BCG: Transactional-banking revenues grow to 2 trillion

06 January 2016

The transactional-banking market is projected to grow $900 billion to almost $2 trillion by 2024, research by BCG shows. Retail transactional-banking remains the main revenue stream, accounting for more than $1.5 trillion in revenues, even while accounting for only 11% of transactions in 2014. The almost 100% growth of the market is, in a large part, explained by increased volumes in card transactions from emerging markets as more and more people gain access to new forms of banking. The emerging market is set to grow even more in the coming years and will surpass mature markets in terms of total revenue share by 2024.

The payments and transaction banking sector has entered into a period of considerable uncertainty as disruptive technologies and whole new modes of payments make themselves felt. The rapid development of online and wireless payment systems, as consumers become more familiar and have access to the requisite devices, is seeing consumers migrate from the traditional cash medium. That trend is only projected to accelerate in the coming decade, with more and more emerging market consumers migrating from cash to electronic transactions, as a result of which the transactional-banking market is expected to grow by more than $900 billion by 2024.

In a recently released Boston Consulting Group (BCG) report, titled ‘Global Payments 2015: Listening to the customer’s voice’, the consulting firm explores the current market trends and projects how the different market segments are expected to change over the coming decade.

RDE takes lead in transactional-banking revenue growth

Revenue increases
Global transaction-banking generated almost $1.1 trillion in revenues in 2014, representing nearly 27% of total global-banking revenues. This is set to increase markedly over the coming decade, hitting $2 trillion in 2024. The rise is projected to occur across various revenue streams, including a combination of account revenues (up by 40%), transaction revenues (up 34%) and non-transaction card revenues* (up 26%). The almost 100% increase in transaction revenues over a period of 10 years is being driven by the increase in value and volume of transactions. Macro-economic factors that play part in this include migration from cash to e-payments, as well as broader financial inclusion, offsetting the decrease in revenue per transaction.

The analysis notes however that the majority of revenue growth is the result of rapidly developing economies (RDE). The emerging markets in the Asia-Pacific region and the Middle East are set to contribute the most growth to the total increase in transaction-banking. With a CAGR of 10% for both, the former will add 36% ($322 billion) and the latter 9% ($81 billion) to the total. The US and developed Asia-Pacific nations will grow modestly, at 5% and 4% respectively, while Western Europe will see sluggish growth within the domain at 2%.

Developed economies are expected to fall behind RDE in terms of the total share of revenue by 2024. In 2014 developed economies contributed 54% to the total revenues, yet this is projected to drop to 43% as RDE countries outpace developed countries’ growth trajectories. The US will lose 4% of total revenue share, Western Europe will see its share fall from 16% to 10% and mature Asian-Pacific countries will lose 2% of total share.

Retail transactions dominant revenue generator

Retail ahead of wholesale in revenue generated
The retail market will remain the most dominant revenue generator according to the analysis, which, while only accounting for 11% of total global transactions, generated 78% of total payments revenues in 2014. According to BCG, this market will account for 73% of total revenue growth in the coming 10 years, totalling $1.5 trillion by 2024. 

The wholesale transaction-banking categories are on the whole, while generating the smaller overall revenues, expected to grow more quickly than the same categories in retail. Wholesale credit card revenues will increase by CAGR 7% ($57 billion) compared to 6% ($311 billion) for retail. Non-card transaction revenues will also rise considerably faster for wholesale (7%) compared to retail (3%). Across the board, wholesale will have a 10 year CAGR of 7%, increasing total revenue from $243 billion to $480 billion, while for retail, 10 year CAGR stands at 6%, increasing from $847 billion to $1,510 billion.

Retail revenue mix in mature markets

Mature market development
Different regionals have considerably different mixes when it comes to the most dominant revenue streams. In the US market, the largest revenue stream is generated from credit cards, although their growth (at 3%) will remain well below the market’s 5% average. Top performers in the US are debit card transaction revenues at 6% and account revenues at 8%. In contrast, Western Europe will see the largest increase in debit card revenues at 4%, while non-card transactions are expected to drop 2%. Credit card transactions hardly budge at 1%.

RDE retail payment landscape

Emerging market development
The RDE market picture varies considerably by market. Within Latin America, credit card transactions will continue to increase strongly (9%), and stay the most dominant form of transaction by revenue generated. In Eastern Europe by contrast, account revenues remain the most dominant revenue stream, growing at 7% over the ten year period. The emerging Asia-Pacific region will see growth in revenue generation by transaction type. Non-card transactions, while growing at 11%, will remain low at a total of $8 billion by 2024. Credit card revenue will be up by 11% annually, while account revenues will see the slowest increase at 8% to $174 billion.

* These include monthly or annual fees, credit-card net interest income, and other types of fees.


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