Chinese banks risk losing $61b revenue in payments by 2025

Digital payments and non-banking payment service providers are displacing them.

As much as 13% of banks’ payments revenue in China, or $61b, is likely to be displaced by the growth of digital payments and competition from non-banks, according to a report from professional services firm Accenture.

Over the next six years, free payments put 5.2% of banks’ payments revenue at risk in mainland China and 23.9% in Hong Kong, noted Accenture. Competition from non-banks in invisible payments—where payments are completed in a ‘virtual wallet’ on a mobile app or device—also puts 4% and 2.6% of revenues at risk in the mainland and in Hong Kong, respectively.

Furthermore, card displacement by instant payments, where funds are transferred in real-time and from which banks make little to no interest, will put an additional 3.6% and 2% of payment revenues at risk in China and Hong Kong.

These are expected to further weigh in on banks from mainland China and Hong Kong, which are already dealing with global revenue pressures from declining card transactions. Between 2015 and 2018, revenue from business customer credit card transactions dropped 33% globally, revenue from consumer debit card transactions dropped nearly 15%, and revenue from credit cards dropped almost 12%, the report stated.

“The digital transformation underway in payments will have a deep impact on all industry players and banks will have to fundamentally change how they think about their revenue in this area,” said Albert Chan, financial services practice lead for Accenture in Greater China. “The billions of dollars banks previously earned from some of these channels will dry up, so they’ll need to develop new digital business models to compete in this new era. Banks lagging behind risk being relegated to the plumbing of payments."

In contrast, payments revenue of non-banking financial services companies in mainland China are projected to skyrocket to $494b in 2025 at an annual rate of 9.1%, from $292b in 2019. Meanwhile, revenue in Hong Kong is set to rise at 2.1% to $10.7b from $9.5b.

Accordingly, global payments revenue in all markets surveyed will likely grow to more than $2t by 2025, creating a $500b opportunity for banks in those countries, particularly in cross-border payments.

In a survey conducted by Accenture, 18% of respondents said that the main priority for the bank is to build security into retail payments transactions. Nearly a quarter (22%) cited artificial intelligence (AI), robotics, machine learning and innovative payments hubs as the key platform technology capabilities they need to adapt their core systems to high-speed and continuous payment flows.