Banks have seen the writing on the wall, and the writing says IIF: instant, invisible, and free.
Every year, more of the payments that were once made by check, debit card, and credit card leave the world of banking and move to high-tech platforms that support IIF transfers.
Banks collect a few cents, maybe a dollar, on each transaction. Worldwide, the bank’s cut adds up to $1.5 trillion this year, and is projected to hit $2 trillion by 2025.
Or it would, except for those pesky nonbank high-tech startups that allow consumers to pay directly without giving banks a cut of the action. A survey from Accenture, an Ireland-based professional consulting firm, startups offering streamlined payment processing services are likely to reduce bank revenues by $280 billion by 2025.
Companies like PayPal, Stripe, Square, and TransferWise are growing by the day. Accenture’s experts say these companies could eventually overtake banks when it comes to payment processing.
“We face an inevitable world of instant, invisible and free payments, which spells trouble for banks that don’t want to be relegated to the plumbing of payments,” says Gareth Wilson, head of Accenture’s global payments team.
Banks are their own worst enemy, Accenture says, characteristically slow to adopt new technologies. As consumers choose convenient easy transfers, they’re likely to prefer making payments with their smartphones instead of bank-issued credit cards.
Small businesses are fueling the trend. Pressure to save money is always high. Retailers and other small companies are eager to get rid of point-of-sale terminal-rental fees. And they resent paying a percentage of every sale to the credit card issuer. Faster transfers with no fees look good to them – and they spell bad news for banks.
Accenture says there will be a three-part loss for banks and their payment revenue. The biggest chunk will come from free payments, and it could cut into banks’ revenues by 8%. So-called “invisible payments” could cost banks another 3.9%, while 2.7% could be lost due to instant payment systems.
In the end, all of this is good news for consumers, who will enjoy easy one-click payment options at greatly reduced costs.