Payments and account services continue to be at the ‘core’ of bank’s value proposition
25 November 2020 Brussels
Image: eskystudio/Adobe Stock
The Euro Banking Association (EBA) and McKinsey & Company have published a joint white paper on the future of banks in payments, which shows payments and account services continue to be at the core of banks’ value proposition.
However, technological advances, evolving customer behaviour and new market dynamics have brought fundamental change over the last decade and challenged banks’ central role in the payments ecosystem, the report explained.
According to the paper, the new normal shaped by the current pandemic has accelerated some of the trends and highlighted the importance of payments in the consumer experience.
As the ecosystem evolution converges with the effects of the pandemic, the paper inferred that the early 2020s are likely to become an inflection point for payments.
As part of pandemic effects, the paper identified that across payments in general, an initial dip in overall volumes was followed by a partial rebound for many banks.
Research indicates that banks are optimistic about the prospects of a recovery in payments volumes.
A survey conducted by McKinsey’s Finalta among European corporate and small-business banking executives in September 2020 indicated that 48 percent of banks expect payments volumes to decline in 2020, as compared with 16 percent expecting growth.
However, executives have a more positive outlook for 2021, with 60 percent expecting growth
and only 5 percent expecting a decline in payments volumes.
“The banks we surveyed identified both the challenges and the opportunities that will shape their role in the ecosystem in the years to come,” said Reinhard Hoell, a partner from McKinsey & Company’s payment practice.
He continued: “The pandemic has not altered the general strategic direction banks have taken to grow their payments business but has certainly reinforced banks’ commitment to invest in areas such as digitising customer journeys, introducing machine learning, and improving technological and operational resilience.”
With the rise of technologies such as platform as a service (PaaS) and application programming interfaces (APIs), the paper affirmed banks need to adapt to maintain their core strengths: a large and loyal customer base, control over current accounts, and infrastructure built over years.
The paper did point out that technology in general is seen as a major challenge for banks with two thirds of the survey respondents citing legacy technology as an obstacle to growing the value of their payments business.
“Banks face multiple strategic choices and have a range of opportunities to collaborate with partners for selected activities and applications,” said Wolfgang Ehrmann, chairman of the EBA.
“All banks interviewed believed that industry cooperation is extremely important to fill capability gaps, drive economies of scale, mitigate investment risk, reduce the complexity of providing non-differentiating activities and help set new market standards,” he added.
The paper concluded that despite the uncertainties of the current environment, now could be the moment for banks to secure the growth of value in their payments business over the next cycle – and to come together with other stakeholders to solve sector-wide challenges and capture opportunities.
However, technological advances, evolving customer behaviour and new market dynamics have brought fundamental change over the last decade and challenged banks’ central role in the payments ecosystem, the report explained.
According to the paper, the new normal shaped by the current pandemic has accelerated some of the trends and highlighted the importance of payments in the consumer experience.
As the ecosystem evolution converges with the effects of the pandemic, the paper inferred that the early 2020s are likely to become an inflection point for payments.
As part of pandemic effects, the paper identified that across payments in general, an initial dip in overall volumes was followed by a partial rebound for many banks.
Research indicates that banks are optimistic about the prospects of a recovery in payments volumes.
A survey conducted by McKinsey’s Finalta among European corporate and small-business banking executives in September 2020 indicated that 48 percent of banks expect payments volumes to decline in 2020, as compared with 16 percent expecting growth.
However, executives have a more positive outlook for 2021, with 60 percent expecting growth
and only 5 percent expecting a decline in payments volumes.
“The banks we surveyed identified both the challenges and the opportunities that will shape their role in the ecosystem in the years to come,” said Reinhard Hoell, a partner from McKinsey & Company’s payment practice.
He continued: “The pandemic has not altered the general strategic direction banks have taken to grow their payments business but has certainly reinforced banks’ commitment to invest in areas such as digitising customer journeys, introducing machine learning, and improving technological and operational resilience.”
With the rise of technologies such as platform as a service (PaaS) and application programming interfaces (APIs), the paper affirmed banks need to adapt to maintain their core strengths: a large and loyal customer base, control over current accounts, and infrastructure built over years.
The paper did point out that technology in general is seen as a major challenge for banks with two thirds of the survey respondents citing legacy technology as an obstacle to growing the value of their payments business.
“Banks face multiple strategic choices and have a range of opportunities to collaborate with partners for selected activities and applications,” said Wolfgang Ehrmann, chairman of the EBA.
“All banks interviewed believed that industry cooperation is extremely important to fill capability gaps, drive economies of scale, mitigate investment risk, reduce the complexity of providing non-differentiating activities and help set new market standards,” he added.
The paper concluded that despite the uncertainties of the current environment, now could be the moment for banks to secure the growth of value in their payments business over the next cycle – and to come together with other stakeholders to solve sector-wide challenges and capture opportunities.
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