Findings from a joint white paper produced by Boston Consulting Group (BCG) and SWIFT examine the forces in international payments that are driving profound changes to the banking industry as a whole and specifically to mid-sized banks.
The white paper, entitled “International Payments: Accelerating Banks’ Transformation”, reviews the new forces reshaping the international payments landscape, including the emergence of FinTech competition, globalisation of trade, digitalisation of interfaces, client expectations for more transparency, increasing regulatory activism, new technologies like open APIs, and cybersecurity.
The paper concludes that banks will have to change their business models significantly, as follows:
• Global transaction banks, though well-positioned to address change because of their size and scale, still need to ensure successful integration of new technologies;
• Smaller banks will need to continue to maximise their close relationships with preferred customers while outsourcing their subscale international payments operations to larger players;
• The situation of mid-sized banks is the most problematic. As banking becomes more automated and regulated, their costly branch networks and lack of scale is putting them at a serious disadvantage. These banks may perhaps need to consolidate and transform their business models in order to maintain relevancy in tomorrow's international payment landscape.
Stefan Dab, Global Head of BCG Transaction Banking Practice comments, “If banks want to continue to be successful in international payments, they will have to transform their back offices, service offerings and technological capabilities. Mid-sized banks will face the most difficult strategic choices and change their business model depending on where their competitive advantages lie.”
Other highlights of the report include:
• Cross-border payments, FX transactions and trade services delivered revenues of $145B in 2016 and this revenue is expected to grow at a rate of 6% per annum until 2022;
• However, as banks face increasing competition, an alignment of international payments on domestic price levels could generate a 60% revenue loss, as international payments account for 5% of transactions in volume but represent 12% of the revenues banks derive from payments;
• The revenues of Salesforce, EBay and Expedia are now, respectively, 50%, 60% and 90% API-generated. This trend will be reinforced in banking and payments by new regulations, such as PSD2 in Europe, which are effectively pushing the market towards open-banking.
Harry Newman, SWIFT’s Head of Banking, says, “These new forces in international payments will drive profound change in the financial industry. At SWIFT, we support our banking member community with solutions like SWIFT gpi and The KYC Registry, which help banks to significantly reduce their operational costs, improve their client experience and transform their business models.”