Fintech Payments Could Cannibalize 15% of Banking Revenue, Accenture Projects

Traditional financial institutions may lose as much as 15% of their payments revenue — $280 billion — over the next six years to fintech competitors, free payments and third-party mobile wallets, according to an Accenture survey of 240 payments executives at banks in 22 countries.

The report said the spread of zero-fee payments is expected to eat 8% of banks’ payments revenue, competition from nonbank mobile wallets will consume another 3.9% and interest income losses associated with real-time payments will cost an additional 2.7% of payment revenues.

Although global payments revenue is projected to grow 5.5% annually, rising from $1.5 trillion in 2019 to more than $2 trillion by 2025, some kinds of payments income is declining, according to the report. From 2015 to 2018, revenue from business customer credit card transactions fell 33%, revenue from consumer debit card transactions dropped nearly 15% and credit card revenue tanked by almost 12%.

“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,” Accenture global payments lead Gareth Wilson said. “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. But it also presents an opportunity to tap into a new business model based on this digital boom.”

Bank executives in the survey largely seem to believe these trends will continue: 71% agreed that payments are becoming free, 73% said most payments are already invisible or will become invisible in the next year, and 78% said payments are either already instant or will be instant in the next year.

“Channels that once made the banks billions of dollars will cease to exist,” Accenture Banking practice lead Alan McIntyre said.

Accenture also estimated that instant, invisible and free payments could push global operating margins for payments down to 4.3% by 2025. “With such compression, margins may become razor thin and even negative for the least-efficient planers,” it noted.

However, financial executives seem to be developing plans for new payments revenue — 69% of the respondents said they aspire to sell raw data within the next three years.

“Modern data analytics enables new levels of target segmentation where banks and their corporate clients can plan and execute more relevant products and services based on much broader consumer insight, far beyond the typical of income, gender, marital status and location,” it noted.

The study also found the following:

• Credit card revenue per transaction dropped 11.6%, from $1.21 in 2015 to $1.07 in 2018.
• Debit card revenue per transaction dropped 14.6%, from $0.34 in 2015 to $0.29 in 2018.
• In corporate payments, credit card revenue per transaction dropped 33.3%, from $2.76 in 2015 to $1.84 in 2018.