An Accenture report said on Thursday that as much as 14 percent of Indian bank's payments revenue, or $9 billion, is likely to be replaced by the growth of digital payments and competition from non-banks. "With the digital boom as payments become more instant, invisible and free, banks need to reinvent themselves to grow customer loyalty, revenues, and profitability," Rishi Aurora, a managing director at Accenture who leads its financial services practice in India, said in a statement.
Payments revenue in the country will likely grow at an annual rate of 10.7 percent, from $38 billion in 2019 to more than $70 billion by 2025, said the report titled "Banking Pulse Survey: Two Ways To Win".Only banks that change their business models to adopt the latest technologies and focus on providing value-added
services to customers will capture a share of the $32 billion in incremental revenue growth.
Digital payments platforms such as Paytm, Google Pay and PhonePe are quite popular in India. Their adoption surged dramatically after the
demonetization of Rs 500 and Rs 1,000 notes in November last year. The report is based on a revenue-risk analysis model that Accenture developed to measure trends in how consumers pay and projected changes in merchant behavior, technology and regulation.
The research is complemented by a survey of 240 payments executives at banks across 22 countries to determine how they plan to mitigate and capitalize on the disruption in payments to grow customer loyalty, revenues, and profitability. The report showed that global payments revenue in all markets surveyed will likely grow to more than $2 trillion by 2025, creating a $500 billion opportunity for banks in those countries.
Over the next six years, banks will face further pressure on income from card transactions and fees, with free payments putting 8.4 percent of payments revenue at risk in India, said the report. Besides, competition from non-banks in invisible payments
-- where payments are completed in a ‘virtual wallet' on a mobile app or device -- will put 3.6 percent of bank revenues at risk.
Card displacement by instant payments, where funds are settled and transferred in real-time and banks make little to no interest, is projected to put an additional two percent of payment revenues at risk. The research found that the industry is aware of the challenges posed by new technologies in payments.
However, despite the revenue challenges from digital payments to Indian banks, some modern innovations are available to mitigate the impact. For instance, a technology called ACH or Automated Clearing House payments has been an attractive option. ACH is an electronic network that transfers money directly between bank accounts. With this payment solution from providers like Rotessa
, banks can reinvent how they provide financial support and services. The ACH payment solution allows banks to move money quickly without using paper checks, credit card networks, and wire transfers. This may be an excellent way of reducing the impact of digital payments on Indian banks and even other financial institutions globally.