SE Asian banks 'to lose out on US$5b in payments revenue by 2025'

Singapore

BANKS in South-east Asia are set to miss out on as much as US$5 billion or 14.3 per cent of their payments revenue by 2025, displaced by the growth of digital payments and competition from non-banks.

This grim warning was sounded in a report on Thursday by professional services firm Accenture.

Its research into payments becoming "instant, invisible and free" found that payments revenue in the region will likely grow at an annual rate of 6.1 per cent, from US$26 billion in 2019 to nearly US$37 billion by 2025, and that only banks that adopt the latest technologies in their business models and focus on providing value-added services will capture a share of this incremental growth.

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.

"With the introduction of instant payment schemes, 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 an immediate concern here."

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.

But with payments revenue in the country growing 3.6 per cent annually from US$6 billion in 2019, banks will still have about US$1.4 billion in incremental growth to tap on by 2025.

Over the next six years, banks will also 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, Accenture said.

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.

Meanwhile, 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, the report said.

Mr Vithlani said: "The digital transformation in payments 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.

"They previously earned billions of dollars from some of these channels, and these will dry up eventually as competition heats up, so they'll need to develop new digital business models to compete in this new era."

The survey, which polled 240 payments executives from the largest banks across 22 countries, found the industry to be aware of the challenges posed by payment technologies.

In response to key market challenges, 18 per cent of respondents said the main priority for the bank is to build security into retail payments transactions. Nearly a quarter cited artificial intelligence and innovative payments hubs as some of the technology capabilities they need, in order that their core systems can handle high-speed payment flows.

The report also recommended three tactics for banks to better differentiate their payments business and increase profitability: These are focusing on customer-centric, value-added services, open banking for corporates, and data monetisation.