BCG Global Payments Report 2013 Sep 2013

8/13/2019 BCG Global Payments Report 2013 Sep 2013

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S 3 | T B C G

GLOBAL PAYMENTS 2013

GeTTinG BuSineSS ModelS and exeCuTion RiGhT

STEFAN DAB

MOHAMMED BADI

GERO FREUDENSTEIN

DEEPAK GOYAL

ALENKA GREALISH

PEDRO RAPALLO

CARL RUTSTEIN

OLIVIER SAMPIERI

TJUN TANG


4/31

| G P 3

CONTENTS

INTRODUCTION

OVERVIEW: ADAPTING TO THE NEW NEW NORMAL

The Two-Speed World

Strong Trade Growth and Cross-Border Payments

The Wholesale TransacTionBanking imperaTiveMaking the Sales Machine Hum

Seven Best Practices in Pricing

The Service Model as a Diferentiator

THE CHANGING WORLD OF MERCHANT PAYMENT

REQUIREMENTS

New Revenue Pools

Intensifying Competition

The Need to Act Now

THE DYNAMICS OF CARDSKey Trends in the Issuer Space

Identifying and Capturing Pockets of Growth

Customer-Relationship University

APPENDIX: AN OVERVIEW OF VOLUMES, VALUES, AND

revenues in The paymenTs markeTplace, 20122022

FOR FURTHER READING

NOTE TO THE READER


5/31

T B C G S | 3

T - businesses represent

an increasingly critical element of the banking industry and the

b - d. T t -

t f tb t d t f t

td tf -t t tw

t tt t t f t dd. ittt tt

t t b d t t t f t btd f, t tt, d t xt

.

i t t b t dt, w t-

cally taken a regional approach, looking separately at the state of play

t a, e, d a-pf. lt , dt

f tdt, w bd The Transaction Banking Advantage: The

Path to Profitable Growth,a collection of four articles that addressed

tt-b t: t d w t-

t b; t f t a-pf d b td

fw; b t; d t tt t.

T , t gb pt t, w t t

tdt ft d t dtd dt t td. a

t f t dt, w wd wt sWiFT, t b d

f f- .

rt t t t w t t , w

ft ff b w f t dt d, t -

tt t -t t: ft w

transaction banking, the impact of digital technology on acquirers and

t d, d t tt f t b d b.

W df t dt d dt t-

d b t . T d tt-f ,

card and account maintenance fees, and spread income generated

f t t, w dd-dt

t (DDa). F f dft d fft fd -

dd tt-f . (s t adx f dt.)

g t dft, t xt -qt

f tt b-b . W df tt b

dt d td t t, t

f t t.

Our aim in Global Payments 2013: Getting Business Models and Execution

Right t d ttt tt t t t d

INTRODUCTION


6/31

4 | G P 3

tt-b b wt t fd f tt

bt w t dt . W ff dt

w f t d b t b dfft t f

d t t d t. i td -

tt w w t, f ft t

dt f t b f , fw ttt ffd tt t tt q. T t dt fx, d t

b tb t ft f t-bd t

f-bd t d. T w t-

t t d f t dd w b t ttt tt ff-

t dt t b d d t xt -

bt t t.


7/31

T B C G S | 5

I the 20082009

, t t d t-

t-b b b t

t f b. i 2012, t

businesses generated $301 billion in transac-

t- (d t d

d f) w $223 b

t-td (d tt f d d ). T

tt td -qt f

b-b . B

handled $377 trillion in noncash transactions

2012, t t t t f

b gDp.

ad b w td. B 2022,

t d tt-b

w ttd $1.1 t,

d wt t (cagr) f 8

t. (s exbt 1.) T x

xtd t ft twd t-td

d t d

tt f t. T

f tt w

estimated $712 trillion by 2022, a CAGR of

7 t.

o, t-td b

td t t tb

f f b, d d

tf w t bd t t

d f wt. m, wt

t xt f dt d, t b-

t tt dt

tt, dtb d -

t w (-t-t) ft.

T b d b d-

b b d w-t f fd-

d qdt.

at t t, t-td b-

es continue to face challenges on multipleft. rt t t

only from the implementation of the Single

Euro Payments Area (SEPA) but also from in-

t f t, wt t-

f tt d dt b w -

tt, t t. i ddt, t

ttbt f t b t-

ttd b d

as mobile payments and related deals and

offerings on the retail side, and in supply

f t w d. T

t t f t f dt .

T -tt f d b

banks are broadly poised to decline, particu-

t t. (s exbt 2.)

g t z f t t t,

b w t dt t t w w

normal climate and sharpen their business

d t d d. pt-

t t, f t-

-tt d t x-

t x w b ft

w f tt. c

tt, wt -fft

d t, w b

OVERVIEWadaPTinG To The new new noRMal


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6 | G P 3

Latin America

2022

0.13

2012

0.10

+2.5% +0.3%

2022

0.063

2012

0.061

Asia-Pacific (mature)

2022

0.13

2012

0.14

1.2% 1.0%

2022

0.12

2012

0.13

Eastern Europe

20222012

5.7% 0.8%

20222012

0.05 0.0580.063

Middle East and North Africa

2022

0.11

2012

0.15

3.2% 1.9%

2022

0.24

2012

0.29

Asia-Pacific (emerging)

2022

0.24

2012

0.16

+4.3% +2.4%

2022

0.64

2012

0.50

Retail Wholesale Compound annual growth rate

Average transaction fee ($)

Western Europe

20222012

4.5% 0.8%

20222012

0.08 0.0670.073

North America

0.1040.107

0.3% 0.1%

0.1320.134

20222012 20222012

0.030.05

Sources:BCG Global Payments Model, 2013; BCG analysis.

