Banks confront billions in lost payments revenue

  • By Christine St Anne

Australian banks risk losing as much as 14 per cent or US$3 billion in five years’ time with the growth of digital payments and competition from new entrants and non-banks. 

A report by Accenture has branded a new trend in payments into an acronym, IIF - instant, invisible and free and adds this trend will drive banks to rethink their payments businesses. 

The global consultant predicts that payments revenue in Australia will grow at an annual rate of 3.7 per cent from US$18.7 billion in 2019 to more than US$3 billion in 2025. 

The report also showed that global payments revenue will likely grow to more than US$2 trillion by 2025 from US$1.5 trillion in 2019, creating a US$500 billion opportunity for banks around the world.

The report also included a survey of 240 retail and corporate payments executives globally and found that 40 percent see payments as already being instant and another 38 percent say that payments will become instant over the next 12 months.

On average, 77 percent of respondents agree that payments are generally becoming more invisible as they are progressively included into third-party apps or devices, such as wearables, digital wallets, IoT devices and smart contracts. 

Seventy-three percent believe payments are already invisible or will be so over the next 12 months – Uber already leading this trend in the way consumers pay for its services. 

Seventy-one percent surveyed also agree that payments are becoming free

The payments market is booming and there’s a multi-billion-dollar opportunity for those willing to invest in new technologies and business models based on the new digital landscape ahead

According to Accenture Australia and New Zealand banking lead Alex Trott, banks need to change their business models to adopt the latest technologies and focus on providing value-added services to customers will capture a share of the US$4.6 billion in incremental revenue growth. 

Here the report cites a number of ways banks are trying to “build-off that money-making moment”. 

Firstly, banks are looking at customer-centric value-added services. For example, BBVA and other banks are launching apps for ordering ahead and paying through the app. 

Open banking is also driving the impetus for change. The report found that 17 percent of bankers establishing internal start-up incubation units that are isolated from legacy processes to  boost innovation will be the main priority for banks. 

Indeed it was only this week when the Commonwealth Bank launched a new venture capital initiative

Banks are also eyeing data monetisation either through selling raw data or delivering actionable insights.  

The report found that already 20 percent of banks monetise data delivering these actionable insights and 75 percent aspire to do so in the next three years. 

However, customers’ data protection concerns (14 percent) and operational complexity (13 percent) are the top barriers to monetising customers’ data.

“The world of instant, invisible and free payments is here to stay, squeezing margins further on a business that was already feeling a lot of pressure from new competition,” Trott said. 

“The payments market is booming and there’s a multi-billion-dollar opportunity for those willing to invest in new technologies and business models based on the new digital landscape ahead. 

“Banks lagging behind risk being relegated to the plumbing of payments.”

Closer to home, Trott sees CBA's recent partnership with Klarna as being a significant move and sends a signal to the marketplace about the future of banking, "in which we will see new business models, structures and ways of banking in response to new market entrants and evolving consumer expectations". 

Going forward, Trott says the industry is likely to see more banks partnering with fintechs, and vice versa. 

“The fintechs can access the scale and growth; and the banks the innovation and agility to deliver truly customer centric products and services.

“Ultimately, this is an exciting proposition for the market, and for Australian consumers.”

RFi Group research has also found growing interest in new ways to make payments. Consumers are starting to use in-app transactions and while mobile wallets have had a slower take up in Australia compared to other markets – due to the use of contactless payments – there is also growing interest and use in mobile wallets. 

The report also noted that FX payments is another booming area. For example, the flow of money between individuals across national boundaries totaled $689 billion in 2018, benefitting companies such as Western Union and Moneygram but also creating an attractive market opportunity for new entrants, like Transferwise.