6 October 2020
‘Banks can help organize ecosystems’
“Banks and traditional financial institutions are much more thoughtful about their role in the value chain”, says Philip Bruno, partner at consultancy firm McKinsey & Company, when asked about the future of banks. At the start of Sibos 2020, McKinsey & Company presented their Global Payments Report in which it became clear that the COVID-19 pandemic is having a significant and widespread impact on global payments across sectors.
McKinsey & Company also talked about a possible changing role of regulators. Bruno: “I see that the regulatory community is already thinking about regulating what you do instead of who you are.”
Damage in the payment industry
The Global Payments Report shows the damage the payment industry is suffering worldwide as a result of the intervention of COVID-19. Global payment revenues are estimated to have dropped 22 percent in the first six months of this year compared to the same period in 2019. However, revenue is expected to recover to some extent in the second half of 2020, ending 7 percent lower than the full year 2019. Normally, an increase of around 7 percent year-on-year is visible, which means a total loss of around 11 to 13 percent.
Furthermore, it will come as no surprise that COVID-19 is likely to lead to a further decline in cash usage, as the pandemic has accelerated the transition from physical to virtual banking. As a result, banks in multiple geographies are closing branches (or in some cases will not reopen branches they closed due to the pandemic), as well as ATMs. In Australia, the top four banks have removed 2,150 ATM terminals and closed 175 bank branches since June.
Decrease of cash payments
Cash usage varies from country to country and depends, for instance, on a country’s digital maturity. In Sweden, 52 percent of payments in 2010 were made in cash, now it’s only 9 percent. In less mature markets, such as Argentina (95% in 2010, 87% in 2020) and Malaysia (93% in 2010, 72% in 2020), you see a decrease in the number of cash payments as well.
Bruno and Marc Niederkorn, Director at McKinsey & Company, also took the time to answer questions from the virtual audience. On a question about the future of banks, Bruno said the following: “Many global companies will organize themselves into a number of ecosystems. You can already see that almost 10 percent of commercial services and consumer digital commerce are organized in this way, but it also works in other sectors, such as real estate, education, transportation, mobility and a few others.”
Bruno: “In many places you can see that players who have a marketplace and have captured 20 percent of the market share are becoming involved in payments. Not because they find payment revenues attractive, but because they want to have the end-to-end customer experience, including the checkout. That’s why they create payment solutions. We see that banks and traditional players who go along with and help organize these ecosystems ultimately play a greater role than just financial services.”
Role of the regulator
Do Bruno and Niederkorn think that payment companies will buy banks in the future in order to offer broader banking products? Difficult to tell, said both. “I don’t know if there will be a rush of payment companies because of the regulators”, states Bruno. “However, we may see cases in the future where they are regulated and therefore forced to become a bank. I see that the regulatory community is already thinking about regulating what you do instead of who you are.”
“You see a number of European fintechs and payment offices that choose to apply for bank licenses”, Niederkorn adds. “So, there is clearly a reason why payment companies actually apply for banking licenses, without developing and offering broader banking products.”
Position of fintechs
One thing that has changed in comparison with Sibos last year, is the position of fintechs. Last year the sky was the limit for fintechs, but partly due to the current situation their position has changed. Bruno: “The position of fintechs is interesting, they are always very focused on where they can create value. It is a fresh view that financial institutions should take over, but I see that banks and traditional financial institutions are already much more thoughtful about their role in the value chain. I expect we will see many more partnerships and mergers and acquisitions activities in the coming times.”
And so COVID-19 already casts a shadow over the sessions at the beginning of this digital edition of Sibos. A shadow that will probably not disappear, because the impact of this virus affects everyone. Not only in terms of execution but also in terms of content this will be a different Sibos than other years, that is for sure.