E | Average Fees per Transaction Will Decline in Mature Markets and Increase in SomeEmerging Markets

20 1008060400

5

EasternEurope

42

10

31

WesternEurope

108

25

83

Asia-

Pacific(emerging)

92

35

57

Asia-Pacific(mature)

65

11

54

LatinAmerica

41

10

31

NorthAmerica

159

117

MENA2

8

RoW1

2

7

9

100806040200

45

17

28

EasternEurope

97

28

69

WesternEurope

157

42

115

Asia-Pacific(emerging)

337

124

213

Asia-Pacific(mature)

86

15

71

LatinAmerica

107

28

79

NorthAmerica

284

97

187

MENA2

19

28

RoW1

9

524

1,140

Revenues, 2012 ($billions) Revenues, 2022 ($billions)

8% annualgrowth

Retail Wholesale

Cumulative share of total (%)Cumulative share of total (%)

342

Sources:BCG Global Payments Model, 2013; BCG analysis.1Rest of world.2Middle East and North Africa.

E | Payments and Transaction-Banking Revenues Combined Will Reach an Estimated$1.1 Trillion by 2022


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T B C G S | 7

capabilities for maintaining margins and,

tt, f -.

The Two-Speed World

W t tt , t wd btw

w t dt t -

d t t d d

(rDe), wt wt b-

w t tw-d wd. F

2012 t 2022, t d

jtd t w t cagr f

11 t rDe, d wt 4 t

d 5 t, t, t dd

t. s, rDe w t t-

wt jtd cagr f12 t tt t-td -

t t dd t, w

jtd cagr f 5 t.

Underlying this dichotomy are numerous

ft d dt d.

Mature markets are challenged by thin mar-

, dt wt, d-

er populations, and legacy payments infra-

tt tt x t

d. cd t t td,t t d-

oped markets since the depths of the finan-

wd w b wt

d tt. B fw fd

tt xt t t, -

t wt t b d b t

t f wt. B t

opportunity to ease some of these pressures

d t d f t d

t d: t

-t-t bt, t t

btw t t b d

t b , d t

t fft. (ot ff-

ciency is also discussed in The Road to Excel-

lence: Global Retail Banking 2010/2011, Bcg

t, Db 2010.)

T w d t b d dfft

d t. i t-

t e, f x, ft w

dt t d -

. i nt a d t u.k., t

t w t b d dt,

especially from the credit card business, and

f - tt.

In RDEs, by contrast, greenfield opportunities

btf. rDe bft f

d gDp d wt, -t

t t bd w

t ftt, d t

t tt d t d-t f w t. a ft tt

the fact that many domestic corporations in

rDe td b t wt , wt

some rising to displace established corpora-

t t t 500 b .

m, rDe t tt

tt b ddt f

b- d -ff td-

pointsuch as the high use of cash and a

f bd dt tt f t . T

t f t d d -t,

wt tt t f

, w t f w

t wt.

T mgrt cs tcrs -pmts

p pts r grt.

att t dt d ( dbt

d) w d b t

d d t

wt rDe b t t

d tt f f t t

t ff t b: t

t. ed w tt t-

w tt t td

tend to keep more funds in their accounts for

longer periods of time than do customers

w wtdw t aTm. T f t

tt dt d -

t t.

i w wt t, w bd

tt t fqt f tt t

dtt t d -

d t t b

that are 50 percent higher across income seg-

t, d, d . T

wf rDe t t -

t, w d d

wd. T d t


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8 | G P 3

id, f x, d 3.5 t.

it tf t f b rDe

t d t tt-t

d t ttt w t.

B rDe w d t

segmented business models in order to effec-t tt t t w t

t t t b.

Tr b ctb-gt grt crpmts lt amrc.

In Africa and in the emerging markets of the

a-pf , wt w b d

f t t f .

mb t d b b- dt

w b b t t

w f b d t itt

t t ttd d. i lt a,

t w t t f

t t d d -t

d wtd t f f

. a t, bt t dt f t lt a

jtd t w t cagr f 7.5 t

f 2012 t 2022 (xd Bz, w

t jtd cagr 9 t). pt-

td t w-

t cagr f 10 t. i t,

both credit and debit card transactions at

t t f w t cagr f

20 t 25 t d 10 t 15 -

t lt a (xd

Bz).

i t , w t -

t db-dt wt d t

lt a. rt w t -

, bt f-bd b

w ttt. a, w w

wt t x f - (wt

tw d -wt), t f

b t t (d b-

bd t-f- t d b

wt), d t ft f -

t d t t.

at wt tt bdt

in RDEs, banks still need to foster a culture of

t d t t zt

models for payments if they hope to take a

d t w b-

d d b jt x. nw d

w b qd d t w t

b t f ttt t

constructed a solid and reliable banking rela-

t f t dt.

idd, t b rDe

d tbd d-

b t b t b f

companiesthe bank that handles a compa-

t. i id, f x-

, b-t b (w t

hold about 70 percent of all banking assets) t-t b d-

t, f -b -

t. o t xt fw , b-t

b xtd t w cagr f 15

t t-td , -

d wt 25 t f t-t t-

tt. s f t tt dt

business models similar to those built by

tt-b d dd

t.

Strong Trade Growth and Cross-Border PaymentsIn addition to benefiting from strong eco-

wt d rDe, t

zb tt t d

t wt w: t dd

f -bd t d td -

, d b td fw wdwd.

gb, t f -bd t-

t w t jtd cagr f 8 -

t f 2012 t 2022. (s exbt 3.) u-

d t t

wt td, w b xd t

tw t t f b gDp, w t

t ft td fw tt -

tbtd t t xt t wt f

t b t a-pf

. (s pft f a r

d f nw gb Td Fw, Bcg

t, otb 2012.) a-pf f

global trade jumped from 22 percent in 2001

t 30 t 2010 d xtd t

t 35 t b 2020. o q w

b w t tt, -

t t x t ft t


11/31

T B C G S | 9

t wd t t td t 2020: c, J, id, st k, s-

, d h k.

More broadly, banks in both RDEs and the

t t t tz t b-

ness and operating models if they hope to

t wt tt d z

t d q f .

utt, t w w t the payments industry is bringing both

tt d tt. T f t

w b t-tt, ttd

b d, d xt x.

