Beyond ecommerce, there are some industry sectors where alternative payments are thriving, including video gaming and elearning.
In Europe, APMs account for nearly two thirds of video game payments. They tend to provide simplicity and better conversion rates for merchants.
The speed, low cost and security of open banking payments make them increasingly popular payment options in igaming and wealth management.
There are more than 3.2 billion video gamers worldwide and global revenue for the industry is projected to hit $300 billion by 2026, growing at a compound annual growth rate (CAGR) of 11%. This is driven by a mixture of social trends and high-tech breakthroughs.
Mobile gaming has been a heavy hitter, making up 45% of global revenue in 2021, followed by console games (28%) and boxed/downloaded PC games (19%). In 2021, Europe accounted for 13% of the total global revenue, represented mainly by the bigger markets: Germany, UK, France and Italy.
Gaming companies typically generate revenue from the following functions with both one-off and recurring payments:
selling the game (boxed or downloaded) itself to the consumers
downloadable content (DLC)
in-app or in-game purchases
Free-to-play is also a common business model where gamers can download the game for free but are encouraged to pay for enhancements, such as additional lives, cosmetic upgrades (skins), an ad-free experience or unrestricted playing time. Microtransactions, or small in-game purchases, make up a large proportion of gaming sales.
In Europe, alternative payments make up nearly two thirds of video gaming purchases.
Digital wallet payments alone accounted for 30% of the payment mix in 2021 and are expected to increase to 35% by 2026.
Digital wallets are convenient for gamers as all payments are stored in one place so they can quickly pay for their game and get back to playing. Prepaid/gift cards are also popular, mostly for budgeting and security reasons.
The iGaming market, including virtual casinos and sports betting, is expected to grow at a compound annual rate of 11.5% in the next five years, reaching $127 billion by 2027.
Growth has been driven by increased digitalisation, mobile phone adoption, easy access to casino gaming platforms, increased investment in technology and improved game quality. In most countries, mobile users account for about 80% of all users.
Geographically, Europe is the largest market, making up over 50% of gross gaming revenue. Europe is set to grow in the iGaming space thanks to high availability of sites, a wealthy population, cross-border collaborations and a favourable regulated market.
Cross-border collaborations have driven investment in this sector in an attempt to grow cross-border gambling for players and to allow operators to share liquidity.
In terms of deposits made from consumers to gambling merchant accounts in Europe, Edgar, Dunn & Company expects the total share of digital wallet usage to increase from 42% in 2021 to 50% in 2026, while total share for all other payment methods will slightly decline.
In several European markets like the UK, iGaming operators are banned by regulators from accepting deposits by credit card because of the potential for vulnerable players to fall into debt.
How are open banking payments developing?
Open banking payments are gaining traction in iGaming since they enable players to instantly deposit funds and operators to verify ownership of the bank account, reducing fraud. Open banking also supports operators with their safer gambling programmes: enabling them to more easily identify and manage at-risk players.
European iGaming operators who enable players to pay in and withdraw money through open banking, include Flutter, Aspire Global, White Hat Gaming and Casumo.
The elearning industry has seen growth of 12% annually over the last 20 years and this trend is likely to continue over the next five years. Edgar, Dunn & Company estimates the market to grow at a CAGR of 13% to reach $286 billion by 2026 (excluding corporate and government use).
As well as the advent of new technologies like artificial intelligence, virtual reality and cloud-based learning management systems, which improve the content of elearning, the prevalence of distance learning and closure of schools and universities during the pandemic are key drivers for growth.
Mobile learning is expected to experience substantial growth in developed and emerging markets as smartphone penetration increases.
North America has the largest market share, followed by Europe. Together they make up about two thirds of the total market. However, APAC is expected to have more than 20% growth over the next five years, higher than any other region. The UK and Germany are the market leaders in Europe, accounting for about 50% of the European elearning market.
The use of digital wallets and bank payments for elearning purchases is expected to increase from 49% in 2021 to 57% in 2026, while payment cards will slightly decrease from 39% to 37%.
The global wealth management market size is expected to grow at a CAGR of 11% to reach $2.3 trillion by 2026.
Increased demand for alternative investments such as commodities, real estate investment trusts (REITs), intellectual property and cryptocurrencies, along with the adoption of advanced technologies such as chatbots, AI, and big data analytics, are key driving forces of growth.
The crypto market has become increasingly attractive to investors and wealth managers including big banks like JPMorgan and Goldman Sachs, which are now allowing wealth management clients access to cryptocurrency funds. According to CoinShares, the total value of digital assets under professional management was about $40 billion in July 2021, compared to less than $7 billion a year ago.
COVID-19 has encouraged the digitalisation of investment services. Digital investment platforms such as Betterment, Wealthfront, Nutmeg and Freetrade are expected to grow their assets under management (AUM) in the coming years. As a faster and cheaper alternative for advice on asset management, robo-advisors are particularly popular among younger generations.
Europe, the second largest region behind North America, accounts for about 25% of the global wealth management market. Environmental, social and governance (ESG) initiatives and geopolitics have been focus areas for investors and wealth managers in Europe. Many businesses across the region are increasing their offerings of ESG-compliant sustainable investments.
While the regulatory focus on client protection and financial sustainability may create challenges for wealth managers in Europe, it also provides opportunities for differentiation.
The most common pricing model involves charging a percentage of AUM, which may be automatically deducted.
Of the fees not automatically deducted, Edgar, Dunn & Company expects 95% of them are paid via bank transfers, and that will continue to be so in the coming years. However, these deposits are increasingly coming from open banking payments, particularly in retail investment.
How are open banking payments developing?
Open banking payments have quickly gained momentum in wealth management because card fees are high, and traditional bank payments present operational issues and a poor user experience.
In the last two years, a number of European and UK digital wealth managers and trading platforms like Nutmeg, Freetrade, Stake, Revolut, HeyTrade and Trading 212 have adopted open banking payments as one of their major deposit methods, with Freetrade reporting 70% of all new deposits being paid this way.