Searching for Gold in the Payments Industry
In Europe, the payments industry—financial transactions made by credit transfers, direct debits, and credit and debit cards—is facing a fundamental restructuring. It is "high noon" for the industry as customers and regulators begin pressuring financial institutions to offer more convenient services at lower prices. Whether the issue is domestic or cross-border transactions, traditional wire transfers or new-card costs, the payments business sits at a critical juncture.
To find out what changes and challenges are occurring in the industry and how the leaders are dealing with them, A.T. Kearney performed the Cards and Benchmarking Study, querying senior executives at 34 financial institutions across 17 countries in Europe. The following are the major findings:
Non-cash transactions are on the rise. Between 2010 and 2014, the number of non-cash transactions in Europe is expected to rise at a compound annual growth rate of 7 percent—from 89.7 billion in 2010 to 117.7 billion in 2014 (see figure). Considering that between 60 and 80 percent of payments in Europe are still made in cash, further growth seems likely. Significant challenges lie ahead, however, as new competitors enter the market, particularly in mobile and e-commerce, and as it becomes necessary to standardize cross-border transactions.
The playing field is changing. Traditional bank-driven payment systems will face fierce competition as consumers expect convenience, including ease of use, confidentiality and the bundling of payments with other services. Some telecom operators are meeting these needs through person-to-person payment systems, while others are offering contactless payments via cell phones.
The "Four Cs" will determine the industry's future layout. Four trends will determine how the industry thrives in the future. The convergence of different payment methods will shift volumes toward lower-margin products, changing the industry's revenue stream. Cost reduction through scale and IT-driven automation will improve efficiency. Competition with new entrants, particularly in mobile and e-commerce, will eat into current leaders' profits. Co-innovation in payment services will allow companies to connect with customers individually and deliver exactly what they want.
The leaders will find untapped areas. As traditional areas have already been harvested, the leaders in this industry will have to look for new opportunities, such as offering electronic payments for low-cost purchases and solutions for people without banking accounts.
The New Klondike
The payments world is fundamentally changing. Whether it is with contactless cards, online banking portals or smartphones, the leading payment providers of the future will generate new revenues by understanding what features and services their customers want. The winners in this "New Klondike" will be those companies that find a new way to run their businesses.
For the complete study findings, see "Finding the New Klondike: New Paradigms in the European Payments Business" at www.atkearney.com or contact
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