Wt ft t t d

t f t wt btb, t w-

w t t t-

t.

Americas Europe Asia-Pacific Total

2022

4.1

2012

2.4 4.1

11.0

2012 2022

9%

2022

12.7

2012 2022

15.2

2012

13%

2022

21.9

2012

8%

2022

20.7

2012

9.9

10%

2022

54.8

2012

20.5

Volume

(billions oftransactions)

Value

($trillions)

3% 3% 5% 6% 3% 3%

4% 6% 5% 7% 6% 9% 5% 8%

Share of total volume for region Share of total value for regionCompound annual growth rate

5.6 6.8 6.7

10%

8%

4%

2022

4.5

2012

3.1

6%

1% 1%


Note:Cross-border payments transactions include all payment types.

E | The Volume and Value of Cross-Border Payments Transactions Are Growing Steadily


12/31

| G P 3

THE WHOLESALE

TransacTion-BankinGIMPERATIVE

C pointing t w ttb f t

qt t b b dt. i

2012, w tt-b

w bt $220 b , 15 -

t f t tt t-b

. n $140 b w f t-t- f d t-t-td

(w exbt 1), d t

$80 b w f -ddd ,

ft t d td-t-

d . Tt f d t

bd jtd t w t

CAGR of 10 percent through 2022, reaching

t $350 b. T x w

b d b dt bt td wt t

dd , td t

wt rDe, d t

t d d t.

idd, dd t, t

bt f d d

cost of funding has led banks to focus increas-

ingly on attracting stable transaction deposits

f t w t. at t

time, a depressed return on equity is empha-

z t d f d f-b d

dt t w t qd-

ityto compensate for reduced trading and

.

B tt x t w tt

bttt tt w f t

transaction-banking champions b

b t ft dt t

t t. T t

higher profits, form deeper client relation-

, t t dt, d

z wt tt d. (s ex-

bt 4.) mt tt, t td

tb, b b.

T b d btt -

t-dt t (d 125 t) d

w t f fd. T dfd

x, wt t 40 t f

t f dt

b, wd t t

ft t qt. T

strong transaction relationships that these

b dd wt t t

also opened significant possibilities for

ddt f-dt tt bd

tt b, FX d td-

td dt.

T tt-b

a clear sense of their strategic strengths

d bd, w t f

xt x. r 25 t

f b w t-

tion banking are linked to large multination-

d f ttt. T t

realm of a select number of global banks that

b wt t

dt t d f -

tzt.


13/31

T B C G S |

nt, 75 t f -

centrated in cash management products and

f t dz t t b t. T t -

d t q ttd

t wt b d

t dt, bt t b

f xt: w t , w t ,

d w t z t d.

Making the Sales Machine Humld tt b zd tt

bt-- t t

dff t t. T f

dtf -tt t d

xz tt wt t. T

t t w t

t f tt.

T bt f x .

Bt t d b t b d-

d t d xt -

ments of the sales cycle, cutting across tradi-

t . T f fft d

fft dt dt, tt

tt, t, xt, dt

t, d qdt t. (s

exbt 5.)

Product Development.The importance of

dt t d t

t. F -d tt, t td -

t d t dt. F dt

clients, the emphasis should instead be on

w dt bd d bt

t t. rbt d -fd t-

f w f

t d bd f wt.

id tt d w

t f t t d- w

w t t f-t

t bt dt t. F, f t

t t w dd

t d t t t tt f

product specialists, leading banks are increas-

ingly bundling products into more standard-

zd t d t b t

t t -

t.

Target Setting.Tt-b t-

tial is not equally distributed among clients,

d d x.

Yet many banks still use only basic client

tt. T t dd t-

t b wf t t

dtt t ft f

Stickier client relationships:

Banks with deeper multiproductrelationships oen have transac-

tion services embedded in their

clients business processes.

Advantaged pricing:Banks with

strong multiproduct relationships

generate better risk-adjusted loan

margins than lending-heavy banks.

Additional growth opportunities:

Core transaction relationships

create possibilities for additional

fee-product penetration, including

foreign exchange, international

products, advanced liquidity

solutions, and industry-specificpayment platforms.

0 20 40 60 80

20

0

60

40

Share of revenues from transactionfees and deposit interest income (%)

Return on regulatory capital (%)

R2= 0.53

Profitability Client relationships

Western Europe Australia North America

Sources:BCG Corporate Banking Benchmarking database; BCG analysis.

Note:Loan losses are normalized to 50 basis points for all participants to control for country and credit-cycle differences.

E | Transaction-Banking Champions Are More Protable and Have Stronger ClientRelationships


14/31

| G P 3

t d d t t f tt f

b dt bd t.They are able to translate the results of

ttd wt-z d t

metrics that are easy for the sales force to

dtd d . T t

d t tt wt tt.

W t t

commercial strategies based on industry

t ( t d td) d

t z.

Origination and Sales Execution.Client

tt, bt t bt

w t z t d, w

ddt b

tt wt d t ttd t,

t , d tt. Wt t

tt-b t t

clarityf t d, w b

t f t f t xt.

The roles of both product specialists and

relationship managers in the sales process are

dd, wt t

bt . pdt t

d t t t,

reinforcing the focus on pockets of untapped

tt. F x, d t-

tion banks are creating separate roles for

t d f t dt-t t, wt tf t

b.

Deposit Monitoring.Fw wd d tt

t f d

t t t tt-

b b. yt t t

t dt dt

ft f t tt

to be the biggest hurdle to transparent

t. T tt-b

tt w bd

dd b t d xt-

nal information into highly actionable

dbd, d d

t, tt

dt t t t , d t

information to manage risk and understand

t d. F x, t tt

td, dt

t bw qt, d

b t t.

