2020 survey. Non-cash B2B transactions could grow and reach nearly 200 billion transactions by 2025 from 121.5 billion in 2020. Digital payments and mobile wallets are becoming the norm rather than the exception. Volumes and expectations are growing, which means that providers must meet the expectations of consumers for speed and simplicity — that means moving to next-generation payments.
By next-generation payments, I mean Buy Now Pay Later (BNPL) services, invisible, biometric and cryptocurrency payments that are driving the growth of non-cash transactions. Globally, the Asia-Pacific region is initiating the digital payments revolution. By 2025, the region will account for more than half of the world’s non-cash transactions with a CAGR of 28% between 2020 and 2025. In Europe, mobile payments and cross-border e-commerce will grow, the region will surpass 400 billion transactions in 2025 at a CAGR of 13 % (forecast for 2020–2025). We are also recognising accompanying processes that are driven by the transition to the next generation of payments.
#1 Extension of payment infrastructure
Digital adoption is accelerating, and growing volumes are stretching legacy payments infrastructure. About 55% of CEOs said their technology investment priorities are modernizing the payment infrastructure (implementing a real-time payment system, API integration, moving to ISO 20022, moving to the cloud). Providers need to prioritize digital opportunities to stay competitive. The report found that loyalty, transaction convenience, alternative payment options, and sustainable payment products are key areas where there is a gap between customer expectations and payment system priorities.
#2 Finding a balance between innovation and safety
Payment service providers are beneficiaries of a new balanced approach to regulatory and industry initiatives. In this way, the creation of conditions for the payment environment is advancing. Regulators supported changes across all key objectives — risk reduction, standardization, competition and transparency, innovation — to maintain a balance in the payments environment. By ensuring a level playing field through antitrust and transparent data exchange, an enabling environment for open finance is emerging. Providers should reap the benefits of this regulatory approach as they can innovate to meet consumer demand.
#3 Compliance of the provider’s capabilities with the needs of Payments 4.X
Payments 4.X is an experience-driven environment that is seeing even greater industry consolidation and technical expertise in the ecosystem. With projected growth in online payments, companies will leverage data, shared infrastructure, and embedded finance. The majority of respondents (among payment companies) tend to invest in third parties to develop innovative offerings (52%), organize API-based ecosystems and move to a platform-based business model (45%). The most successful payment companies will partner with PayTech and ecosystem partners to create solutions based on customer experience.
API, data, and advanced processing, combined with cloud computing, will be catalysts for Payments 4.X to move beyond traditional transactional thinking to new approaches and monetization. If a company does not take advantage of these opportunities, it may soon lose its place in the market.