We’re less than a month into 2024, but this January has seen much of the cross-border payments industry return at full steam, paving the way for an action-packed year across the space. Several acquisitions and mergers have already been announced; new products have been launched; and strategic shifts have been unveiled by a number of players. It’s safe to say 2024 is not going to be quiet.
This is a very promising sign for an industry that has seen significant growth and development over the last few years amid, at times very significant, headwinds. However, it will not come without its own challenges.
As cross-border payments increasingly matures, the industry is both diversifying its offerings and broadening its reach, but it is doing so amid a tough environment. VC money is scarce, purse strings are tighter and those that succeed are doing so by providing genuine, measurable improvements in delivery, cost or quality.
With this in mind, what are some of the main challenges facing cross-border payments 2024, and where do the opportunities lie?
Tighter finances, greater expectations
2024 is not going to be a year of IPOs – most of the players on that path are still at least a couple of years out – but it is going to be a year of both consolidation and spin outs.
This is in part a result of a tough economic climate. Higher interest rates have firmly put an end to the era of easily accessible capital and that means less VC and other funding, fewer rounds and – for some players – shorter runways. As a result, there are more acquisition opportunities in the space than a few years ago, providing opportunities to build out expertise, product ranges or market reach.
Meanwhile, other larger players are facing ongoing pressure from investors to streamline their operations or restructure to provide more favorable financial outcomes. While this began slightly over a year ago, we are increasingly seeing the end results of this, in the form of spinouts. Worldpay is currently in the process of spinning off from FIS, for example, while Corpay has been considering a separation from its parent FIS.
This means we are likely to see significant shifts in the market in 2024, particularly in the B2B payments space where fragmentation is higher and no one player holds more than 1% of the overall share.
However, it is also coming amid ongoing increases in customer expectations when it comes to cross-border payments. Globally, several initiatives have seen increased interconnectedness between key corridors, while in the US the launch of Fednow is increasing expectations around the speed and delivery of domestic payments.
2024 is set to see an already strong interest in faster payments become ever more acute, as increases both in technology and partnerships increase capabilities, particularly on the B2B side.
Such expectations may ultimately shape market consolidation further, providing a driving reason to acquire certain companies over others, and provide a roadmap for players looking to build their presence in the cross-border payments industry.
AI: Separating hype from benefits
Artificial intelligence (AI) is, inevitably, going to continue to be a topic of considerable interest and discussion in 2024. However, there are already strong signs that investors are getting wise to over-use of the term and are becoming increasingly skeptical about its utility, most notably with the shareholder reaction to PayPal’s recent AI-led announcements.
This is reflective of the hype cycle of any technology; there are some who are likely to expect AI to fall the way of other topics such as the metaverse and become increasingly irrelevant as the year progresses. There are also genuine concerns around the technology, particularly when it comes to accuracy and legality of use of some forms of generative AI.
However, AI also has genuine utility and potential to reduce costs, which is especially vital in today’s economic climate. As a result we can expect to see a balancing act between the discussion of AI projects that may provide incremental yet significant improvements and the often overblown language that is associated with the technology.
In many cases, the real benefits may also take some time to build, further creating a need for nuanced, reserved language around the technology.
What we may therefore ultimately see this year is a backlash against bold statements related to the technology, but an increase in its quiet use among companies. Investors will reward those who respond to this need for care in its discussion, but expect to see sharp reactions across the earnings seasons if discussion of the technology becomes too high-minded.