Banks must retool payments businesses: BCG
08 Feb 2011
Major banks must adapt to sweeping changes in the payments industry in order to reverse revenue and profit declines and chart a course to sustainable growth, according to a new report by The Boston Consulting Group (BCG). The report, Global Payments 2011: Winning After the Storm, will be released later in the dauy in the US.
Traditionally strong payments businesses have shown severe weakness in recent years, the report says. Although many of these businesses are beginning to recover, banks must determine whether current business models (target customer segments, product portfolios, regions, and channels) and operating models (target processes, IT, sourcing, and organisation) are well suited for shifting industry dynamics.
Winning strategies will vary, depending partly on whether target markets are mature in terms of overall payments infrastructure and sophistication, or still developing, because the two types of markets will evolve differently going forward. In either case, banks seeking to expand their payments businesses must strive to minimise organisational complexity.
''The size of the prize is too large not to take action,'' said Niclas Storz, a BCG partner and a coauthor of the report. ''We estimate that by 2020, the global payments market will be worth $782 trillion in noncash transaction values and $492 billion in transaction revenues.''
Global payments revenues, which typically constitute one-third to one-half of most banks' total revenues, fell at a compound annual rate of 7 per cent from the end of 2008 through 2010, according to the report. BCG defines payments revenues as direct and indirect income generated by any payment service, including transaction-specific revenues as well as card and account maintenance fees and spread income generated from current accounts (also known as checking or demand-deposit accounts). Fees for overdrafts and nonsufficient funds are considered transaction-specific revenue.
The report examines global retail-payments markets on a regional basis, while exploring the wholesale transaction-banking market through a single, global lens.
