Bank Profitability From Payments Threatened
The Boston Consulting Group has announced a new global study that predicts "a dramatic reduction in the profitability of the payments business at many banks."
Although global payments revenues for the overall banking industry are predicted to increase to nearly $390 billion by 2011 -- one-third higher than ten years earlier -- changing customer behavior, increased regulation, and more competition from nonbanks will significantly erode profit margins.Nick Viner, a senior vice president and director in the London office of The Boston Consulting Group, said, "Typically, banks draw more than one-third of their revenues and a material share of their profits from payments. If this core source of earnings is eroded, it will have a severe impact on the overall profitability of many banks."
There is a two-pronged threat, according to Viner. First, banks risk being forced out of the payments business unless they make significant investments to upgrade systems and improve the service they offer customers. Second, they risk seeing their core banking business suffer. That is because a successful loans and deposit business relies on payments.
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