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Three Key Takeaways From the 2020 Mckinsey Global Payments Report

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2020 Mckinsey Global Payments Report

McKinsey projects that the 2020 global payments revenue will be 7% lower than in 2019. But the crisis resulted in much more than a $140 billion decline. The pandemic-induced disruption compressed five years’ worth of change into less than a year, accelerating transformation in customer behavior and payments operating models.

The decline in revenue and new entrants successfully leveraging market changes has banks and long-time players rethinking their approach. Companies are urgently looking for ways to come off the sidelines as modern digital platforms enable newcomers to capture spaces dominated by established financial institutions. 

Consulting firm McKinsey & Company recently published its 2020 Global Payments report. This year, McKinsey explored how companies can position themselves to capture pockets of growth stemming from the accelerating winds of change in global payments. 

As a banking and payment software provider, we devote a lot of time and resources to researching how global changes impact our clients and the industry. At SDK.finance, we believe that understanding how disruptive trends affect the payments ecosystem is key to developing modern banking platforms and future-proofing our payments products.

Here are the three key takeaways we got from reading the new report.

  • Decline in cash usage

Physical distancing measures, limits on business activity, and shifts in commercial behavior have resulted in a sharp reduction of in-person purchases and cash transactions. The fear of contracting the virus through cash and high-traffic ATMs resulted in customers and merchants shifting towards electronic and contactless payment options to complete transactions. 

Source: McKinsey Global Payments Map

Source: McKinsey Global Payments Map

In the UK, ATM usage declined by 46% per month on average from March to July 2020. McKinsey’s analysis suggests that evolving consumer behavior in both mature and emerging markets will reduce the share of global payment transactions in cash by four to five percent. For comparison, such a decline would take four to five years before the pandemic. In response to a reduction in cash use and in-person services, banks have accelerated the move to online banking by closing branches and ATMs. Since June, the top four banks In Australia have removed over 2000 ATMs and closed 175 physical branches. 

The physical shift was complemented by a welcome and fundamental shift in the adoption of technologies. Investments into instant payments and account-to-account transfers infrastructure have begun to reap significant benefits as digital payment volumes soar, driven by consumer migration to digital channels. 

  • Traditional operating models are not delivering

Although banks are the primary providers of payments services, most of them do not benefit from digital payment volumes soaring. Traditionally, banks rely on revenue sources other than payments – interest margins on accounts, credit lines, interchange revenues, and cross-border fees. In the current environment, most of those are not delivering and are not expected to rebound soon.

Payments also take up a significant part of banks’ operating cost base, representing up to 40% in some cases. Maintaining outdated infrastructure, managing upgrades, and rationalizing legacy technologies is expensive, and many banks face a significant challenge in the near to midterm if they do not optimize costs. 

S&P Capital IQ; McKinsey analysis

Source: S&P Capital IQ; McKinsey analysis 

Given that payments represent the most frequent interaction between banks and customers, financial institutions need to invest and improve digital infrastructure to remain competitive. Instead of maintaining high outdated payments services and their high ownership costs, banks need to invest in modern platforms to free up capacity to develop new products and enable new customer experiences. 

In the face of market upheaval, banks need to reevaluate their operating models and determine what role payments play in their unique product offering. The only truly negative option is to do nothing. 

  • Options for change

Incremental efficiency improvements to outdated payment systems are no longer enough to maintain the structural advantages banks have in the market. McKinsey believes that banks can reach an acceptable profitability level if they achieve cost improvements upwards of 30%. Different operational models can help banks leverage technology to enable new services such as instant payments and open banking.

Payments as a service

A new generation of payments-as-a-service (PaaS) players allows banks to quickly expand and modernize their existing services using cloud-based platforms. Without high upfront costs, banks can link specialized payments services via APIs to their core banking platforms. They can then seamlessly offer services such as cross-border payments, currency exchange, and payments clearing to their customers. 

This model significantly expedites time to market for new payments products from years to months. PaaS providers continuously work on their services, meaning that banks receive frequent product updates and upgrades without disproportionate maintenance investment. 

Outsourcing 

Banks that don’t have the capacity to invest in a full payments technology stack developed in-house can still offer top-of-the-line services to their customers by outsourcing select services. This approach enables banks to rapidly expand their capabilities and maximize functionality without incurring high in-house development costs. 

