By Jonathan Zell and Louis Anckaert
As the current playbook reaches its limits, international payments is transitioning from a stand-alone product to a feature embedded in broader services. Here is how industry players can make the pivot.
For more than ten years, the global cross-border payments industry has run on a single, successful playbook: Reduce the friction, cost, and time needed to move money from point A to point B. Spurred by competitive fintech entrants, technology modernization, and global and local policy mandates, the industry has largely delivered on that promise. Payments speed has increased significantly. End users’ costs have steadily declined—especially in retail and small business segments—and transparency is increasing.
On the surface, the sector appears stable. According to McKinsey’s Global Payments data, cross-border payments recently reached an estimated volume of $190 trillion, generating a global revenue pool of over $290 billion. Revenues are poised to grow at about 4 percent annually. Yet this stability hides the underlying shifts that are set to reshape the cross-border payments industry in the years to come.
The capabilities that once differentiated leading cross-border payment providers—security, speed, and cost—are steadily becoming table stakes. As traditional rails modernize, globally connected and licensed providers proliferate, and new settlement networks emerge, infrastructure-based competitive advantages will steadily erode. At the same time, payments are also moving away from providers’ systems, becoming increasingly integrated into accounting, procurement, and treasury workflows.
It’s becoming clear that for many, moving money will no longer be a viable stand-alone product. It is becoming a feature within broader financial and operational workflows. For banks and fintech specialists, the coming years will bring a structural reset. In this article, we review the forces of commoditization and offer playbooks for both fintech specialists and banks. Both are finding the ground shifting under their feet; both can reposition for the emerging industry structure.
Cost and speed have been the primary battlegrounds in global cross-border payments. While benchmarks such as the UN’s goal to drive average cross-border remittance costs below 3 percent provided highly visible targets, it was mostly the pressure from fintech specialists who led the charge by competing on price, speed, and margin transparency. Over the past decade, they have captured a growing share of cross-border payment volumes—initially in consumer payments and remittances (about 50 percent), but increasingly across small-business and small-and-medium-size enterprise (SME) flows (about 20 percent). As the broader industry responds to these three market pressures, it will likely be caught in a vise of commoditization, reaching an unsustainable and unprofitable baseline.
In this environment, the winners will be those who execute payments efficiently while also repositioning themselves within the value chain and capture emerging sources of value. Both fintechs and banks have a range of attractive options.
Read the full report here.
