Banks Losing Ground to Fintechs in Asia’s Cross Border Payments Space

Banks Losing Ground to Fintechs in Asia’s Cross Border Payments Space

by February 23, 2023

Fintech companies and specialist providers are rapidly gaining ground in Asia’s cross-border payment market, putting increased competitive pressure on banking incumbents and forcing them to look for new opportunities, a new report by global consultancy McKinsey claims.

In Asia, fintech companies are witnessing strong growth in the cross-border payment area, recording rates often three or four times those of incumbents, the report says. Despite a challenging year 2022 for the sector with plunging valuations and funding activity, this growth carried out last year where players like Payoneer and Wise reported a 30% year-over-year (YoY) revenue growth in the third quarter of 2022 and a 55% YoY increase in revenue in H1 2022, respectively.

These trends are reflected globally and across all major segments, McKinsey notes. In the fast-growing business-to-business (B2B) small and medium-sized enterprise (SME) segment, for example, nonbanks are seeing their market share increase significantly, growing from just 5% in 2014 to 12% in 2021, the report says. By 2024, these players are expected to hold 17% of the global cross-border payment market, it predicts.

Global B2B SME market share split by banks and nonbanks, %, Source: McKinsey and Company, 2022

Global B2B SME market share split by banks and nonbanks, %, Source: McKinsey and Company, 2022

A seamless and integrated experience

According to McKinsey, fintech companies and cross-border payment specialists are gaining share by building compelling propositions centered around more attractive pricing, quicker execution, greater convenience, larger breadth of products and services, integration with third parties, and a digital back end that enables seamless operations.

B2B-focused fintech providers are also adding value by providing superior front-to-back platforms, easy setup for multicurrency accounts, as well as by broadening their corridor coverage to new currency pairs.

Many established fintech companies are now moving beyond payments to target the whole customer wallet, providing services in the fields of trade finance, treasury, forex exchange (FX) risk management, among others. These products and services are offered through integrated platforms, which also include a range of value-adds such as checkout lending, merchant-of-record services, as well as API integration for connection with third-party services like SME accounting software.

The rise of fintech companies and specialist providers in the cross-border payment industry is putting pressure on banks and incumbent money transfer operators but also providing them with new opportunities, McKinsey says.

Instead of focusing on large corporate clients, banks should develop value propositions for Asia’s fast-growing SME segment and mid-size companies, the report says. Many of these organizations are looking to expand internationally and are part of the region’s growing digital economy, providing banks with opportunities to provide them with relevant solutions that combine cross-border payments, embedded FX services, advanced data analytics, seamless digital journeys, and more.

 

Featured image credit: edited from Freepik here and here