SUBSCRIBE | EXPAND | HOME | QUARTERLY

Posted Thursday November 28, 2019


___________________________
Financial

North American Banks Risk Losing $88 Billion in Payments Revenue by 2025, According to Report

More than 90% of at-risk payments revenue attributable to U.S. banks; The report notes that the impact of consumer demand for rewards has squeezed payments revenue, with spending in loyalty and rewards by the top five U.S. card issuers jumping from $11 billion in 2010 to $31 billion in 2018.

As much as 15% of North American banks' payments revenue — $88 billion — is likely to be displaced by the growth of digital payments and competition from non-banks, as payments become more instant, invisible and free, according to a new report from Accenture. Of the $88 billion, approximately $82 billion is attributable to U.S. banks and $6 billion to Canadian banks.

Titled "5 Big Bets in Retail Payments in North America," the report is based on a revenue-risk analysis model that Accenture developed to measure trends in how consumers pay and projected changes in merchant behavior, technology and regulation. The research is complemented by a survey of payments executives at the 50 largest U.S. and Canadian banks by revenue to determine how they plan to mitigate and capitalize on the disruption in payments to grow customer loyalty, revenues and profitability.

The report found that while payments revenue among North American banks is slowing, it will likely grow at a compound annual rate of 4% over the next half-dozen years — from $322 billion in 2019 to $405 billion in 2025 for retail payments (see Figure 1), and from $505 billion in 2019 to $653 billion in 2025 for retail and commercial payments combined. Only banks that change their business models to adopt the latest technologies and transform the customer experience will capture a share of the nearly $150 billion in incremental revenue growth, according to the report.

"As retail payments facilitation become increasingly commoditized, customer experience is the new driver of brand value and competitiveness," said Andrew McFarlane, Managing Director – Payments and Global Open Banking, at Accenture in Canada. "With new entrants introducing instant and invisible payment options, combined with pricing compression, banks that are unable to shift to new business models and continually innovate face a future of revenue loss and diminishing relevancy."

The research confirmed industry awareness of the threats posed by new players in payments. Six in 10 (60%) of the banking executives surveyed believe they will lose up to 15% of payments revenue in the next three years to non-banks, fintechs and other competitors. When asked to identify the primary challenge to their business, nearly two out of five (38%) respondents cited competition from big technology companies, and one-third (34%) cited competition from fintechs. Payments fintechs in North America attracted nearly $11 billion through more than 800 deals between 2016 and 2018 alone, according to the report.

The surveyed executives also acknowledged the challenges brought on by new technologies in payments. Six in 10 (61%) said they believe that payments are becoming free; nearly three-quarters (73%) believe that most payments are already invisible or will become so over the next 12 months; and even more (78%) said that payments are either already instant or will become instant over the next 12 months.

The report notes that the impact of consumer demand for rewards has squeezed payments revenue, with spending in loyalty and rewards by the top five U.S. card issuers jumping from $11 billion in 2010 to $31 billion in 2018. Pressure on traditional revenue models, eroding fees and increased competition will force banks to invest in value-added services to drive economic performance. Bank executives cite next-generation reward schemes and embedded payments capabilities among their priorities for generating new payment revenue, according to the report.

"Payments is North America's largest fintech segment, and while banks continue to ponder whether fintechs are friends or foes in retail payments, in most cases the answer is both," McFarlane said. "Banks need to determine which fintechs they want to beat, buy or join. Banks that don't collaborate with fintechs will likely fall behind in customer experience, innovation and agility."

Hampered by legacy systems, bank executives understand that implementing digital technologies will be essential to support innovation and efficiency. One-quarter (24%) of respondents cited artificial intelligence, robotics, machine learning and innovative payments hubs as the key platform technology capabilities they need to adapt their core systems in order to shift to high-speed and continuous payment flows.

About the Accenture 2019 Global Payments Survey
As part of a broader online survey of 240 payments executives in nearly two dozen countries, Accenture queried 50 retail and corporate payments executives at the 50 largest U.S. and Canadian banks by revenue. The survey was conducted between Feb. 14 and March 10, 2019. The overall margin of error is +/- 1.55 percentage points at the midpoint of the 95th percentile confidence level.









exchangemagazine.com is distributed twice weekly; Tuesday and Thursday


Not a Subscriber? Receive more articles on business issues
Sent directly to your email in-box.


contact us

Publisher is Exchange Business Communication Inc.
No part of this article may be reproduced without written permission from the publisher.
Email Publisher

ISSN 0824-45
Copyright, 2019

Share Your Story: pressrelease @ exchangemagazine.com
Expand Your Reach:
advertise @ exchangemagazine.com
Publisher: Exchange Business Communication Inc., PO Box 248, Waterloo, Ontario, Canada
Email Editor

Content published on this site represents the opinion of the individual, organization and/or source provider. Exchangemagazine.com is a online daily journal of Exchange Business Communication Inc. (1997) Publishers of Exchange Magazine est. 1983. Privacy Policy. Copyright of Exchange produced editorial is the copyright of Exchange Business Communications Inc. 2019. Submitted editorials, comments and releases are copyright of respective source(s).