As much as 14% of Indian banks’ payments revenue, or US$9 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.
The report found that payments revenue in the country will likely grow at an annual rate of 10.7%, from US$38 billion in 2019 to more than US$70 billion by 2025. Only banks that 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$32 billion in incremental revenue growth.
Titled “Banking Pulse Survey: Two Ways To Win,” 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 240 payments executives at banks across 22 countries to determine how they plan to mitigate and capitalize on the disruption in payments to grow customer loyalty, revenues and profitability.
The report showed that global payments revenue in all markets surveyed will likely grow to more than US$2 trillion by 2025, creating a US$500 billion opportunity for banks in those countries.
Rishi Aurora, a Managing Director at Accenture who leads its Financial Services practice in India, said, “With the digital boom as payments become more instant, invisible and free, banks need to reinvent themselves to grow customer loyalty, revenues and profitability. To succeed in the post digital era, banks need to redefine innovation strategies around scaling technology and adding value to address the payments challenges.”
The report notes that over the next six years, banks will face further pressure on income from card transactions and fees, with free payments putting 8.4% of payments revenue at risk in India. In addition, competition from non-banks in invisible payments — where payments are completed in a ‘virtual wallet’ on a mobile app or device — will put 3.6% of bank revenues at risk. Card displacement by instant payments, where funds are settled and transferred in real-time and banks make little to no interest, is projected to put an additional 2% of payment revenues at risk.
This builds on current declines in income from card transactions and fees, with regulation triggering fee compression and technology displacing the role of banks in payments. Already between 2015 and 2018, revenue from business customer credit card transactions dropped 33% globally, revenue from consumer debit card transactions dropped nearly 15%, and revenue from credit cards dropped almost 12%.
The research found that the industry is aware of the challenges posed by new technologies in payments. More than two-thirds (71%) of the banking executives surveyed in all markets agree 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.
In response to these key market challenges, nearly 18% of respondents said the main priority for the bank is to build security into retail payments transactions. Nearly one-quarter (22%) cited artificial intelligence, robotics, machine learning and innovative payments hubs as the key platform technology capabilities they need to adapt their core systems to high-speed and continuous payment flows.