Apple is ordered to face Apple Pay antitrust lawsuit; Key trends & drivers in Core Banking & BaaS; Open Banking across the world;
In this edition:
1️⃣ Visa earmarks $100M to invest in generative AI companies
2️⃣ Apple is ordered to face Apple Pay antitrust lawsuit
3️⃣ TikTok moves to add ‘in-app’ wallet
4️⃣ Key Trends & Drivers in Core Banking & BaaS
5️⃣ Entering a new payments era
6️⃣ Open Banking Across the World
7️⃣ The great payments divide
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News
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Visa earmarks $100M to invest in generative AI companies
Visa announced today that it plans to invest $100 million in companies developing generative AI technologies and applications “that will impact the future of commerce and payments.”
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Apple is ordered to face Apple Pay antitrust lawsuit
Apple was ordered on Wednesday to face a private antitrust lawsuit by payment card issuers accusing the company of thwarting competition for its Apple Pay mobile wallet.
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TikTok moves to add ‘in-app’ wallet
TikTok’s eCommerce push is about to be squashed in Indonesia, a key growth market for its in-stream sales push, due to concerns around the impact of TikTok’s shopping tools on the local market.
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Apple Wallet app can now show current account balances from UK banks
Apple is soft launching a new iPhone Wallet app integration today that is powered by the United Kingdom’s Open Banking API. The Wallet app will now be able to show the user’s current account balance from their bank, as well as a history of deposits and payments. The balances will also be shown inline when buying something with Apple Pay, helping users be more financially aware about whether they can responsibly afford the purchase.
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Insights
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Key Trends & Drivers in Core Banking & BaaS
✔ Landscape & trends: We lay out a comprehensive landscape with 100+ platforms in the core accounts and payments space, as well as with extended middle-ware solutions. We note 8 trends in the space, with a zoom into the regulatory aspects and how BaaS providers and their licensed banking partners continuously adjust their risk management coordination.
✔ Public Markets: We note the market recovery of public peers the last months, with revenue multiples around 4–5x and highly correlated with their revenue growth and ebitda margin profile (‘rule of 40’). We highlight the different economics between public peers that investors should be aware of when applying their multiples to any ‘comparable’ private company.
✔ Private Markets: Financing of ~$3bn during the last ~18 months (2022–2023 to date) is also accompanied by an increasing M&A activity including Marqeta’s acquisition of Power ($275m, ‘23), Sofi’s acquisition of Technisys ($1.1bn, ’22) and Fiserve’s acquisition of Finxact ($0.7bn, ‘22). We highlight several active financial and strategic investors in the space.
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Entering a new payments era
The $3.2 trillion in revenue that McKinsey Global Payments Map projects for 2027 is aligned with the projection we made in last year’s edition of this report⁶ ($3.0 trillion in 2026). However, the mix of revenue sources is evolving. Cash usage has been declining rapidly, losing 20 percentage points in the share of global payments over the past five years. Net interest margin is driving a greater share of growth, and companies are moving into less penetrated areas of the payments value chain — for instance, low-value cross-border payments, business payments, and instant domestic transfers.
All of this suggests the industry may be on the cusp of a new payments era — and not for the first time. People have seemingly always needed technologies to make payments.
Modern payments began roughly in 1950 with a cardboard Diners Club card accepted by 28 restaurants in New York City and two hotels. Card issuers soon ditched the cardboard; the Plastic Era took off in earnest starting in the 1960s. Cards spawned new payments opportunities and new sources of revenue from transaction fees, such as ATM and guarantee cards.
The Plastic Era then gave way to the Account Era, where we find ourselves today, when plastic is no longer required to access funds or transfer money between accounts. We peg the start of the Account Era to the emergence of the online world at the end of the last century. Internet and mobile technologies made it possible for users to direct funds from their accounts, repurposing infrastructure such as automated clearing houses.
Another notable shift in the account era has been the emergence of new players in the form of fintechs and telcos (as wallet providers), which provide easier, cheaper, and instant transfers, driving transaction volumes in both consumer and commercial segments. However, fintechs recently have had to adjust to lower valuations and an equity market less willing to fund growth at the expense of margins, leading traditional banks to reassert their role in the payments ecosystem. Bank response strategies have ranged from payments carve-outs, as when banks have established merchant payments businesses, to the building of defensible propositions from within.
