Every year, the global payments ecosystem descends on Las Vegas for the Money 20/20 conference, bringing together banks, pure payments players, tech firms, and fintechs, among others. It’s a great opportunity to take the pulse of the industry, and at this year’s conference, which took place at the end of October, we saw and heard about the big themes that are top of mind for many of the participants. Our five main takeaways:
- The mood is lifting
The past couple of years have been a turbulent and challenging environment for many in the payments industry, especially fintechs, as investors pulled back. Overall funding for fintechs peaked in 2021 at $92.3 billion, capping a period of hypergrowth, only to fall back sharply in 2022 and 2023 to $55.1 billion and $30 billion respectively, on the backs of rising interest rates and deteriorating macroeconomic conditions, along with geopolitical shocks and concerns about an overheated market. While funding from both venture capital and private equity is still below those levels at $23.7 billion annualized, valuations have bounced back for many fintech subsectors. That rebound was palpable in Las Vegas. Whereas a year ago we saw hesitancy and nervousness about the longer-term health of the sector, this year the mood at the conference was much more bullish. Of course, some will face difficult choices, including those who raised money at valuations during the boom that are harder to justify based on current unit economics, increased competition, and slowing growth. But increasingly, we sense a return to cautious excitement and more positive investor interest that is likely to play out in coming months.
- Cross-border payments is a growing theme
For payments providers, cross-border transactions have long been the new frontier, but a challenging one to cross, one that requires the infrastructure but also the know-how to manage risk and regulatory stipulations including local KYC rules. While the United States has a very advanced national payments market, cross-border payments remains an area rife with painful customer experiences and a lot of fragmented options with a wide range of costs. In Las Vegas this year, we heard a lot of new talk about cross-border and how to make it a better experience—and picked up considerable energy around tech and business model innovation to make that happen. Some fintechs and non-bank players are putting in place new infrastructure to help them scale, but we also heard from more traditional banks that they, too, are thinking about cross-border payments and starting to fight back.
- Data and value creation are all the rage
AI and its newest offspring, generative AI (gen AI), was a big topic in Las Vegas. No surprise there: is there any industry conference anywhere at which the subject doesn’t loom large these days? AI has actually been a perennial topic for some time in the payments space, particularly for non-customer-facing aspects such as transaction security and identity fraud. Gen AI is helping to catalyze a refocusing on the potential uses that can help create value, including smarter analysis of spending patterns that can inform personalized offerings, shopping, and rewards programs. For now, the use cases we are mainly hearing about are internal processes that players are experimenting with, such as those around customer service, sales productivity, and report generation. And the operative word here is “experiment”— a lot of things are being tried and, while there is an overwhelming sense of opportunity, there’s less clarity about what will stick.
- Incumbents are innovating
When the funding boom was in full swing, much of the buzz was about start-ups and disruption. Now we are seeing traditional banks and infrastructure providers putting a focus on innovation. Some of the innovations they are eyeing are not actually that new, for example buy now, pay later (BNPL) offerings or leveraging AI for fraud prevention. But that’s the point: what may have been too new and too risky for cautious incumbents five years ago has stood the test of time and is therefore of increasing interest. Among the topics we heard incumbents discussing was stablecoin, a type of cryptocurrency whose value is pegged to another asset. In the go-go years of Web3 hype, traditional banks steered clear. Now they are discussing it.
- Open banking, anyone?
Finally, we heard quite some talk about open banking, still a nascent area in the United States, but one that is starting to get attention. The timing was right, as the Consumer Finance Protection Bureau has just finalized a rule to implement Dodd-Frank Act Section 1033, which establishes a regulatory framework governing open banking in the United States. Once implemented, it will set new regulatory requirements on both depository and non-depository institutions, as well as tighten security around data sharing. Under Section 1033, consumers will gain access to their personal information held by their financial services provider.
Open banking has gained traction in some other countries, notably the United Kingdom. Essentially it allows financial data to be shared among an expanding universe of players who can offer new products and services. For customers, it provides greater flexibility in how their money is managed. In the United States, some players have made progress on pay--by bank payments, although this has not to date garnered strong consumer adoption. But discussions on the risk and regulatory environment for building this out are taking place and were visibly present in Las Vegas.
In short, this year’s Money 20/20 was an invigorating few days, with plenty of evidence that the mood is changing and innovation with an eye on value creation is again very much in the forefront.
The authors would like to thank Matthew Rubin for his contribution.
Marie-Claude Nadeau is a senior partner in McKinsey's San Francisco office, and Roshan Varadarajan is a partner in the New York office.
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