Citi survey warns incumbents on market share shifts in cross-border payments

Citi published its latest Global Perspectives & Solutions (Citi GPS) report on the future of cross-border payments, estimated to increase to some $250 trillion in five years.

“Our industry is on a journey to reach the next phase of evolution within cross-border payments. We’re partnering closely with financial institutions, fintechs, corporates, and industry experts — all of whom have contributed their perspectives in this paper — to continue building best-in-class experiences for clients and using technologies such as artificial intelligence and digital assets to make it happen,” said Jane Fraser, Citi’s CEO, in a statement.

The Bank of England estimates that the value of cross-border payments is set to increase from almost $150 trillion in 2017 to over $250 trillion by 2027, equating to a rise of over $100 trillion in just 10 years. However, market share shifts will hurt some incumbents. According to a proprietary survey conducted by Citi, almost 90% of financial institution clients believe at least 5% of market share will be lost, predominantly to fintechs, over the next 5-10 years, with 40% noting share of wallet had already been lost. The survey also showed that over 50% of financial institutions see the need to revamp front ends to improve client experience to compete against disruption.

Source: Citi

“Competition is increasingly multi-faceted within the industry. Payments are moving away from traditional instruction methods, which are tied to batch and files, and moving towards API connectivity”, says Shahmir Khaliq, global head of Services at Citi, in a statement. “This is leading to a heightened opportunity for fintechs and other participants that will be enabled through traditional financial infrastructures. Regulation is also increasingly fostering innovation via initiatives such as open banking and there has been a consequent increase in players that can deliver technology nimbly and leverage digital client experiences as a differentiating factor.”

Challenges exist in responding to how the industry is evolving, with legacy technologies in place and competing regulatory obligations to adhere to, both of which consume significant investment budgets. That said, Citi’s research revealed that financial institutions are focused on innovation and exploring this across traditional fiat currency and digital asset spaces. Fiat industry innovation focuses on a true 24×7 “always on” model, and initiatives exist to bring domestic offerings that are instant and 24×7 across borders. Alternative payment methods such as digital wallets provide another fiat solution to deliver faster, and cheaper payments.

“The world of cross-border payments has never been more attractive from a business opportunity perspective,” says Amit Agarwal, global co-head for Payments & Receivables at Citi Treasury and Trade Solutions, in a statement. ”The growth of e-commerce and new business models such as marketplaces, d2c or shared economies have eliminated borders for companies and consumers alike, with cross-border payments growing alongside them driving advancements across speed, cost efficiency and transparency.”

“The digital asset space, albeit promising, is still in its early days,” says Ronit Ghose, head of Future of Finance at Citi Global Insights, in a statement. “However, cross-border payments providers must stay vigilant and ensure readiness to embrace this space if and when it is ready to scale, with [central bank digital currencies], stablecoins, and tokenized deposits in focus.”

Key emerging technologies also have the ability to disrupt cross-border payments. Artificial intelligence could provide revenue streams through behavior prediction to cross-sell or to mitigate risk through fraud detection capabilities. The Metaverse could provide a new channel of payment experiences. Embedded finance and open banking can leverage application programming interfaces (APIs) to provide payment experiences in new places and across banking providers.

Read the full report

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