Liquidity Incentives.Depending on their

txt d b tt, b

w t w w t dt

Wholesaletransaction-

banking salesprocess

OriginationTarget setting

Liquidityincentives

Product

Depositmonitoring

Salesexecution

Targeted product innovation

Marketing documentation

Market sizing

Segment targeting

Target definition

Client deposit planning

Meeting preparation

Objective setting

Sales force training

Sales channels

Sales mandate

Execution tools

Execution processes

P&L recognition and incentives

Individual incentives

Liquidity fund transfer prices

Deposit dashboard

Sales-pipeline tracking tool

Source:BCG case experience and analysis.

E | The Wholesale Transaction-Banking Sales Process Is Multifaceted


15/31

T B C G S | 3

zd t p&l d w t

t t. s w f

t b , d

t w t f b

tt d. yt dt

specialists and relationship managers shouldb d t w f t b-

t t b d. it

particularly important that in setting transfer

prices, treasury departments properly bal-

t fd f t b wt t

t ttt f t-t

b. s dt tt w

f t tt.

Seven Best Practices in Pricingit t w w b

t t tzd t -

tt w t t t ,

ttd b wt tt -

t . nt, dfft

t b t d-bd dt

(d FX), tt b

xt t f-bd dt f

w t -t t . T

t wt t

f w t b b -d.

Bd , tt-b

t bt t t

w t t -t

dt.

Full-Cost Pricing.B wt xd t

f t t df t

t. nt, f t t

t, b -

mulate a large number of clients that do not

t td. h, b

need to set prices on the basis of fully loaded

t d t d dt.

Deliberate De-averaging.Wholesale contracts

w dd t t b d d-

t t tt tt d b-

w. i d t d t t,

banks must robustly segment clients on the

b f z, t, b w, d

t d t f t

b tbt ( d, ,

d bz ) d t

.

Smart Bundling.Bdd td t

- dt. Bt

ttd bd t d t

btt, w t t

b t tb dt bt t

bundle price is maintained on the otherdt. ct f t

t t w t tt f

dt-t d w t-

er balances can be used to pay for other

b .

Reversible Volume Discounts.Discounts are a

b t f xd f wt,

but they should be tiered according to

d d b

td. a d t d b t wt d

djtt t tt.

Full Charges.it t

f wt xt

. a 50 t f

can be lost due to leakage (not billing for

bb dd) d (t

t f t ). s

t b f td d

d wt zt.

i crmt r crs mrg csts, bsc ccmt cts tt t mt r mrgtrss.

Updated Pricing.F t b tt w

bd, t 20 t f t -

tt w t 10 d, wt

tt dt b 20 . o t

b f t , d t

t d.

it tt t w tt

b d bd dxt

w b.

Margin-Based Incentives.Including pricing or

t t d t

t f t t t x f

w (d tf w ).


16/31

4 | G P 3

The Service Model as aDifferentiatorTt-b td

t d t w.

T w t tz t d,

bt d b tt tft-t-b , tt

d xt d btw t

t d w f f t b

( t d td f). T

dbt d t d

to free sales timeand solicit customer feed-

back that can be used to enhance products or

d.

o t d, t w dffttd

tt xt d t - . o t t, fft d

d d qd dt -

t b t b t.

More broadly, as critical as it is to become a

tt-b td

w-b t, t

cannot be reached simply through deposit

t t . Bd bt-

- tt b t t dt. mt f t d b tt w

bd td d

d t f-t t b,

t, d d.


17/31

T B C G S | 5

THE CHANGING WORLD OF

MERCHANT PAYMENTREQUIREMENTS

T

dramatic impact on retail commerce

d w . T

- t t t w

d. ettd t $1.1 t b

2013, f $0.5 t 2002, t

xtd t w b 15 t

t t u.s. d tu.k. ad fw dt t t

dtdjt bt t tt

be bought in a shop can also be bought

, d f t f

.

i t t, t wt b-

d-t t dfd

their market positions from purely online

retailers by using their physical assets to

t dffttd - ff.

T t dt t wt

t t. i t t f, t

w t t b

f -t d -t f d-

t . ld t t

things further by means such as sending tar-

td ff t t b d

t t t x wt

tbt-bd t t t t f .

In order to facilitate the creation of an

d t x,

t t b-ff

t t b dw xt . T

t t bd t bt

t t d - t. i t

same spirit , more retailers are looking to

w wt t d

. a f t d ft-

w tt f t -

d t w .

New Revenue Poolsrt t ff tt, d-

t t tw t t t

f t d. (s

exbt 6.) T d bt t

t t xb d t t

cash or checks dominate onlineand to the

ddt , fd -

t, td wt tt.

T b t twd -

ments is therefore playing a central role in

d wt t-dt

. i e, t f -

t d xtd t

d $1.5 b b 2016, d

wt bt $0.8 b 2012.

While intensifying competition among pay-

t w t t

, w b -

td bt b t xt t -

dt d b t w t

f w t d tt xt. F x-

, t w t f ft

tt t t b-


18/31

6 | G P 3

ff t, t tzt

bt, d t f b-t

t tf (api). it-

national merchants, for their part, require

bt, t fd

t, d t t

d tw f q (w

d tt f t).

Also, particularly in Europe, acquirers are

t dt f w -t

bt t t t

t f t t.

F x, q b

t ff -e t wt -

tt t d t tt-

wt.

Intensifying CompetitionAs payments players look to defend their cur-

t t bd w , t

m&a tt. att

b t , wt t j

t , q, d d

f t b t -

d (psp). i ddt t t

t , t b -

dt t dd t.

W xt t ft m&a tt

t t dt twd

w qb tt. idd, tt-

t t w d t

x qt, t, d -

tt d t t b-

t t d t t wd -

d f t t.

o bf tt t w tt

b b f b d.

