As more startups penetrate the $1.5 trillion global payments market with free services, banks could lose as much as $280 billion in revenue by 2025, according to an Accenture report and press release circulated on Monday (Sept. 16).
Financial institutions currently control the international payments sector — anticipated to reach $2 trillion globally by 2025 — but startups will continue to crowd the market, taking 15 percent of banks’ revenues, Accenture said in the report.
“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.”
The “Banking Pulse Survey: Two Ways To Win” was based on a revenue-risk analysis quantifying shifts in both consumer and merchant behavior as well as new technology and changing regulations. In addition to Accenture’s research, 240 bank executives across 22 countries were surveyed about their plans to capitalize on digital disruption.
“The digital boom will mean banks have to fundamentally change the way they think 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.”
Free transactions are expected to put 8 percent of payments revenue at risk, according to the report. In addition, instant payments and app-based virtual wallets will jeopardize 3.9 percent of bank revenues. Card displacement is projected to risk another 2.7 percent of payment revenues.
Traditional financial institutions will have to find alternative ways to innovate as digital disruption plays out across a host of industries and corporate treasury functions become more global and complex. Improved APIs, the increase of mobile payments, improved onboarding technology and cloud computing all play a role as more businesses deal directly and more often with individual consumers.