By 2030, the majority of consumers will have used crypto, digital or other non-fiat currencies, according to research commissioned by Episode 6.
From crypto to loyalty points, financial institutions need to respond to the proliferation of new units of value – and that means overcoming the limitations of their existing technology.
Failing to act means that US$250 billion of payments revenue could move to non-financial institutions by 2030.
SINGAPORE / November 8, 2021 / By 2030, 60% of global consumers will have made a transaction using a unit of value other than fiat currency, while 73% of global consumer payments will be processed by non-financial institutions on the Internet of Payments. Revealed on the first day of the Singapore FinTech Festival 2021, these forecasts by market research firm IDC reinforce the need for incumbent financial institutions to adapt their technology quickly for a market in which consumers expect more choice in terms of units of value – including digital assets and loyalty program points – as well as more tailored payments and credit propositions. They also spell out the cost of failing to adapt: US$250 billion of payments revenue could otherwise move to non-financial institutions by 2030, according to IDC estimates.1
“The payments industry is undergoing a massive transformation: non-cash payment volumes are soaring, on-demand payments are gaining traction, and cloud computing and new technology have unleashed a wave of innovation, such as BNPL,” said John Mitchell, CEO of Episode 6. “This is creating a more level playing field for new entrants, and significant challenges for incumbents. The research we’ve unveiled today shows why financial institutions need technology that transfers any unit of value, as well as designed to be configurable and easily integrated into existing financial ecosystems, allowing our clients to bridge the old with new.”
1Source: IDC Executive Summary, Sponsored by Episode 6, Next-Gen Payments Technology Reshapes the Playing Field for the Industry: Driving Over 70% of Payments to Shift to Non-FSIs by 2030, Doc #AP76830X, November 2021
Yet legacy technology is costing financial institutions more and more, restricting investment in vital digital transformation. IDC estimates that financial institutions’ global spending on payments technology will double from US$39.7 billion in 2020 to US$80.3 billion in 2030.
“Banks need to embrace the new types of payments that recognize that value comes in many forms, but they have a lot of work in front of them,” added Episode 6's Mitchell. “There are infrastructure and process bottlenecks, resources are being drained on maintaining outdated and disparate systems, and siloed thinking is preventing innovation. Risk aversion can also lead to lost opportunities.”
With the rise of embedded finance, and Banking as a Service solutions, non-financial players can offer payments solutions and are increasingly owning the customer relationship. By 2030, IDC forecasts that 74% of digital consumer payments globally will be conducted via platforms owned by non- financial institutions.
Although banks will no longer dominate payments as they have in the past, this does not mean they may be side lined altogether. Instead, they need to rethink how they interact with fintechs as well as the new generation of blockchain-based digital finance provides, said Mitchell at Episode 6.
“Users demand the unified and polished interfaces and smart data-driven products offered by fintechs,” he argued. “Economies need the stability and consumer protection that exist when regulated institutions provide financial services, drawing on their long-standing strengths in risk management and compliance. For banks and fintechs, the choice, with a few exceptions, will ultimately be to converge or crumble.”