Banks face losing market share to tech disrupters

Banks in Europe risk losing out on €22 billion (Dh90.56 billion) of revenues to big technology groups that threaten to disrupt the retail payments sector with slick digital services.

The payments market is expected to be worth EURO128bn to European banks this year, and is forecast to grow to €139 billion by 2030, which is €22 billion less than it would have been because of technology disruption, according to advisory firm Deloitte.

But the big banks, which own the payment systems in the UK, face losing market share to technology companies with more efficient services, as barriers to entry are lowered by regulatory changes and digital advancements.

Stephen Ley, a payments expert at Deloitte, said the stranglehold banks have over payments systems will not last, as financial technology companies will “start to gain a greater presence in the market.”

Making a payment through a mobile app, for example, typically goes through a stored credit or debit card. But more apps in the future will allow for direct bank account payments, rather than through a card — meaning banks will make less revenue.

Payments revenues are significant for lenders, representing one-quarter of total European retail banking revenues this year, Deloitte estimates.

The rise of new payment services follows significant regulatory changes that lower costs to entry. In the UK, for example, the systems that enable people to make instant payments are being opened up by the regulator for new challenger banks and digital companies.

Ley said: “Many of the big tech companies are now able to offer customers easy access to alternative, lower-cost funding, whilst having an army of loyal customers behind them, as well as scale and strong brands.”

But he warned some banks are “lagging behind in fintech investment”.

A report by YouGov and law firm Pinsent Masons found the UK’s biggest high street banks face a greater threat of losing customers to PayPal and WePay than to challenger banks such as Virgin Money or Metro.

More banks are seeking to collaborate with fintech companies, with many creating their own innovation funds to support digital start-ups.

A number of the world’s largest investment banks, including Goldman Sachs and JPMorgan, are aiming to develop standards for blockchain technology, for example, to underpin certain financial services including payment systems.

However, research by payment network provider Vocalink found consumers expect banks to lead the way in the adoption of mobile payments.

The report showed half of the 5,000 respondents identified banking brands as a key driver for them to start using mobile payment technology.

Cara O’Nions of Vocalink said: “Mainstream banks have the biggest opportunity, since mobile banking and payments are seen by consumers as an extension of a relationship that already exists.”

She warned banks must nonetheless move quickly to make mobile payments the “new norm” if they want to dominate the space ahead of their rivals.

SOURCE:GULFNEWS