2022 Cards and Cross-border Travel Spend Review
2022 was a year of rapid recovery and innovation in International Card Payments. Competition for top-of-wallet and changing customer preferences mean that the market is changing faster than ever, particularly where it comes to cross-currency card spend. As we look ahead to 2023, International Card Payments will play an increasingly important role in driving customer preference and Issuer profitability.
In this article, our experts recap the key trends of 2022 and what lessons Bank & Fintech Issuers can take into their 2023 planning.
Our experts identified three key trends in International Card Payments in 2022:
1) Recovery and continued growth in cross-border card spend beyond pre-pandemic levels.
2) Popularity of multi-currency wallets rising in Europe
3) Operational challenges are hindering the deployment of multi-currency wallet products.
2022 has been a year of recovery for International Card Payments. As we look ahead to 2023, it will be important for card issuers to consider these trends and identify opportunities to unlock more value.
Key Trend #1: Recovery and Continued Growth of Cross-border Payments:
The travel industry has experienced a rapid recovery this past year as countries reopened borders and lifted travel restrictions. In November, total air traffic, measured in Revenue Passenger Kilometres, increased by 41.3% year-on-year (YoY) with international traffic rising 85.2% versus November 2021, driven principally by European consumers. Excluding Asia-Pacific tourists, Global Cross-Border traffic is now above pre-pandemic levels.
This recovery in international travel has driven a significant increase in cross-border spend. Travel spend has been the key driver of this rebound. Visa & Mastercard have reported an average year-on-year growth in cross-border travel spend of 37% and 38% respectively. This has been supplemented by the continued growth in international eCommerce spend which grew by an average of 12% at both Visa & Mastercard. These two factors mean that cross-border card spend recovered to pre-pandemic levels earlier than expected, reaching 132% and 135% of pre-pandemic levels in September.
Vasant M. Prabhu of Visa stated “There is a huge amount of interest in traveling to Europe and significant interest in Europeans traveling out of Europe. So, Europe has been also recovering very fast and is indexing at pretty high levels relative to pre-COVID volumes”.
Visa & Mastercard forecast continued growth in cross-border spend in 2023. Particularly as consumers currently consider travel to be their highest priority for discretionary spend. 42% of survey respondents made travel a high priority in 2023 (vs. 27% for restaurants, 25% for fashion and 20% for big ticket items such as new cars). For these consumers, the average spend on International Travel next year is expected to be ~US$2,670. This is a significant opportunity for Banks & FinTech’s to capture this spend on their card programmes and differentiate themselves vs. their peers, particularly as 73% of travellers are now more likely to pay attention to FX fees and costs associated with international travel.
The key learning for Banks & FinTech’s is that Travel and Cross-Border Card Spend will continue to be a key driver of activity in 2023. The importance that consumers place on this activity means those providers that create innovative customer experiences that simplify and enhance the cross-border spending experience will be rewarded in 2023 and beyond.
Key Trend #2: Popularity of Multi-Currency Wallets is rising across the EU:
The rise of multi-currency product offerings is evident in FX & International Payments where over 29% of European fintech’s already offer multi-currency functionality to customers and 75% of the EU’s leading digital banks some form of FX innovation. As a result, companies offering multi-currency wallet services are becoming increasingly important in the cross-border space and are likely to see significant growth in the coming years.
The popularity of multi-currency wallets is on the rise across the European Union with 48% of travellers more likely to choose a pre-paid debit card that holds multiple currencies over other payment methods. Multi-currency wallets allow users to store and manage multiple currencies in a single account, making it easier for consumers to control costs and better understand fees associated with cross-border card transactions.
This is particularly important as 73% of travellers are now more likely to pay attention to FX fees and costs associated with travel This trend is being driven by several factors, including the growth of the digital economy, the increasing number of people travelling and conducting business across borders post Covid-19 and greater awareness of new cross-border card propositions.
