Fueled by innovation, the US banking market is undergoing tectonic shifts. Many players are looking to payments as a crucial battlefield for change. Incumbents—banks and established fintechs, such as networks and card processors—have transformed the transactions environment over decades for the benefit of end users. New generations of fintech players, both partners and competitors, have used digital business models to enhance the customer experience and open the door to new segments and revenue sources. Now, with the growing influence of Amazon, Apple, Google, Facebook and other similar big technology (bigtech) firms, along with increasing customer sophistication and ongoing overseas disruption, the fundamental aspects of revenue drivers and share are in question.
The storm beneath the surface
Accenture examined potential trajectories of current trends, which could present revenue challenges for US banks in payments. Our analysis indicates that incremental revenues are projected to accrue primarily to non-banks over the next few years. The beneficiaries include players already in the value chain (those less exposed to customer demands, such as rewards, and with more direct access to key platform levers, like processing) and new forms of fintech, bigtech and other third parties phasing into the market.
Figure 1: US payments revenue ($BN)
US disruption is anticipated to differ from that faced in Asia, Europe or other markets where the external impetus—competitive or regulatory—is accelerated and often direct. At least initially, established players may be situated to benefit financially; as evidenced by ApplePay, it can take years for new, disruptive platforms to scale. For those who are unprepared, gradual pricing pressure and value leakage may begin to erode many existing business models.
Open to change
Of course, a wide range of scenarios are possible for the future of US payments with several factors much broader than payments (including artificial intelligence, blockchain, cross-border transactions, major geopolitical movements, Open Banking, privacy, regulation and security) at play. Recognizing the range of potential outcomes, US payments players have the ability to position themselves for success.
Incumbents have already begun moving to protect their revenue base by introducing innovative solutions, such as Zelle. Going forward, technology deployment needs to happen faster with more agile adoption and monetization of technologies, such as data analytics, blockchain, and AI/machine learning, that can rewrite the payments equation. These new technologies offer a pathway to optimize the go-to-market model, breaking down silos to improve revenue and efficiencies internally and value chain orchestration externally.
Banks and other payments players can increase relevance by focusing on the customer journey and use cases to add value. Amazon Go, a new kind of technology-based retail store from Amazon, is just one example of looking in and beyond the existing value chain to rethink the customer experience. If incumbents view the customer as the North Star and are open to all that is possible, then they, too, can be disruptors, instead of the disrupted.
Change can be challenging. However, payments players are in the fortunate position to be able to write their own story. Now is the time to do so.
I invite you to read our report, Driving the Future of Payments
Special thanks to Tom Skomba, who contributed to this blog.