- Rising consumer spending during the summer vacation will fuel stronger demand for payment services
- Revenue of leading players, driven by cross border transactions and VAS, will outgrow the industry average
- Partnerships with B2B platforms will bring new TAM and further boost revenue prospects
- We prefer names with a global presence, diversified revenue mix, and resilience against economic downcycles
Summer spending to fuel consumer payments. Payment volumes in the US are poised for growth in 2H24, fuelled by an increase in summer spending. According to a recent market survey, US consumers will increase their summer spending across numerous categories, especially on vacations and travel. Millennials and Gen Z are expected to lead this summer’s getaway spending spree, with some 30% stating that they plan to spend more over the next few months compared to a similar period a year ago. This trend will include higher cross-border transactions, driven by longer trips and higher budgets compared to previous years. We expect industry leaders, which will deliver double-digit revenue growth, to outperform their peers in 2024, as they continue to benefit from the expansion in global partnership and scaling up of value-added services (VAS).
Commercialising the untapped B2B payments market. The B2B segment, regarded as a new revenue driver, reflected an encouraging growth trajectory in 1Q24. This was achieved via the issuance of commercial cards, and an expansion of partnerships between B2B platforms and intermediaries in areas such as the travel space. Against this backdrop, the B2B segment is fast emerging as a new growth lever, where the total addressable market is 10X greater than consumer payments. Its larger and more complex transactions, in contrast with that of merchant payments, offer a significant revenue potential and longer growth runway. As current B2B payments are highly manual and fraught with antiquated processes, leading payment providers are likely to gain market share. This is achieved by integrating accounting systems and standardising user data to deliver cost savings such as straight-through processing for payables/receivables, daily accounting entries, cash-flow projection, and reconciliation between suppliers and customers.
We prefer names with a higher cross-border mix, leading positions in the B2B payment market, and lower sensitivity to economic downcycle. We expect the payment industry to maintain a robust growth momentum, driven by 1) secular growth in payment services on rising volumes, especially in cross-border transactions and B2B payments; 2) expansion in partnerships and penetration into new payment categories; and 3) scaling up of VAS revenue. We therefore prefer payment providers that have 1) a global presence which enables them to ride on digitalisation and e-commerce trends; 2) a higher revenue mix towards cross-border payments; 3) rising contribution from VAS revenue; and 4) lower sensitivity to economic downcycle and rising credit costs.
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