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Payments Briefing: Incumbents are falling behind in consumer payments

  • 74% of global consumer payments will be handled by non-traditional financial institutions by 2030, according to an IDC report.
  • Incumbents need to update their payments infrastructure in order to stay relevant.

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Payments Briefing: Incumbents are falling behind in consumer payments

By the beginning of the next decade, nearly three-fourths (74%) of global consumer payments will be handled by non-traditional financial service institutions (fintech firms, non-financial brands, and emerging DeFi players), according to a new report published by IDC Financial Insights and payments firm Episode Six. This figure is a significant jump from 60% in 2020, putting added pressure on FSIs, which include incumbents such as banks and equivalent lending license holders, insurers, and credit unions.

Source: IDC

Digital payments volume in 2030 will likely soar to over triple its size in 2020, reaching $476 trillion. FSI-processed payments are projected to grow at only 6% this decade, compared to 16% for non-FSI payments. Much of the non-FSI payments growth will be through mobile wallets and other digital payments such as BNPL, which are displacing credit cards in developed markets and cash in emerging economies.

The newest entrant in the space is central bank digital currencies, with China being the global pioneer and other markets such as Norway and the UK following suit. This segment is predicted to be the fastest-growing, up from 0% of digital payments in 2020 to 4% ($18.6 trillion) by 2030.

The consumer payments landscape is changing fast. IDC forecasts that by 2030, 60% of global consumers will have made a transaction using an asset class other than fiat currency. Moreover, 95% of physical non-cash payments will be made through contactless methods and/or BNPL.

FSI payments technology is not changing fast enough to satisfy the changing needs of the industry, thus pushing lucrative consumer payments volume to non-FSIs. 73% of FSIs have payment infrastructures that are not well equipped to handle future payments, according to the report. Moreover, IDC deems only 3% of FSIs to have “future-ready” paytech – meaning payments infrastructure that enables transactions everywhere for any possible asset class.

Although global FSI spending on paytech is expected to double to about $80 billion by 2030 (from around $40 billion in 2020), IDC argues that FSIs are not investing enough in new infrastructure that would enable them to compete with non-FSIs. Failing to do so could cost the FSI industry $250 billion in payments revenue.

John Mitchell, CEO of Episode Six, believes that traditional financial institutions will continue to lose consumer payments market share, and corresponding revenue, until they develop the necessary infrastructure that can support new ways to pay. “Competition in payments is increasing – there is a land grab taking place for the hearts, minds and wallets of consumers the world over. FSIs need to be able to process value in whatever form consumers demand – fiat, crypto and gaming currencies, loyalty points and value denominations that don't exist today,” said Mitchell.

“That requires paytech infrastructure that’s fast to deploy, highly configurable, and future-ready. IDC’s data shows that FSIs are investing, but also suggests that they’re focusing on maintaining a quickly diminishing position, rather than ensuring an ability to compete in the future.”

BNPL has a little brother? Accrue Savings debuts ‘save now, pay later’

As BNPL use continues to grow, consumers are finding themselves under a growing debt load. Accrue Savings has spotted this opportunity to introduce a new payment mechanism built around increasing savings. The firm calls it ‘save now, pay later’, as an alternative to BNPL. 

Accrue Savings describes its services as “a merchant-embedded shopping experience that rewards customers who save for their favorite products and services.”

How does the firm actually do that? 

It starts with shoppers finding an item they like on a retailer’s website – or directly on Accrue’s website – where they are presented with savings plans for that product, with a cash reward attached to reaching certain savings goals. Once the shopper has chosen a savings plan, Accrue Savings opens them an FDIC-insured savings account through Blue Ridge Bank.

As users hit different milestones in their savings journey, they are rewarded with cash contributions from the retailer, incentivizing them to continue saving. Once the funds have been raised, the transaction is completed and shoppers can buy the item they’ve been saving for.

“For the past 40 years or so, innovation in the payment space has been focused on credit options,” Michael Hershfield, founder and CEO of Accrue Savings, told Tearsheet. “It has not been aimed at helping consumers save – there are no incentives, no rewards, no integration that makes it easier for shoppers to put money aside for things they want. Not only does this result in unnecessary debt for consumers, but it comes at a long-term cost to brands: it’s hard to say you truly care about customers and want to help them, but only offer forms of credit.” 

In this environment, Accrue has entered the industry with the philosophy that helping people achieve savings targets, and consequently move away from credit, will change the relationship between brands and consumers, and promote sustainable financial growth in the country. 


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What we’re reading

  • PayPal stock closes down 24% in worst-ever trading day on account of weak earnings guidance (CNBC)
  • T-Mobile brings True Name by Mastercard to T-Mobile MONEY (Crowdfund Insider)
  • Wise teams up with Tencent Financial Technology to streamline global money transfers to China via Weixin (Crowdfund Insider)
  • BNPL player Amount acquires Linear Financial Technologies to move into SMB (Finovate)
  • Following his fiery Twitter tirades, Bolt founder Ryan Breslow is no longer CEO — and he says it’s his choice (TechCrunch)
  • Apple to rival Square by turning iPhones into payment terminals (Bloomberg)
  • Affirm debuts super app and Chrome extension (Finextra)
  • Google hits the reset button on its fintech strategy (PaymentsJournal)

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