F x, q w d t

t wt d

tdt dw d td-

alone PSPs in order to gain the capabilities

tt t w q. T b w b

b t jtf tt t

w t d fd

ttt d t b-

t -. m, t t f

0

20

40

60

80

100

Cash

Electronic direct/ACHWallets

Other (checks, prepaid cards)

Onlineconsumerpayments2

40

2

17

4

All consumerpayments1

40

13

28

12

7

Share of total payment value in the U.K. (%)

Debit card

Credit card

Cards share of total payment value is

50 percent greater in online spending

...and merchant charges are higher because

of higher risk and the need for a gateway

155

200

85

25

0

100

200

300

400

310

~2x

Basemerchantrate

Risk fee

Gateway fee

Typicalonline

transaction3

Merchant rates in the U.K. (basis points)

Typicaloffline

transaction3

Example: The United Kingdom

46

Sources:Euromonitor; Datamonitor; Barclays website; BCG analysis.12012 Euromonitor data.22009 Datamonitor data.3BCG estimate for typical small to medium-sized corporate offering.

E | Online Spending Generates More Revenue Because of Greater CardShare and Higher Merchant Rates


19/31

T B C G S | 7

t tf

w tt fw d b

d w t t

q. T d w

t tt t t dt wt

t t t, t -bd .

B tt, q w b b t

ffd t tt dd t d-

bt -, t

t m&a. m t fw b

w t t t. o w, w,

tt t fw w d f. i

t d, t w w t t t

zt tt dd t

t t: b t, t qd t jtf tt,

d dffttd dt t t,

d xtt f t td f

t t- t.

m, ddt psp w -

tw . T ft t

-, - t

( dt-d -b -

) w t f xt

d t t t. T -ment is not of interest to mainstream acquir-

. T d ff

differentiated product to a specific set of mer-

t tf x, b ff

t tt wt f t

(erp) ftw f

f dt.

The Need to Act Nowi d t t t w t,

t f w d t dtt

sharpen their strategies, build scale, and con-

t t d t t ff

d t. aq w d t

t t . ad w t t tt

t t w dd t t

t t d bt, w f

-t .

Develop a clear strategic plan for where tobuild in-house versus where to partner.This

d bt f -t-t

tt q t

strong merchant relationships, for in-

stanceand for technological capabilities

fd-t t. a

clear strategy is particularly important for

b tt t q

t f bd t-

b t. s w t

bd bt - d ddtt, a-p

b tt td psp d

b-bd t-f- t. F

, w, t t tt

, t wt xt psp d

t tt w b t bt t.

Carefully identify the customer segments inwhich you want to winand oer the

services needed to do so.Merchant require-

t b d,w t d t t d

dtt d t d t

t. p d t

t d t

control key elements of the customer

x. a x t b psp

t d t

t f t -bd .

Build the IT organization and capabilities

needed to work within an open, evolvingecosystem.Institutions may need to create

dtt t t w xb, tt,

dt f t -

iT x. at t t, t

w d t t tt

core IT skills such as speed, security, and

tbt. T bt,

t dd t t api tt w

td-t d t tt ,

w b t.

Focus on improving the retailer and card-holder customer experience.There is much

t f w t tt. F

x, w w t bt t

economics of microacquiring (processing

transactions for micromerchants), espe-

emv wd, w b tt

q d t

terms of simplifying and speeding up the

t t .


20/31

8 | G P 3

THE DYNAMICS OF CARDS

T emerged from

t wt

to address but also numerous opportunities to

t. T b bt

bt b dd d, w

b (bt d fw), tt

t, d td tt. T

tt d w ttt t d

approaches (such as those related to mobile

wt d b dt), w d dt

business models (such as those created by

t t ), d

dd t t tt

f t. a w t

t-t- w t t t -

t, f d-

bd d tb bd .

To be sure, the retail payments business is

w t wt tt.

W ft tt tt-td

td b -ttd (t) -

t w f $249 b wd-

wd t $460 b f 2012 t 2022, -

jtd cagr f 6 t. nt a d

a-pf w b t tt , wt

RDEs in the latter posting the most robust

wt. (s exbt 7.) i ddt, t-

td w w f $138 b

t $321 b, jtd cagr f 9 t.

i d t z t wt tt, b

t t t f w t d w

the industry is headed, identify their largest

opportunities, and take action on a number

f ft.

key Ted the iue speT f td f d

around macroeconomic changes, industrytt d t, w t, d

heightened competition in key customer

t.

Macroeconomic Changes.On the transaction

d f d t, w gDp

wt d t

d t dt f t

ttd t td wt

t (t f tt d

t). T -

dt d f d f

. o d,

regulatory pressure in many countries, a

t b f dq, w

tt- wt, d

t t. W xt

t dt w t t t

t b t t t.

i w d t t t t t t

t tjt.

Industry Structure and Regulation.The

t f w t b

d b f . F x,

t b t t f -


21/31

T B C G S | 9

tions in the United States: the CARD Act,

d t b x tt-t

d dd f; dt t rtE that requires customers to opt in for debit

t-f- d aTm d tt;

d t Db adt (wt t

Ddd-F W stt rf d c-

ptt at f 2010), w tbd

limits on debit card interchange rates, elimi-

td tw xt, d td w

t tt d t c F-

ptt B.

The impact on card issuers has been signifi-

t, d w t bt. W w

, t- d

d t,

costs (particularly in terms of the number of

f-t-qt ),

f, tt t, d w

d dt td. Tt

said, as regulation continues to be implement-

d t d tt b

ft d t tt t-

ly strong performance of cards could put them

b t ft f b ftbt.

i ddt, t t dd, w

wtd t d f

d b b t f

b tt. T wd

t t t t, branches (for sales channels) and data sourc-

(f dwt d

t tt).

There are many implications from this con-

dt. F x, t-t dt

w w t dwt t-

ff dt . idd, w

d tff d b t 20

t. Bd dt t t

d d wt w-tzd w

tf t d-f tt f

t bt bdd tf.

