Growth in the payments industry, which was once characterized by rapid expansion, is now slowing as the shift from cash to digital payments has reached its peak, according to BCG research.
The BCG Global Payments Report 2024 found that revenue growth is expected to halve by 2028, with global revenues set to rise at a compound annual growth rate of just 5% to $2.3 trillion.
This marks a sharp decline from the 9% growth recorded in the previous five years, which saw revenues to $1.8 trillion in 2023.
The report attributed the slowdown in growth to the fact that in key markets, such as the US, the UK, and Europe, the transition from cash to digital payments has plateaued, limiting one of the industry’s primary growth drivers.
It also noted that declining interest rates and flattening inflation are squeezing deposit margins, particularly in regions such as Europe and North America. This coupled with a shift by consumers from keeping deposits in their current account to pursuing higher-yielding products are putting further pressure on traditional revenue models.
The report also found that banks are losing market share as fintechs are rapidly outpacing them in the payments sector.
It stated that many fintechs have gained prominence by targeting areas where banks have underinvested or retreated, such as acquiring and cross-border payments, which, despite significant regulatory costs, offer attractive revenue pools.
As a result, BCG recommended that banks generate at least 50% of their new growth in payments from services beyond their core business to stay competitive.
