Payments key to profit margin for banks

Payments key to profit margin for banks

The payments business constitutes up to 35 per cent of revenues and 40 per cent of costs for banks and has a profound impact on overall profitability, according to a new report from The Boston Consulting Group (BCG).

BCG estimates that globally, payments revenues total nearly $260 billion per annum and are expected to rise to $386 billion by 2009. The company's new report, "Global Payments 2002", shows that for banks, this area is far more important than commonly appreciated, and suggests banks could raise their total revenues by as much as 7% and reduce total costs by up to 5%.

Nick Viner, a director and vice president of BCG and principal author of the report, says: "Banks need to focus on payments as one of their core strategic assets and recognise its overall importance to the institution. If managed through a clear, coherent strategy, payments can be a real source of competitive advantage and consistent profitability, whether in good times or bad."

The report notes that payments is at the heart of a bank's interactions with its customers, providing critical information, and is often the basis for the entire banking relationship. Few banks take advantage of this because payments information and responsibility are often scattered throughout the organisation, making it difficult to understand how payments affects the customer and banks' profits, says BCG.

The study also points out that banks need to move beyond the traditional conception of payments as merely a collection of back-office functions, based on a shared network infrastructure in which differentiation is impossible, and instead recognise payments as a highly competitive area.

Viner warns: "Having no strategy for a business that typically fuels about a third of revenues and up to two-fifths of costs is highly risky."

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