After 2022’s economic downturn and the rise of a fresh crop of activist investors, not to mention both new and ongoing geopolitical turmoil, 2023 has been a tough year for most industries and companies. However, while this was by no means an easy year for cross-border payments, our industry has risen to the challenges 2023 presented us, and is arguably in as good a position as it has ever been.
This was a year when the world’s economic heavyweights placed greater expectations on cross-border payments than ever before through the Financial Stability Board’s (FSB) G20 cross-border payments targets. It was also a year where more of the world’s consumer remittances were sent through digital channels than ever before. And it was a year where B2B payments stepped up to new levels of sophistication and growth as the market continues to evolve rapidly.
Gone are the days of easy VC money and growth-at-all costs, but instead the industry is evolving into a sophisticated arena where the order of the day is optimisation, insights and transparency – and there are exciting opportunities ahead in 2024.
Bringing transparency to an industry: The impact of the G20’s cross-border payments targets
It is difficult to overstate the importance of the FSB’s October 2023 publication of an inaugural progress report on the G20 cross-border payments targets.
First agreed to by the G20 finance leaders in 2021, these targets set out precise, measurable requirements for cross-border payments across wholesale, retail and remittances. Covering speed, access, transparency and costs, these mandate numerous improvements to the global movement of money, for the most part to be achieved by the end of 2027.
However, when the targets were first agreed, there was no widely available data on how the industry was performing against these targets. It was generally agreed that they had not been met, but where each part of the industry was against these requirements remained unclear. There was very little transparency in the industry, and so few players or countries had a strong sense of how they were performing against these goals.
2023 saw that change for the first time. With the October publication came the first data across the three segments, as well as detailed information about how it measured up to 2027 targets. While some are closer than others, at present there isn’t a single target that the industry has reached, meaning that there is considerable work ahead from all stakeholders to achieve the 2027 deadline.
However, the publication of this data has provided a level of transparency to the industry that we have not previously seen, and it is helping to drive a shift across the industry to detailed, data-led approaches. I am proud to say that a significant portion of the data is provided by my own company, FXC Intelligence, and we have seen this report help accelerate an interest in data-led strategies within the industry that has been growing for some time.
These targets are having and will continue to have a profound impact on end-users at a time when more people than ever have a need for cross-border payments. Increased access, lower costs and faster speeds is vital to both individuals and businesses of all sizes, as we face a world where the movement of money becomes ever more global with each passing year.
Consumer remittances: The rise and evolution of digital money transfers
Consumer money transfers is an industry with deep historical roots. It is older than the automobile, and features players who have been around for much of that time. However, it is also a space that has seen significant disruption and development over the past decade or so, as new technologies have fundamentally changed the way that money can be sent and received.
It is easy to think that cash is on the precipice of becoming history. It is not. While there are parts of the world where most people can go months without touching a banknote, there are still millions of people who have no access to a bank account and for whom cash is a daily requirement. It will therefore take a generation for consumer remittances to become largely cash-free.
Having said this, the move towards digital remittances and money transfers is ongoing and inevitable, and while digital-only players such as Remitly and Wise saw significant growth this year, traditionally retail-led companies have also seen an uptick in their use.
In its latest earnings report covering Q3 2023, Euronet’s money transfers segment, which includes retail heavyweight Ria and online-focused Xe, reported a 20% YoY growth in direct-to-consumer digital transactions, compared to an overall rise in transactions of just 8%. Western Union’s branded digital revenues, meanwhile, sit at 21% of the company’s total revenue, having grown 3% YoY, compared to overall growth of 1%.
Even Intermex, a US-based player that caters largely to blue collar workers sending primarily to Latin America, has seen a sharp increase in digital transactions, which rose 63% YoY in the latest quarter.
Crucial to this is the fact that digital shifts do not happen gradually, but in bursts. Advances in new technologies bring sharp changes in access, and adoption of new cross-border payments methods follow soon after. India is a strong example of this. According to the World Bank Global Findex Database, in 2014 account ownership at a financial institution or mobile money provider stood at 53% of the population aged 15 or over. In 2017, just three years later, it had jumped to 80%.
There are still many parts of the world where financial access remains limited, but remittances are playing a vital role in changing that. From virtual cards and accounts for migrants to market-specific hybrid payout solutions, the money transfers space helped millions of people access their money digitally in 2023 – and will reach far more in the years to come.
The rise and rise of B2B payments
This is unlikely to be the first time you’ve heard this, but the B2B cross-border payments space is notable for being extremely fragmented, with no single non-bank player having more than 1% of the market, despite the largest companies having significant flows and global reach.
This is a space that is still very much on its way to maturity, and 2023 is not going to be the year that is fully realized – there is far more consolidation and disruption ahead. However, this was a year of remarkable growth and development from many players.
Among publicly traded companies in this space, mean YoY revenue growth tracked at above 40% – more than twice the mean for consumer-focused cross-border payments players. This growth is also being reflected by many privately held companies, many of whom are similarly seeing significant gains and who expect these to continue in the future.
Convera, which this year completed the final closing of its spin-out from Western Union as the company’s Business Solutions arm, is both one of the largest non-bank players in the space and a strong example of this. Having reported 50% revenue growth since 2021, the company is targeting the doubling of payments volumes over the next five years.
At the other end of the market, B2B payments startups are both emerging at a much higher rate than those focused on consumer money transfers, and are also attracting much greater VC investment. B2B payments is a space filled with opportunities that the more mature consumer segment simply no longer offers at the same rate.
Market maturity is creating part of this potential, as is the fact that many of these customers are coming from banks, where the offering – particularly for smaller players – has been less than ideal. Banks are beginning to wake up to the enormity of the opportunity, however, and in 2024 we do expect this to evolve.
Yet the other aspect of the significant growth in this space is that the market itself is both immense and growing. In 2023, B2B cross-border payments represented a TAM of $39.3tn, but by 2030 that will grow by 43% to reach a $56.1tn TAM. More companies are sending more money across borders and that is only set to grow over the next few years.
Cross-border payments is an industry that is waking up to a new era of development, aided by unprecedented levels of transparency and insight that data is providing. 2023 has been a strong year, but there is far more to come in 2024.