UK bank revenue ‘disrupted by digital payments’

New analysis has suggested that £8 billion - 18.1 per cent - of UK banks’ revenue is likely to be displaced by digital payments in the next six years.

Accenture conducted an online survey of 240 retail and corporate payments executives globally from the largest banks in Australia, Brazil, Canada, China (mainland and Hong Kong), Denmark, Finland, France, Germany, India, Indonesia, Italy, Japan, Malaysia, Mexico, Norway, Singapore, Spain, Sweden, Thailand, United Arab Emirates, the United Kingdom and United States.

It found that payments is set to become a £41 billion market in the UK, but British banks could lose out unless they do more to offer customers payment services that are instant, invisible and free.

The study showed that payments volumes around the world are increasing and will continue to grow at 5.5 per cent a year. This is driven by a combination of demographic factors, such as the growing number of middle-class consumers in India and China, increasing globalisation of trade and finance, and the rapid development of digital banking and mobile wallets.

However, current bank business models risk £230 billion in lost opportunity globally.

For instance, rising competition from non-banks in invisible payments - where payments are incorporated in mobile apps or devices, thus cutting out banks and cards - will put £1.7 billion of bank revenues at risk.

Customers now expect more from their banks, with FinTechs and social media giants hot on incumbents’ trails in providing this. But, non-banks carried out just 8.1 per cent of global payments revenues in 2019, demonstrating newcomers haven’t broken the barriers just yet.

“In order to avoid being pushed aside, banks need to both continue to develop scale - becoming big, efficient machines - at the same time as differentiating themselves in the minds of their customers,” said Sulabh Agarwal, Accenture UK’s payments lead.

“Currently, rather than being at the forefront of the wave of the new-payments market, banks are feeling the heat from the competition – we’re inevitably facing a world of instant, invisible and free payments, which presents both a challenge and opportunity for banks.”

The research found that the industry is aware of the challenges posed by new technologies in payments.

Almost three quarters (74 per cent) of the European banking executives surveyed agreed that payments are becoming free; a similar amount (72 per cent) believe that 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.

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