New Technology.The proliferation of techno-

t t

dt d b wt d t bt

of automated clearinghouse interfaces at the

physical point of salehas led to the intro-

dt f w t dt d

dt-d f ft. a, t bt t

b dt t dtd d

t b ftd -w-

f t t. W xtt

t d t fwd, w d

t b tt w dt, f ft,

90

141

2148

36 45 32

128

48 48

13 20

27

46

10

31

1826

25

85

35

67

18

49

0

50

100

150

200

250

Retail payments revenues ($billions)

115

83

213

5771

54

79

31

187

117

69

31

2012 2022 2012 2022 2012 2022 2012 2022 2012 2022 2012 2022

Share of transactionrevenues fromcredit cards (%)

Latin AmericaNorth America Western Europe Eastern EuropeAsia-Pacific(mature)

Asia-Pacific(emerging)

Transaction revenuesAccount revenues

49 51 68 70 63 64 71 63 34 32 31 28

Compound annual growth rate

5%

10%3%

14%

3%

8%

Contribution by credit cards varies significantly by region


Note: Not shown: Middle East and North Africa, rest of world (see Appendix for data).

E | Retail Payments Revenues Will Post Strong Growth, with RDEs Leading the Way


22/31

| G P 3

d t w t t

t dt t t t. rt, t w

t bf w -

tions are strong enough to prompt a change

b.

Heightened Competition in Key Customer

Segments.Standard business models are

b dtd dt t f

t t d t

t , b,

d w- . i ft, t-

tion in all customer segments is forcing

t wd, tb d

t t . W tt tt

jt 50 t f tt t

td t t twd, d tt d f d d

t 75 t f .

it srg r-b sgmts c-t t sp rgs.

T d w t t d t

consequences such as increasing costs for

wd d -t f t ff-

t t, t w t f

d f b, d t -

t f w t-f- f d

t dd t b . i ddt,

t dbd t

w t t w w d, b-

, d t-dt ff. F,

bzt b q d -

t tw w d t ft

t x w d xd d

.

Identifying and Capturing Pocketsof Growthg t b td, t b -

tt t dtf d t -

b t f wt. l d, d

w btt dt ft d

pricing in their search for higher market share

d t t ftb t. B t

t fw f t, q t

t dtd t.

st t w tt w t tt wt tt

b.

itt t d ttw d d t d-td t t d.

Dtt tt -t d t t .

D dt ft f t t.

c t, , ,and fraud functions in order to ensure a

tt t x t d d.

W dd b d f -

t tt x ff-

d b (tt tt d)

d - d b (tt b

w d) t dt w t -

t w d t tt wt t-

t. (s exbt 8.) i t t wt

little greenfield opportunity, such as North

a, Wt e, d t f a-pf (d J, st k, d a-

t), tw wt

t: w f tt d -

b f t dd.

Understanding the cube model is critical to

t tt. if ff- d

t, t t d -

t tt w t t t t w

dt d. F x, -bdd

d d fd wt tt

t b t b tt tt

dd w -wd dt

dd w d tf

d t wt t bdd d.

More specifically, in order to benefit from the

b d, b d t z t

types of data:

Internal data for on-us transactions,t t dt t -

t t f t d-

standing

Credit-bureau data for o-us transactions, w tt ddtd-


23/31

T B C G S |

t t dd dt ,

, d bbt w dt dt t b d,

f x, wt t dd

typically pays the minimum balance,

t, t f

b t

Third-party data based on card-issuer datasets,w d t

picture on not only the payment history

but also the type of interest being paid

( t dxd t)

and the type of card being used (such as

-b, wd t,

bdd wd t)

az d t b d

constitutes the critical first step in the journey

twd fft xd dt d

tf. o t t b td,

t w td t dt t

xt tt dw d

into the functional, technical, and emotional

d f tt t t. T

ff tt t dd

d dt ( w d)

tdt, d -

tion, such as making mortgage payments from

-dd t t tf dt d wd t.

Customer-Relationship Universitya b x t t -

t f t w dt ff, t

wt t q f t wt

w ct-rt ut.

T b f dfft f -

t dtt wt t t

t f - dt d t t-

t t, d d wt dt-

w t d bt d

w dfft dt bd t

f w t.

Level One: Mastering the Standard Cross-

Sell.B b w t t

dt t t t. l-

tt d t dt

dt-d t t-t

t bt t b

b t tdt t-

t. F x, b d t-

t tt dt t dwt

- dt-d t. T t t

Debit-activerevolver3

Transactor1Pay-downrevolver2

Not a cardcustomer

Transactor1

Debit-activerevolver3

Pay-downrevolver2

Risk

Off-us active card behavior

On-us behavior

How can the issuerprotect its

strong position?

Can the issuers cardbe a substitute for a

noncard lendingproduct?

How can the issuer modify its productsto increase segment share?

Are these customers aware of the issuerslending offers?

Does the issuer have a differentiatedproduct for these customers?

How can the issuer expand functionalityto include lending in its charge products?

Source:BCG case experience and analysis.

Note:On-us behavior is activity on a banks own cards; off-us behavior is activity on competitors cards.1Consistently pays down balances each month.2Makes large purchase and pays down balance over time.3Consistently carries balances, making payments and incremental transactions.

E | The Cube Model Helps Reveal Where the Greatest Opportunities Lie


24/31

| G P 3

customers might be that by linking their

credit card to their current account and

automatically paying at least the minimum

b t d b, t w

t f.

In addition, card issuers can capture incre-

t wt b t t t

t- tt t -

. h jt d t b-

, d f

tt d w td t t w

btt dtd dd b w-

f t t b -t -

tomer segmentation so that customers are

ffd t dt.

Level Two: Leveraging Transaction and

Demographic Data to Generate Thoughtful

Oerings.a b d w t w

customers better than its competitors do

b f t-tt dt

tt d t t t t

b. F x, b d

dt w dt, w

b f t, d

w t d w dt

t f dt d . cdt-bd td-t dt competitorscustom-

d bt t t

dt d t fd d f

products such as mortgages, personal loans,

d dt d. l-tw tt

d btt, t

d t t t.

Level Three: Creating Product Bundles

Targeted at Specic Segments.B t,

b d bd t t d

b dt t d t f

dt d t t -

t t b f t wt,

wt z, d t dt tf.

o x t b tdt

dt td t tdt

dt .

