The global digital payments market is estimated to reach $20 Trillion by 2026, growing at 24% per year. To put that into perspective, it’s bigger than the global telecommunication and automobile manufacturing industries. The drivers fuelling the growth of payments include the high penetration of the internet and smartphones combined with consumer behaviour fuelling e-Commerce growth, and improved technology which enables digital payments both in physical stores and online channels.

Massive market cap

We mapped the top 90 public FinTech companies globally, per segment. The image attached to this article shows their market cap in relative terms¹, respresented by the circle size.

The total market value of public payments companies represents more than all the other FinTech segments added together, which include InsurTech, Crypto, Digital Banking, Lending, WealthTech and Buy-Now-Pay-Later. This trend filters through to private markets, with payments companies attracting funding at exorbitant valuations. Five of the Top10 FinTech Venture Capital deals of the second quarter of this year, as reported by CB Insights, were payments companies, attracting a total of $2 billion in funding.

Bigger than banks

Some public payments companies’ market caps exceed those of the world’s largest banks. Mastercard and Visa have market caps of more than $300B and $400B respectively. Therefore, Visa’s market cap exceeds that of JP Morgan (~$340B) and Bank of America (~$270B) – two of the biggest banks globally¹. The payments industry didn’t exist as a standalone industry pre-1990 and has now become home to some of the biggest companies in the world. The banks did not see this coming, certainly not when the first online payment was made, in 1994, to pay for a pizza from Pizza Hut.

Banks also want a piece of the pie

JPMorgan states “Winning in payments is our strategic imperative”, and is amping up its investments in payment processors, having acquired two 2 payments companies within the last 12 months, including a 75% stake in Volkswagens’ payment platform. Improving their payment capabilities will allow them to better compete with payment pioneers, such as Stripe and Square. For traditional banks, entering the payments space is a good stepping stone into FinTech since it’s the intersection of Fintech and traditional financial services, it attracts the highest volume of transactions, and provides access to digital channels through which other services could be offered.

Where will further growth come from?

For a market that is already disproportionately big compared to other Fintech verticals, what are the drivers behind the forecasted 24% year-on-year growth? Payment innovation still has a long way to go. There is a big discrepancy between the digitization of business-to-consumer (B2C) and business-to-business (B2B) payments, the latter being full of inefficiencies and prone to human error. The B2B payments market is a massive global opportunity for payment digitization, FT Partners estimates it to be worth $29 trillion in the U.S. alone.

Today, paper checks still shockingly account for nearly 50% of B2B payments. Why did the digitization of B2B payments not keep up with B2C? B2B payments are significantly more complex because it involves workflows of purchase orders, approvals, invoices, payment terms, as well accounts payables and accounts receivables departments. An interesting example of a company disrupting B2B payments, is Intuit-owned cloud accounting software provider, Quickbooks. It allows users to issue digital invoices that can be paid by the click of a button, and upon receipt of payment reconciles the transaction automatically. The QuickBooks solution adds a “pay now” button to invoices, which takes the payer to a pre-populated screen which means faster payment, less room for human error, fewer missed invoices, and less opportunity for fraud.

A further opportunity for paymentss companies is the opportunity to embed other financial services within their product, at the point of sale, such as credit, savings, wallets, forex, and insurance. Adyen, the Dutch payments company, announced its move into this space earlier this year, saying it will allow platform businesses to become a one-stop shop for all their users’ needs, and increase user loyalty while unlocking new revenue streams for platforms.

Disrupting the disruptors

BigTech players such as Apple, Google and Amazon are vertically integrating payments into their businesses, taking market share from traditional payments companies. Apple Pay, which launched in 2014, is expected to handle 10% of global card transactions by 2025. Apple has taken a further step into the payments space by launching Apple Card in 2019. With an instant application process, reduced fees, cashback rewards, and enhanced security features, it will without a doubt become popular among loyal Apple fans. With superior UX offerings and the ability to route the traffic of millions of existing customers, tech giants can quickly launch new products, such as Meta-owned WhatsAapp, which has 2,5billion users, launching WhatsApp Pay.

And then there’s Open Banking

The increased adoption of Open Banking will bring further disruption. By enabling users to open up their banking data to third parties, traditional payments providers and banks no longer have exclusive access. This puts data ownership, and the decision to share it, back in the hands of users. What does this mean for payments? Open Banking payments enable the user to instantly transfer money directly from their account to the merchant, bypassing the card payments infrastructure. This results in faster transfers and drastically lower fees for merchants (as low as 0.1% versus the typical 1-4%). This is not only a win for merchants, but users will also be able to consolidate banking data across channels and make their finances more manageable. Other incentives from merchants to push users towards instant payments include instant cashbacks and rewards.

What may the future hold?

 The potential mass adoption of financial digital assets (such as cryptocurrencies, stable coins, central-backed digital currencies etc.) for various use cases in payments poses both defensive and offensive strategic imperatives to incumbent payments and market infrastructure companies. MasterCard’s recent partnership with Bakkt and Binance will allow for instant conversion of crypto to fiat currency for day-to-day payments. This signals the demand for the convergence of traditional finance and crypto rails, as mass consumers have the need to use both fiat and crypto to pay, to store and create wealth - and they want a unified experience, usually from a single provider.

The mass use of digital assets for payments will radically re-organize the current payments value chain - with some intermediaries, inevitably, not surviving the transition - and therefore there is a huge potential for the whole industry to reduce fees while increasing speed of execution.

This can go much further

Despite the already enormous market size of the payments industry, payments innovation can go much further and thereby capture more value. With the amount of manual cheques, fraud and human error present in B2B payments, the opportunity for digitization is clear. Do not disregard the further opportunity in the B2C space. According to Statista, there were approximately 950 million mobile payment transaction users worldwide in 2019. This number is expected to climb to 1.31 billion users by 2023. That’s less than 20% of the world’s population having access to mobile payments.

Thinking of what the FinTech App, M-Pesa, has done in Kenya – where half of the countries’ GDP is now transacted on the app – there is a massive opportunity to bring digital payments to the unbanked in other emerging markets. Along with this, other financial services could be embedded into these platforms, such as insurance, savings, pension, wealth management and lending.

Access to digital payments in emerging markets has the potential to improve the quality of life of billions. The same digital channels used for payments could be used to meet other financial needs in a seamless and informative way. Not only will this reduce the pension, protection, and savings gap crippling the unknowledgeable and poor. It will also prevent them from being taken advantage of by unethical credit providers and insurance schemes by encouraging competition in the space and giving regulators the data they require to regulate these activities.

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¹ Bloomberg, Aperture analysis, August 2022