Over 18% of UK banks' payment revenues likely to be displaced by digital payments

Over 18% of UK banks' payments revenues are likely to be displaced by digital payments in the next six years, according to a new study.

The research by consulting giant Accenture found that £8bn or 18.1% of UK banks’ revenue is likely to be usurped by digital payments.

Payments is set to become a £41bn market in the UK, but British banks could lose out unless they do more to ensure they offer customer payment services that are instant, invisible and free, the research said.

The research found that payment volumes around the world are increasing and will continue to grow at 5.5% a year.

Volumes are being driven by a combination of demographic factors, including a growing number of middle-class customers in India and China, increasing globalisation of trade and finance and the development of digital banking and mobile wallets.

But the report warned there are big risks on current bank business models that risk £230 billion in lost opportunity.

For example, rising competition from invisible payments in mobile apps or devices, cutting out banks and cards will put £1.7bn of bank revenue at risk, the report says.

The report highlights how the fintech industry and social media giants are providing customers enhanced services, competing with traditioinal banks.

But, non-banks carried out just 8.1% of global payments revenues in 2019, indicating that newcomers still have some way to go before breaking through, the report adds.

“In order to avoid being pushed aside, banks need to both continue to develop scale - becoming big, efficient machines – at the same time as differentiating themselves in the minds of their customers. Currently, rather than being at the forefront of the wave of the new-payments market, banks are feeling the heat from the competition,” said Sulabh Agarwal, Accenture UK’s payments lead. 

“We’re inevitably facing a world of instant, invisible and free payments, which presents both a challenge and opportunity for banks.” 

The research found that the industry is aware of the challenges posed by new technologies in payments. 

More than two-thirds (74%) of European banking executives surveyed agree that payments are becoming free; nearly three-quarters (72%) believe that payments are already invisible or will become so over the next 12 months; and even more (78%) said that payments are either already instant or will become instant over the next year.