It’s an open secret in payments that the commercial client experience is often second-class, far surpassed in both innovation and investment by consumer offerings.
For years this disparity didn’t reach the bottom lines of incumbent payments providers, but our new research, Reinventing commercial payments for profitable growth, suggests it’s now creating competitive vulnerabilities. We found that 55% of banks today are challenged by competitive solutions from fintechs, and 72% say it’s hard to compete in key areas like merchant acquiring services. Treasury management competition is also becoming more intense as large global banks invest close to $1 billion a year in their capabilities, and as fintech providers like Stripe and Kyriba challenge the status quo. With commercial payments market revenues projected to reach $1.26 trillion by 2028, the competitive challenge is unlikely to diminish.
To be clear, the risk that a bank might lose all of its commercial payments clients to fintechs is low. Switching commercial payments providers is a complicated and expensive process that can take months or longer. Our research also found that overall client satisfaction with incumbent payments providers is quite robust. But that level of satisfaction is not universal.
The commercial payments market is projected to reach $1.26 trillion by 2028.
The report, which includes survey data from both commercial payments providers and clients, found that fintechs actually lead incumbents on client satisfaction in specific areas: cross-border, online merchant acquiring, trade finance and liquidity management services.
This lines up with our other findings: 55% of commercial clients right now use fintechs or bigtech payments providers for at least some services, compared with 80% for incumbents. Those percentages could become closer or even switch positions if incumbents choose not to invest in their commercial payments practices. In fact, we found that for some advanced payments services, like real-time cross-border payments and usage-based pricing and billing, incumbents and fintechs are equally popular providers.
There is also the risk that payments clients will move to other non-fintech players. We found that over eight in 10 clients right now would like to switch to a single payments provider for cost purposes, but few providers have comprehensive capabilities that meet all their needs.
- The key question facing payments incumbents today, then, is how to drive higher levels of client satisfaction to boost attraction, retention, and share of wallet. Our research indicates incumbent providers generally have a sound understanding of client priorities and challenges—with one key blind spot.
We found significant client demand for value-added services that most banks are not effectively addressing. We also found that, on average, clients are willing to pay 8.1% of their annual payments costs towards value-added services. This could represent $371 billion in value over the next five years.
Value-added services are a powerful way for incumbents to differentiate themselves in the market. The possibilities are almost endless. Our research found strong demand among clients for many such services, including tax or accounting system integration, real-time access to payments data, and advanced data dashboards to track sales, products, and customers.
With a playground that vast, choosing where to play will be an important strategic decision. Some incumbents are already making targeted investments.
- For example, in 2022 Citi unveiled a single, integrated platform for digital payment acceptance and electronic bill payment.It allows US commercial clients to collect payments from a range of payments methods through a single contracting structure. This simplifies the billing process for clients and can make it easier for them to transition away from labor-intensive and paper-based payments processes.
- Value-added services can also target specific groups of commercial clients. For instance, in 2019 JPMorgan acquired InstaMed, a healthcare payments technology company. InstaMed’s cloud-based platform automates medical billing in the US, which is still dominated by paper.
- Or a value-added service can address common pain points for most clients. A trend to watch here is embedded finance, which is the evolution of banking-as-a-service. NatWest Boxed, among others, is currently active in this space.
It’s important to stress that adding or expanding value-added services will need to be done strategically and efficiently. Though moving providers is far from instant or simple, commercial payments clients are still cost sensitive, and they have probably never had a wider palette of payments providers from which to choose.
But that rising tide of competition also presents incumbents with an imperative. Choosing to do nothing might be the most expensive option of all.
My sincere thanks to Hannes Fourie, Accenture’s Global Payments Research Lead, for his contributions to this report and blog post.
Download the full report, Commercial payments, reinvented: Your blueprint for accelerating payments revenue growth. To discuss how your payments organization can compete to win in the future, contact me here.
Disclaimer: This content is provided for general information purposes and is not intended to be used in place of consultation with our professional advisors. Copyright© 2023 Accenture. All rights reserved. Accenture and its logo are registered trademarks of Accenture.