SINGAPORE – Banks in South-east Asia are set to miss out on as much as US$5 billion (S$6.8 billion), or 14.3 per cent of their payments revenue by 2025, displaced by the growth of digital payments and competition from non-banks, according to a new report.
This comes as payments become more “instant, invisible and free”, professional services firm Accenture said in a report titled Banking Pulse Survey: Two Ways To Win.
The research notes that over the next six years, banks will face further pressure on income from card transactions and fees, with free payments putting 9.6 per cent of payments revenue at risk in the region.
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 3.1 per cent of bank revenues at risk, Accenture said.
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 1.7 per cent of payment revenues in jeopardy.
Divyesh Vithlani, who leads Accenture’s financial services practice in Asean, said: “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, particularly in South-east Asia with the proliferation of e-wallets.
“As payments modernisation has already made a good headway in Asean, with the introduction of instant payment schemes in many countries, revenue from the consumer space is already low or near zero, except in the cards space, so the push to find alternate sources of revenue and optimise costs is already an immediate concern here.”
He added that the payments market is booming, and that there’s a multibillion-dollar opportunity for those willing to invest in new technologies and business models based on the new digital landscape.
In Singapore, as much as 20 per cent of banks’ payments revenue, or nearly US$1.3 billion, is likely to be displaced by the growth of digital payments and competition from non-banks, Accenture said.
However, with payments revenue in the country growing at an annual rate of 3.6 per cent, from US$6 billion in 2019 to nearly US$7.5 billion by 2025, banks will still have an opportunity worth about US$1.4 billion in incremental revenue growth to tap.
Overall, the survey, which polled 240 payments executives from the largest banks across 23 markets, found that the industry is aware of the challenges posed by new technologies in payments.
More than two-thirds (71 per cent) of the banking executives polled in all markets agree that payments are becoming free; nearly three-quarters (73 per cent) believe that most payments are already invisible, or will become so over the next 12 months; and even more (78 per cent) said that payments are either already instant, or will become instant over the next 12 months.
Added Mr Vithlani: “The digital transformation in payments throughout the region will have a deep impact on all industry players and banks will have to fundamentally change how they think about their revenue in this area.
“Banks previously earned billions of dollars from some of these channels, and that’ll dry up eventually as competition heats up, so they’ll need to develop new digital business models to compete in this new era.”
In response to these key market challenges, 18 per cent of respondents said the main priority for the bank is to build security into retail payments transactions. Nearly one-quarter (22 per cent) 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.
The report also recommended that banks scale their technology to reimagine how their core payments operations are done, and to differentiate themselves by adding value in a low-margin, high-volume business.
Three tactics to better differentiate their payments business and increase profitability include focusing on customer-centric value-added services, open banking for corporates and data monetisation, Accenture said.