Changing the operating business model is difficult but necessary to enable future growth. Given the high opportunity cost of maintaining legacy technology in the current economic climate, banks need to thoroughly evaluate their payment capabilities and how they can improve them.

SDK.finance provides core payment software for banks and financial institutions that allow to build next-generation payment products.

Contact the SDK.finance team directly to learn more about what type of banking software will be perfect for your business needs.

The list of SDK.finance solutions includes Digital Retail Bank, Microsoft Power BI payment dashboards, Voice Banking, Money Transfer, Currency exchange, Wallet Engine, and Event Payments.

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Source: https://sdk.finance/three-key-takeaways-from-the-2020-mckinsey-global-payments-report/

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Lakeba ranks in FT’s High Growth Companies for the second year running

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The annual Financial Times Asia-Pacific High Growth Companies ranking places Lakeba as the fastest growing Fintech in Australia.

“Our no-nonsense approach is paying off,” says Lakeba’s CEO, Giuseppe Porcelli.

Lakeba’s growth is driven primarily by its fintech business portfolio, including eziTECH, Verimoto, ezidox, BRICKLET and Quixxi. Whilst it has 12 businesses in its portfolio, its fintech businesses deliver hyper growth. With the Financial Times also recognising Lakeba as part of Australia’s Top Fastest.

Lakeba’s eziTech Banking as a Service technologies are now being utilised by a growing consortium of organisations in the financial services sector, including some of Australia’s most progressive neobanks.

Verimoto provides remote asset and identification verification for vehicle and asset financing. It posted 170 percent YoY growth in March.

Lakeba’s electronic document curation platform, ezidox, saw significant growth. Fuelled by increased broker usage while COVID restrictions eliminated physical document transactions, and deeper integration in one of Australia’s big-5 banks and their key challenger bank. Its CDR accreditation is already fuelling the growth of ezidox’ development as a data rights intermediary.

Quixxi Security’s patented obfuscation technology is used by one of the biggest US insurers, Allstate Insurance Company; Africa’s Standard Bank Group and some of Australia’s most recognised brands. Increased adoption of 5G and eventual 6G technologies in financial services accelerate the need for Quixxi’s technology.

While Lakeba’s property fragmentation service, BRICKLET, remains unchallenged the world over. Currently limiting fragmentation to Australia, it’s portfolio of property fragments is growing in excess of $45 Million.

“We were quite happy to be the biggest fintech you’ve never heard of. But this two-year consecutive ranking by the Financial Times and Nikkei Asia puts pay to that”, smiles Porcelli.

Lakeba‘s doubling down on recruiting senior financial services executive talent, adding to its appointments of Ubank, Judo Bank, eftpos and Citi Bank executive, Alex Twigg; Goldman Sach’s Frank Zhu and Macquarie Bank’s Telly Desillas. Recently hiring Adrian Valinno, BNY Mellon’s former Digital Transformation Lead.

“It’s really important to us to keep attracting the right talent and challenging the ridiculous notion that fintech shareholders need extreme patience in seeing their returns. Our continuing rate of achievement blows that notion out of the water,” concludes Porcelli.

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Source: https://australianfintech.com.au/lakeba-ranks-in-fts-high-growth-companies-for-the-second-year-running/

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Praemium FUA up, opens Edinburgh office

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The platform has recorded increased funds under administration (FUA) of $37.9 billion as it expands its presence in the UK with the opening of an office in Edinburgh, Scotland.

For the March quarter, Praemium recorded an 11% increase in FUA, and a 96% increase compared to March 2020.

The Australian platform FUA increased 224% on the previous corresponding period to $16.9 billion while the international platform increased 42% to $4.4 billion.

The platform recorded $801 million in net platform inflows with $448 in the Australian platform for the quarter, up 149% on the previous corresponding period.

Praemium has doubled in size over the past year. Despite the pandemic, the past 12 months have been the most transformational in our story thus far,” Praemium chief executive Michael Ohanessian said.

The results follow the opening of a Praemium office in Edinburgh.

To read more, please click on the link below…

Source: Praemium FUA up, opens Edinburgh office | Financial Standard

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Source: https://australianfintech.com.au/praemium-fua-up-opens-edinburgh-office/

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Mambu research reveals global consumers are hesitant to use Open Banking

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A study of 2,000 global consumers released by Mambu, the market-leading banking and financial services platform, revealed that a significant misunderstanding of open banking is hampering its adoption. The Censuswide survey, commissioned by Mambu, found that more than half (52%) of respondents have never heard of open banking and 61% have never used it, in spite of 80% of respondents using one or more mobile finance apps.

