A new report from Accenture claims that banks will be losing a humongous $280 billion to start-ups as payments to companies and individuals are eventually getting hassle free and almost instantaneous. The global payments business, an arena somewhat dominated by banks, is projected to be at around $1.5 trillion dollars this year. The same is projected to bulk up to $2 trillion by 2025.
$280 billion dollars or as figures speak – 15% is the amount that the banks are going to lose to startups due to rising competition in this domain. Banks face rising competition from tech start-ups like Silicon Valley payment providers “Stripe and Square”, as well as technology platform “PayPal”, and the likes of London-based “TransferWise” and the likes. Rat-race everywhere.
Zacharias Joseph, in a tweet said, “That is expected to grow to $2 trillion globally by 2025 but banks are likely to lose out on $280 billion, or 15% of their global payments revenues, Accenture estimates”.
Here’s how it works-
As payments become faster and instantaneous, the banks lose their revenue earned from credit cards. Well obviously who needs to carry that piece of plastic when a mobile’s enough. Accenture claims that payments are now more likely to be directed to the end-merchant instead of going through a bank’s portal!!
Of course banks are losing money, “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.
Let’s include more numbers; free payments will put 8% of banks’ payment revenue at risk. A further 3.9% is at risk from non-bank rivals offering “invisible payments”, while instant payments could take another 2.7% of revenues.
Gareth claimed, “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 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,” McIntyre said, adding that lenders needed to build new digital business models, with “one-click payments the new norm.”