Australia’s banks risk losing US$3 billion in payments revenue by 2025 due to the growth of digital payments and competition from non-banks, according to new research from Accenture.
According to Accenture’s Global Payments Pulse Survey [PDF] overall payment revenue will grow at an annual rate of 3.7 per cent by 2025, from US$18.7 billion in 2019 to more than US$23 billion by 2025.
Accenture surveyed 240 payments executives at banks across 22 countries on their views on readying their banks for the instant, invisible and free (IIF) payments world.
The report concluded that trends like open banking are accelerating the transistion to IIF payments, putting billions of dollars in revenue up for grabs.
“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,” said Alex Trott, who leads Accenture’s banking practice in Australia and New Zealand.
“The billions of dollars banks previously earned from some of these channels will dry up, so they’ll need to develop new digital business models to compete in this new era.”
The report argues banks that change their business models and adopt the latest technologies and focus on providing added value services will capture a share of the growing payments market.
“The payments market is booming and there’s a multi-billion-dollar opportunity for those willing to invest in new technologies and business models based on the new digital landscape ahead. Banks lagging behind risk being relegated to the plumbing of payments,” Trott said.
The potential loss of US$3 billion or 13.7 per cent of payments revenue will come from three areas over the next six years.
For one, banks will face further pressure on income from card transactions and fees, with free payments putting 8.3 per cent of payments revenue at risk in Australia. On top of that, competition from non-banks in invisible payments — where payments are completed in a ‘virtual wallet’ on a mobile app or device — will put 4.8 per cent of bank revenues at risk.
And as cards are displaced by instant payments, where funds are settled and transferred in real-time and banks make little to no interest, an additional 0.6 per cent of payment revenues are at risk of disappearing.
The report notes these declines come on top of the current drop in income from card transactions and fees, with regulation triggering fee compression and technology displacing the role of banks in payments.
According to Accenture, between 2015 and 2018, revenue from business customer credit card transactions dropped 33 per cent globally, revenue from consumer debit card transactions dropped nearly 15 per cent, and revenue from credit cards dropped almost 12 per cent.