Level Four: Collecting Data on Trigger

Events and Oering Relevant Products as

Customer Needs Change.B t f

ttt t wt f t

customers is doing and make highly targeted

. c t t dt

t t jb

, d, t bt f

d, dt d t -

d d tt t

wt t t d. T b

w w t t t f

additional products and reaches out in at .

Card issuers can also harness their under-

standing of customer spending patterns and

f t t bd ttd dt-

ing and promotion program along the lines of

t-fdd wd. T

b dd - t

wt w b f wd tf.

D dffttd t x-

t tt t tright offers at the right time and are not in-

dtd wt .

Level Five: Combining Products, Linking

Rewards, and Using Special Tools to Forge

New Value Propositions.Although it is the

t t, w

might be thought of as graduate school at

ct-rt ut t

tt t . ld t b

d bd t b dtbd d wt dt t

d ttd dt-wd b-

d. B dt d xb

wd t, t b t

proposition that is greater than the sum of its

t. F x, b dd

special program that combines current and

t wt dbt d dt

d wt t t t t

, d t d wd f t-

w t . T

t xz t t b

f dt.

I t w w t, b

d t b t t

f t tf dt

analysis, customer segmentation, and product

dt t w t dt d -

wd bd. T t tt b

dt. rt, t

t ff wb d t-fft -

t t t t d wt d t

all types of paymentsand, more broadly, all

t f f t.


25/31

T B C G S | 3

T tt f t b t t-

d b (t b f

tt), (t t

t f tt), d -

nue (the amount of income generated for

banks and other market participants by non-

tt). T adx d

detailed forecast of the payments market- f 2012 t 2022.

We definepayments revenuesas direct and in-

dt td b t -

. T d tt-f -

nues, card and account maintenance fees,

and spread income generated from current

t w d-

d-dt t (DDa). F f -

drafts and nonsufficient funds are considered

tt-f . W dftrans-

actionbanking t-td dt

d , t -

f t t. a b t

adx f t. i t

tb tt fw, tt t f t d tt -

. (nb t dd xt t tt

b f d.) i 2012, Bcg dtd

its global payments model to incorporate ad-

ditional data, adjust the forecast models to

t f t b , d xtd

t ft t 2022. Dt f Bcg

t b d d.

APPENDIXan oveRview of voluMeS, valueS, and RevenueS

in The PayMenTS MaRkeTPlaCe, 20122022

Source:BCG Global Payments Model, 2013.

Note:Data are for noncash payments. Total revenues include transaction and account revenues. Any minor discrepancies in totals are due torounding.

W P,

NorthAmerica

LatinAmerica

Asia-Pacic(mature)

Asia-Pacic(emerging)

WesternEurope

EasternEurope

MiddleEast and

NorthAfrica

Rest ofworld Total

Volume(millions)

133,964 35,086 46,932 34,666 77,713 24,916 4,713 6,368 364,358

Value($millions)

101,622,897 29,703,800 52,448,202 55,322,327 98,634,051 27,022,625 5,561,226 6,586,989 376,902,118

Totalrevenues($millions)

158,932 41,388 65,025 92,336 107,925 41,572 8,101 9,166 524,444


26/31

4 | G P 3


Note:Any minor discrepancies in totals or subtotals are due to rounding.

V R W P

Region/payment type 2012 2022Compound annual

growth rate (%)

(Units: millions of transactions)

North America 133,964 253,453 7

Retail 101,750 196,064 7

Wholesale 32,214 57,389 6

Latin America 35,086 78,794 8

Retail 24,891 54,543 8

Wholesale 10,195 24,251 9

Asia-Pacic (mature) 46,932 64,656 3

Retail 41,072 56,011 3

Wholesale 5,860 8,645 4

Asia-Pacic (emerging) 34,666 108,609 12

Retail 30,230 96,492 12

Wholesale 4,436 12,117 11

Western Europe 77,713 103,591 3

Retail 63,260 84,526 3

Wholesale 14,453 19,065 3

Eastern Europe 24,916 54,747 8

Retail 19,381 42,089 8

Wholesale 5,535 12,657 9

Middle East and North Africa 4,713 40,773 24

Retail 4,094 35,845 24

Wholesale 619 4,928 23

Rest of world 6,368 17,836 11

Retail 5,064 14,316 11

Wholesale 1,304 3,520 10

World 364,358 722,459 7

W P,

NorthAmerica

LatinAmerica

Asia-Pacic(mature)

Asia-Pacic(emerging)

WesternEurope

EasternEurope

MiddleEast and

NorthAfrica

Rest ofworld Total

Volume(millions)

253,453 78,794 64,656 108,609 103,591 54,747 40,773 17,836 722,459

Value($millions)

152,209,305 68,708,080 70,715,767 167,594,928 140,693,003 66,009,368 28,558,305 17,579,833 712,068,589

Totalrevenues($millions)

283,847 107,048 85,711 336,564 156,551 96,694 45,189 28,138 1,139,742


Note:Data are for noncash payments. Total revenues include transaction and account revenues. Any minor discrepancies in totals are due torounding.


27/31

T B C G S | 5


Note:Any minor discrepancies in totals or subtotals are due to rounding.

V R W P

Region/payment type 2012 2022Compound annual

growth rate (%)

(Units: $millions)

North America 101,622,897 152,209,305 4Retail 15,445,548 22,230,283 4

Wholesale 86,177,350 129,979,021 4

Latin America 29,703,800 68,708,080 9

Retail 2,662,930 5,435,553 7

Wholesale 27,040,871 63,272,527 9

Asia-Pacic (mature) 52,448,202 70,715,767 3

Retail 4,054,953 5,307,473 3

Wholesale 48,393,250 65,408,294 3

Asia-Pacic (emerging) 55,322,327 167,594,928 12

Retail 4,622,215 17,089,883 14Wholesale 50,700,112 150,505,044 11

Western Europe 98,634,051 140,693,003 4

Retail 8,919,978 12,497,727 3

Wholesale 89,714,073 128,195,276 4

Eastern Europe 27,022,625 66,009,368 9

Retail 1,684,573 4,001,154 9

Wholesale 25,338,052 62,008,215 9

Middle East and North Africa 5,561,226 28,558,305 18

Retail 744,469 4,207,823 19

Wholesale 4,816,757 24,350,483 18

Rest of world 6,586,989 17,579,833 10

Retail 678,321 1,791,423 10

Wholesale 5,908,667 15,788,410 10

World 376,902,118 712,068,589 7


Note:Any minor discrepancies in totals are due to rounding.