“The research reveals the majority of customers don’t understand what open banking is, how it works and what it means for them”, said Elliott Limb, Mambu’s Chief Customer Officer. “But it also reveals they do care about receiving better financial services that support their lifestyles – smart banking. If banks address this need and lack of understanding, it will help banks build customer loyalty and provide genuinely innovative, differentiating, revenue-generating services.”

Kristofer Rogers, General Manager ANZ for Mambu, added, “In Australia, one of the main reasons for the slow adoption of open banking so far is that open banking is built on modern technology, and the Australian banking and financial services industry is not. There’s a huge disconnect, with many established banks simply unable to deliver on the regulatory requirements of open banking with their existing technology – they need to adopt API-first, cloud banking tech to truly embrace open banking. And it’s imperative that we do make progress on this because beyond technology, open banking is ultimately an ideology of creating better financial outcomes for every Australian, and who doesn’t want that.”

Open banking sees increase post-COVID despite consumers being ‘scared’ to use it

Open banking has witnessed an increase in adoption globally as a result of the COVID-19 pandemic, and the research indicates a marked change in attitude and priorities as a result of the crisis. According to our survey, 52% said they wanted more control over their finances. At the same time, 40% said the pandemic had changed their attitudes to privacy and 24% to data sharing. Another boost came from the 41% who said they have had more time for research.

  • I have needed to take more control of my finances (52%)
  • I have had the time to do my own research and understand it better (41%)
  • My attitude to privacy has changed since the pandemic (40%)
  • I’m less worried about sharing data (24%)
  • I have had more time to set it up (40%)

However, existing concerns remain with 48% of consumers claiming they are ‘scared’ to use open banking and 53% still believing that open banking is a dangerous use of data sharing.

“Banks must accept that open banking is still a not fully comprehended phenomenon so this is the starting point,” said Dmitrii Barbasura, CEO and Co-Founder, Salt Edge, a Mambu partner. “We believe they need to invest time and effort in educating customers about the new possibilities they get access to, and also inform them about their rights and the high safety level covered by open banking.”

Change the Record

Demonstrating the opportunity for open banking, the survey revealed that 57% said they would be more likely to use it if their bank had more successfully implemented and promoted it.

When exploring further what consumers want from open banking, the survey shows that nearly half of respondents want instant digital money transfers; more than a third want aggregated bank balances at a glance; a third want tips on better money management and a quarter want money-saving suggestions for their bills.

  • Instantly transfer money between different accounts (48%)
  • See different account balances together at a glance (38%)
  • Help boost my savings automatically calculating spending patterns and moving spare money into savings or investments (36%)
  • Receive helpful hints about better money management (34%)
  • Receive one overall monthly bank statement (34%)
  • Allow access to banking data to receive automatic suggestions about money saving on bills and insurance (26%)

This is the first study of Mambu’s newly launched research series, Disruption Diaries. The series seeks to understand what customers think of the key trends driving the development of the financial services industry, in an effort to identify opportunities for banks and others. The full report on open banking can be found here: Let’s talk openly.

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Source: https://australianfintech.com.au/mambu-research-reveals-global-consumers-are-hesitant-to-use-open-banking/

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Zip Co raises $400 million for international expansion

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Zip Co (ASX: Z1P) has priced $400 million of senior convertible notes to fund expansion into new regions on the back of major growth in the US.

Co-founder and COO Peter Gray says the move will keep shareholders happy, with the notes set to mature in 2028.

“We are very pleased with the strong global demand for this offering,” says Gray.

“This transaction further diversifies Zip’s sources of capital and allows us to pursue our global growth aspirations while reducing potential dilution of existing shareholders. Another fantastic outcome for Zip and its shareholders.”

The $400 million in convertible notes mirrors the approach recently taken by buy-now pay-later (BNPL) competitor Afterpay (ASX: APT).

However, Zip’s latest raise doesn’t come close to the whopping $1.5 billion secured by Afterpay’s settlement of convertible notes due in 2026.

The offering is being marketed to eligible investors and the notes are set to be listed on the official list of the Singapore Securities Trading exchange. Settlement is expected on or about 23 April 2021.

To read more, please click on the link below…

Source: Zip Co raises $400 million for international expansion

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Source: https://australianfintech.com.au/zip-co-raises-400-million-for-international-expansion/

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