British banks could lose at least £1.45 billion ($2.68 billion) in payments revenue within the next few years as retailers develop revolutionary mobile apps for people to shop and bank at the same time.
Retailers, financial technology groups and others are planning to offer customers the ability to pay for goods, check their balance and monitor transactions through their own app or online site, in order to shop and use banking services in one place, according to Accenture, the consultancy.
For merchants, it means they can facilitate payments directly from customers’ bank accounts cost effectively, without relying on traditional card networks such as MasterCard and Visa in a process that involves interchange fees and charges.
The latest payments innovation, which is set to sweep across Europe, has been spurred by European regulation called the Payments Services Directive 2. This requires banks to provide third parties with access to customer data, with their permission, to allow for the creation of such apps. However, a report by Accenture forecasts that merchants and other businesses offering their own payments services will erode about 33 per cent of online debit card transaction volumes by 2020, and 10 per cent of credit cards.
This means banks, which get the interchange fee when merchants use card networks, are set to lose £1.45 billion of card transaction revenues by 2020 as a result of this app development. Interchange fees are retained when a payment is sent by the consumer’s bank to the retailer’s bank, to cover the cost of operating card services.
Jeremy Light, a managing director at Accenture, said that another attraction for retailers in accessing bank accounts directly was that they did not have to handle sensitive bank card data, which could leave them liable in the event of fraudulent transactions. UK banks were “at a critical juncture” and had to decide how to deal with these new threats.
This was “a defining moment at which changes in the payments industry are forcing them to make a key strategic decision: whether to become a banking ‘utility’ supporting other providers’ customer-facing solutions, or an ‘everyday bank’ playing a central role in customers’ daily lives”.
The developments come soon after the UK’s Payment Systems Regulator said it wanted to encourage innovation and competition in the payments sector and help companies “find new and ever more convenient ways for people to pay”.
Hannah Nixon, managing director of the regulator, said: “In fact, we want the UK industry to become a centre of innovation, to lead the world in the development of payment systems.”
Worldpay, the UK’s largest payments processor, has launched a “digital till” that allows businesses to take payments anywhere on the shop floor using a tablet. It includes other services for the merchant, from ordering stock to checking payment records digitally.
GTH, G.H. (2016) UK banks face $2.9bn loss to mobile apps. Available at: http://www.afr.com/business/banking-and-finance/uk-banks-face-29bn-loss-to-mobile-apps-20160516-gow0kh (Accessed: 16 May 2016).