Will banks seize the $32-bn payments opportunity?

As digital payments gain traction in India, consider two possible outcomes for banks. One, the risk of losing payments revenue to the tune of $9 billion by 2025. Two, tapping into new payments revenue that can potentially open doors to a $32-billion opportunity by investing in innovative business models.

Any banker worth his salt would show you the likelihood of the second scenario. But how many can come up with new technological strategies to beat their agile, fintech-savvy non-bank peers at their own game?

P.K. Gupta, managing director - retail and digital banking, State Bank of India, says many of the big banks have cracked the code, and are well placed to seize the opportunity to serve their loyal customer base.

Gupta explains that banks have been trying to foray into the payments space, while wallets have not done well; the Unified Payments Interface (UPI), meanwhile, has been a hit. “Each UPI-enabled transaction happens at the bank account level. Plus, frontend integration is allowed in India.”

While most banks offer smartphone applications, some have responded quicker than others. There are over 100 UPI applications, and keeping up with the competition is challenging. “Many customers move to these apps to avail more attractive cashbacks than that offered by banks. But, eventually they return to the bank’s app once the cashback offers dry up,” adds Gupta.

According to Accenture’s Banking Pulse Survey- Two Ways To Win, payments revenue for banks could rise to over $70 billion by 2025 from $38 billion in 2019. On the flip side, 14% or $9 billion of banks’ payments revenue is likely to be erased by the growth of digital payments and competition from non-banks, since payments have become instant, invisible, and free. Only banks that adopt innovative business models, use the latest technology, and focus on providing value-added services will stand a chance to get a share of the $32-billion opportunity for revenue growth in the payments segment, says the Accenture survey.

“With the digital boom as payments become more instant, invisible, and free, banks need to reinvent themselves to grow customer loyalty, revenue, and profitability,” says Rishi Aurora, managing director, Accenture. “To succeed in the post-digital era, banks need to redefine innovation strategies around scaling technology and adding value to address the payments challenges,” Aurora adds.

The payments game is rapidly changing in India. Out of 240 payments executives who participated in the survey, 71% agree that payments are becoming free, 73% believe most payments are already invisible or will become so in the next one year, and 78% concur with the view that payments are either already instant or will become so in the next one year.

To be sure, banks have an inherent advantage of legacy. In fact, many banks have stepped up investment in resources to spur technological innovations and stay relevant. Survive they will, but whether they thrive and garner the lion's share in the payments revenue pie will closely depend on their ability to stay one step ahead of their tech-savvy, agile non-bank peers.