Even though the pace of growth in global payments business is slowing, the product can still a stable long-term source of income for banks, which are struggling to use the words “stable” and “income” in the same sentence with a straight face.
“The last 12 months have really changed the perspective of banks toward payments,” says Niclas Storz, a Boston Consulting Group partner and co-author of a report called “Weathering the Storm: Global Payments 2009.”
“Top line revenues have been lost and payments and transaction banking are more important now because they are stable revenue drivers,” he says.
Stable, but not necessarily spectacular. BCG says global payments revenues hit $805 billion in 2008, up from $654 billion in 2006, and are forecast to reach $1.4 trillion by 2016. But with that growth comes maturity, regulatory pressure, competition, and a slide in per transaction revenue.
For banks, BCG says these revenues will fall from $0.94 to $0.88 for domestic payments and from $9.33 to $7.50 for cross-border payments through 2016. Storz says that for banks seeking to grow revenue from retail payments, the key to success will be a lean, end-to-end business model aimed at efficiency; while for corporate payments, high customer service will be the best route.
He also says that in North America, the winners will be banks that capture a greater share of consumers’ balance sheets through loyalty strategies and flexible rewards tied to relationships. “By offering a strong payments product, banks should be able to open up additional revenue pools that are beyond the payments space and increase share of wallet,” he says. “Payments can be used as a mode for customer retention and to create a funding base.”