Railsbank news round-up: North American banks to lose $88bn in payments revenue?

December 3, 2019

 

 

A brief look back at week 48 at some of the news that’s not always picked up. 

 

 

 

North American banks to lose $88bn in payments revenue?

 

A new report has suggested that as much as 15% of North American banks' payments revenue - $88bn - is likely to be displaced by the growth of digital payments and competition from non-banks, as payments become more instant, invisible and free.

 

The report, from Accenture, goes on to say that of the $88bn, some $82bn is attributable to US banks and $6bn to Canadian banks.

 

Entitled "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 US and Canadian banks by revenue to determine how they plan to mitigate and capitalise 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 $322bn in 2019 to $405bn in 2025 for retail payments, and from $505bn in 2019 to $653bn in 2025 for retail and commercial payments combined. 

 

The report concluded that only banks that change their business models to adopt the latest technologies and transform the customer experience will capture a share of the nearly $150bn in incremental revenue growth. 

 

The research confirmed industry awareness of the threats posed by new players in payments. Six in ten 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 respondents cited competition from big technology companies, and one-third cited competition from fintechs. Payments fintechs in North America attracted nearly $11bn through more than 800 deals between 2016 and 2018 alone. 

 

"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."


 

Sufficient cyber security needed

 

Financial services must ensure sufficient cyber security to cope with the growing speed of change.

 

So said KPMG cyber security practice leaders. They told a roundtable that they believe financial services firms are demonstrating a commitment to trust through their cyber agendas. That amidst accelerating technological disruption, actively managing customer trust is presenting new revenue opportunities and challenges for financial institutions.

 

The backdrop is that the explosion in open banking models, cloud and managed service providers, is placing strain on traditional control and compliance functions

 

Henry Shek, partner, Head of Cyber Security and IT Advisory Risk Consulting, KPMG China, said: "In the rush to provide a superior customer experience, financial services organisations are embracing robotics, AI blockchain and real-time data analytics. However, they must keep a close eye on fraud and be aware of ever-changing fraud scenarios. Cyber criminals are already using new and advanced methods to manipulate security weaknesses, which means that traditional security and protection mechanisms may not be sufficient to deal with AI and advanced technology-enabled attacks."

 

It was highlighted that financial services organizations are competing not only with their traditional peers, but also with an increasing number of agile, digital disruptors such as virtual banks. 



 

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