Over the past decade, the way consumers access foreign exchange has evolved significantly. These changes have brought new features and more favourable pricing for cross-border card purchases, currency exchanges, and international money transfers. Multi-currency functionality for payment card programmes have played a key role in driving these innovations in the foreign exchange market, targeting three different types of customers:
Expatriates,
Internationally Mobile Spenders, and
Everyday Spenders.
Expatriates primarily transact in one or two currencies and remit funds to family in a different currency to their domestic currency. Low-cost remittances and the ability to bank in multiple currencies are key to this segment. Internationally mobile customers have both daily payments and regular bank payment requirements across multiple countries and currencies, leading to higher discretionary expenditure.
Lastly, Everyday Spenders typically take one holiday per year in a foreign currency and make a small number of eCommerce purchases in a different currency, for example when purchasing gifts or products that are not readily available domestically.
Given the popularity of multi-currency wallet services and the increased attention that consumers are paying to FX fees and costs, Banks & FinTech’s need to invest in their product propositions to simplify cross-border card payments. This evolution is underway and being led by the Fintech sector where Alex Reddish of Tribe Payments noted that “Fintech has raised the table stakes for card programmes significantly over the last few years. It started as a pre-paid card, became a payment account, and then a multi-currency product".
The key learning for Banks & Fintechs for 2023 is that customers increasingly expect improved cross-border payments functionality and will be more aware of bank charges and FX costs than ever before.
Key Trend #3: Operational challenges are hindering the deployment of multi-currency wallet products
Multi-currency wallets introduce new operational challenges for Banks & FinTech’s. This theme was apparent at Money2020 Europe this year, with Banks & Fintechs highlighting operational difficulties in both deploying and managing multi-currency wallet programmes. Participants frequently cited difficulties in managing multi-currency back-office systems & processes, particularly with regards to daily reconciliation management and financial settlement and reporting.
Our research has found that Banks & FinTech’s deploying multi-currency solutions follow two paths:
Remain in single currency settlement, or
Move to multi-currency settlement.
Single currency settlement simplifies settlements and reporting, but results in reconciliation challenges and incurs increased costs where customers transact directly from multi-currency wallets. These costs can amount to ~1.5% of card transactions. Moving to multi-currency settlement eliminates these costs and simplifies the reconciliation process but creates settlement and reporting challenges.
These challenges can make it difficult for Banks & Fintechs to deliver the products that meet their customer’s requirements in an efficient manner. However, as the prior two trends identified, International Travel is increasing, and customers expect better functionality for cross-border card payments. Banks & FinTech’s will have to invest in card propositions that deliver on that customer demand and maintaining reliable reporting and reconciliation services will be essential for maintaining compliance and financial controls. Banks & Fintechs can either build in-house capabilities or develop partnerships with relevant market participants to solve these challenges.
The key learning for Banks & Fintechs in this trend is that there are complications and trade-offs in the deployment of multi-currency functionality. Seeking support from 3rd party experts can greatly increase speed to market and ensure your multi-currency card propositions operates from a robust foundation.
2023 Outlook:
The 3 key trends identified in 2022 are highly likely to continue into 2023, with travel spend continuing to outgrow pre-pandemic levels, e-commerce remaining a significant component of cross-border card spend, and competition in the market focusing on travel and foreign exchange-related features and functionality. As the global economy continues to recover, consumers and businesses are expected to continue increasing their cross-border card spend, with growth across all categories of spend.
This will provide opportunities for card issuers to capitalize on this growth and put their longer-term plans in place to support and drive further growth in this important segment of card spend. Additionally, the ongoing focus on pricing transparency is likely to continue to change consumer behaviours and drive competition in the market. Card issuers will need to be strategic in their approach to pricing and offer clear and transparent information to consumers in order to remain competitive and attract and retain customers.
References:
1) The International Air Transport Association (IATA)
2) Visa Business and Economic Insights, Global Travel Insight, Visa.com/Economicinsights
3) Visa Fiscal Third Quarter 2022 Financial Results
4) MasterCard Incorporated Third Quarter 2022 Financial Results Conference Call presentation
5) “Consumers to prioritize travel spend supported by fintech services”, an Amadeus study