T R A T R

Region 2012 2022

Compound annual growth

rate (%)(Units: $millions)

North America 158,932 283,847 6

Latin America 41,388 107,048 10

Asia-Pacic (mature) 65,025 85,711 3

Asia-Pacic (emerging) 92,336 336,564 14

Western Europe 107,925 156,551 4

Eastern Europe 41,572 96,694 9

Middle East and North Africa 8,101 45,189 19

Rest of world 9,166 28,138 12

World 524,444 1,139,742 8


28/31

6 | G P 3

FOR FURTHER READING

The Boston Consulting Group haspublished other reports and articlesthat may be of interest to senior -nancial executives. Recent exam-ples include those listed here.

Capitalizing on the Recovery:Global Asset Management 2013A report by The Boston ConsultingGroup, July 2013

Maintaining Momentum ina Complex World: GlobalWealth 2013A report by The Boston ConsultingGroup, May 2013

Survival of the Fittest: GlobalCapital Markets 2013A report by The Boston ConsultingGroup, April 2013

Big Data: The Next Big Thing forInsurers?An article by The Boston ConsultingGroup, March 2013

Distribution 2020: The Next BigJourney for Retail BanksA Focus by The Boston ConsultingGroup, March 2013

Committing to Customers in theNew New Normal: OperationalExcellence in Retail BankingA Focus by The Boston ConsultingGroup, February 2013

The New Challenge for HedgeFunds: Operational ExcellenceAn article by The Boston Consulting

Group, January 2013

An Inection Point in GlobalBanking: Risk Report 20122013A report by The Boston ConsultingGroup, December 2012

New New Normal in RetailPayments: Customer CentricityDriving Revenue Recovery

(Global Edition)A White Paper by The BostonConsulting Group, November 2012

New New Normal in RetailPayments: Revenue RecoveryRoad Map (North AmericanEdition)A White Paper by The BostonConsulting Group, November 2012

The Transaction BankingAdvantage: The Path to ProtableGrowthA report by The Boston ConsultingGroup in partnership with SWIFT,October 2012

How Banks Can Take the Lead inMobile PaymentsAn article by The Boston ConsultingGroup, June 2012


29/31

T B C G S | 7

NOTE TO THE READER

About the AuthorsStefan Dabis a senior partner andmanaging director in the Brusselsoce of The Boston ConsultingGroup and the global leader of thetransaction-banking segment of theFinancial Institutions practice.

Mohammed Badiis a partner andmanaging director in the rms NewYork oce. Gero Freudensteinis apartner and managing director inBCGs Frankfurt oce. DeepakGoyalis a partner and managingdirector in the rms New Yorkoce. Alenka Grealishis atransaction-banking topic specialistin BCGs Chicago oce. PedroRapallois a partner and managingdirector in the rms Madrid oce.Carl Rutsteinis a senior partner

and managing director in BCGsChicago oce and the leader of thetransaction-banking segment inNorth America. Olivier Sampieriisa partner and managing director inthe rms Paris oce. Tjun Tangisa senior partner and managingdirector in BCGs Hong Kong oce.

AcknowledgmentsThe authors would particularly liketo thank the core team ofChristophe Hamal and TristanThomas, whose contributions wereinvaluable to the conception,development, and writing of thisreport. In addition, the authors areextremely grateful to Jrgen Eckel,Miriam Fritsche, and DennisBergmann, who were a vital part ofthe team that developed the BCGGlobal Payments Model. Gratefulthanks also go to the following BCGcolleagues: Ashwin Adarkar,Brent Beardsley, Jorge Becerra,

David Bronstein, Allard Creyghton,Tijsbert Creemers, LaurentDesmangles, John Garabedian,

Jennifer Glaspie, Alan Goodyear,Brad Henderson, Sumitra

Karthikeyan, Monish Kumar,Marshall Lux, Flavio Magalhaes,Santiago Mazn, Tim Monger,Federico Muxi, Niclas Storz,Steve Thogmartin, Andrew Toma,Pieter van den Berg, Ian Walsh,Andr Xavier, and Kuba Zielinski.

The authors are also deeplythankful to Francis Martin, LucMeurant, and Wim Raymaekersfrom SWIFT.

Finally, we thank Philip Crawford forhis editorial direction, as well asother members of the editorial andproduction team, includingKatherine Andrews, Gary Callahan,Angela DiBattista, Kim Friedman,Sara Strassenreiter, and Janice

Willett.

For Further ContactStefan DabSenior Partner and Managing DirectorBCG Brussels+32 2 289 02 [email protected]

Mohammed BadiPartner and Managing DirectorBCG New York

+1 212 446 [email protected]

Gero FreudensteinPartner and Managing DirectorBCG Frankfurt+49 69 91 50 [email protected]

Deepak GoyalPartner and Managing DirectorBCG New York+1 212 446 2800

[email protected]

Alenka GrealishTopic SpecialistBCG Chicago+1 312 993 [email protected]

Pedro Rapallo

Partner and Managing DirectorBCG Madrid+34 91 520 61 [email protected]

Carl RutsteinSenior Partner and Managing DirectorBCG Chicago+1 312 993 [email protected]

Olivier SampieriPartner and Managing Director

BCG Paris+33 1 40 17 10 [email protected]

Tjun TangSenior Partner and Managing DirectorBCG Hong Kong+852 2506 [email protected]


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Documents

BCG Global Payments Report 2013 Sep 2013