Startups muscle in on banks’ traditional territory
Global payments business expected to grow to $2-trillion annually as banks predicted to lose out to competitors
London — Banks are set to miss out on as much as $280bn in revenue from their payments operations by 2025, as new start-ups muscle in and more of the business of sending money to individuals and companies becomes instant and free, according to a new report.
The global payments business, which covers anything from card payments to wiring money overseas, is dominated by banks and in 2019 was worth about $1.5-trillion, professional services firm Accenture said in a report published on Monday.
That is expected to grow to $2-trillion globally by 2025 but banks are likely to lose out on $280bn, or 15% of their global payments revenues, Accenture estimates.
Banks face rising competition from tech start-ups such as Silicon Valley payment providers Stripe and Square, as well as technology platform PayPal and London-based TransferWise that offer foreign exchange payments to retail and small business customers with lower fees.
More payments are becoming instant — removing the need for credit cards that earn banks revenue — and they will be made directly to the end merchant using new technology, Accenture said. More competition also means a squeeze on margins and accelerates the trend towards free payments.
“Rather than being at the forefront of the new wave of the booming payments market, banks are feeling the heat from new competition and seeing their margins squeezed,” said Gareth Wilson, head of Accenture's global payments team.
“We face an inevitable world of instant, invisible and free payments, which spells trouble for banks that don't want to be relegated to the plumbing of payments.”
Accenture said it had examined trends in how consumers pay and projected changes in the future behaviour of payments providers, technology and regulation to arrive at its forecasts on the likely loss of revenue for banks.
It estimated that free payments would put 8% of banks' payment revenue at risk. A further 3.9% is at risk from nonbank rivals offering “invisible payments”, while instant payments could take another 2.7% of revenues.
More than two-thirds of banking executives surveyed by Accenture agreed that payments were becoming free.
“The digital boom will mean banks have to fundamentally change the way they say about their revenue composition,” said Alan McIntyre, who leads Accenture's banking practice.
“Channels that once made the banks billions of dollars will cease to exist,” McIntyre said, adding that lenders needed to build new digital business models, with “one-click payments the new norm”.