As the world has moved from paper to plastic to accounts, a few observations warrant highlighting. For one, older payment mechanisms don’t disappear but simply decline in usage. For another, each successive era has leaned harder into technology, requiring established institutions to undertake extensive retooling and creating openings for disruptive competition. Third, payments have become more embedded into customer shopping journeys and business activities, which makes payments increasingly important to users as they search for convenience and utility. Finally, each era has seen more companies entering the market, including banks, infrastructure and payment schemes, and today’s specialists and fintechs.
Source McKinsey
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Open Banking Across the World
While PSD2 in Europe and the UK’s Open Banking Standard launched by the Competition and Markets Authority, are the pioneering initiatives started three years ago to promote competition and innovation in the industry, at least 50 countries across the world are now well on the path to open banking. Some are opting for a more regulatory-driven approach modelled on Europe and UK such as Australia, Canada and Hong Kong and more recently, Brazil and Mexico in Latin America and Bahrain and Saudi Arabia in the Middle East, with mandated API standards and data access. Others are following a more market-driven approach such as the US driven by the rise of nimble fintech challengers and those in Asia like China and India driven by payment disrupters and ecommerce giants.
Amongst the regulated markets, Australia stands out from the crowd for having the most ambitious and innovative approach to open banking. Australia’s Prudential Regulatory Authority mandated open banking implementation for its Big Four Banks along the lines of the UK but moved beyond open banking by implementing in parallel the Consumer Data Right, an open data economy whereby citizens cannot only request financial institutions to share their data with third party providers of financial services but also companies in other sectors like energy or telecoms.
Canada is another example where the Banker’s Association has been focussing on digital identity as a precursor to an Open Banking Framework. It has now started the second phase of its “consumer-directed finance” consultation on open banking.
Amongst the market driven ones, China is an interesting example where giants like Alipay and WeChat Pay exploited their huge social media and gaming platforms and customer bases to embed financial services like wealth and AIdriven lending into their platforms. They needed to develop payment systems in a country where credit card penetration is low. They were able to do this and expand beyond payments under a relatively benign regulatory regime at the time, and with a more receptive customer base. Today, Alipay is rapidly expanding beyond China to European markets with the goal of having two billion users in the next decade.
Source Temenos
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The great payments divide
The world is digitally divided. In other advanced and emerging economies, mobile wallets are the primary method for making purchases in person, meaning at a physical location such as a restaurant or a department store (see Figure 4). In addition, mobile wallets are becoming a leading method for online transactions, such as shopping or paying the bills.
Conversely, in major advanced economies and EU member states, plastic cards and more traditional banking methods, such as direct debits, dominate. Digital wallets are making relevant inroads, but progress is slower.
How consumers spend money while dining out highlights some key payment trends. For example, those in Germany (48%) and Japan (33%) use cash for dining out most often, while China (68%), Thailand (63%), and India (53%) lead the way with mobile wallets. US consumers use plastic cards (72%) most frequently, followed by those in Sweden (71%), which is among the top three cashless countries for dining out. In-store shopping (not featured in the figure) follows a similar trend.
Things shift when payments are made online. Paying bills happens primarily through direct debits to bank accounts in major advanced economies and EU member states, while the Chinese are already on the digital wallet track (50%). This is the preferred European method, particularly popular in Germany (76%), Spain (65%), and Sweden (64%).
Online shopping is where plastic cards shine globally, with 86% of Americans, and 82% of the British preferring this option. Amidst all these shifting preferences, both regionally and globally, do bankers truly understand their clients’ expectations? Our research reveals a troubling gap (see Figure 5). Banks overestimate the role of peer-to-peer money transfers and buy now, pay later (BNPL).
They underestimate the importance of mobile wallets and the draw of personalized rewards. Good customer service is also a priority for clients, but bankers see it as relatively less important compared to other factors. This is an area where generative AI can add value by boosting the quality of digital client interactions (see case study, “Large global payments company turns complaints into actionable insights with generative AI,” page 14).
A global payment company sought to improve its customer service processes leveraging generative AI. Previously, millions of customer complaints, across thousands of products, were categorized manually into broad groups. The scale of the process for complaint analysis was time-consuming, error-prone, and unresponsive to emerging issues. Three weeks were needed to produce actionable insights, yet this was inadequate for trend spotting. This reduced customer satisfaction and prompted the need for compliance reviews. By adopting a generative AI model with more than 100 million parameters, the company was able to overhaul this inefficient process.
Source IBM / Bian / Red Hat
