KPMG Looks at Global Payments

“Payments and payment systems are important to banks because they are the ‘life blood’ of the customer relationship and provide a steady revenue base,” said Mitch Siegel, director of payment advisory services in KPMG LLP's Financial Services practice. “Cost pressures due to the current economic environment are causing banks to focus investment on projects that will improve efficiency and reduce costs -- while concurrently addressing risk management issues -- in the short- to medium-term at the expense of long-term product innovation and infrastructure standardization.”

Carl Carande, a principal in KPMG LLP’s Advisory and Banking and Finance practices, added: “The financial crisis unveiled ‘systemic risk’ for payments providers on an unprecedented scale; the risk that a financial institution counterparty defaults ‘in bulk’ during the clearing and settlement cycle is an increasing concern. This will lead to calls for more disclosure, faster settlement, new risk management systems, and increased regulation.”

For this reason -- according to KPMG’s white paper -- executives say that investment in security services such as common identity management and two-factor authentication will increase since these are important to risk reduction in payments.

“While investment in these cost-improving and risk management measures is key, banks may be challenged to implement necessary customer-facing projects in the current economic environment,” said Carande. “Customers are demanding that more data accompany their transactions and they want increasing levels of transparency and visibility into their accounts, transactions and cash positions.”

Siegel added: “New products such as mobile payments and international remittances require investment in infrastructure and in many countries these projects may have a slow payback and thus will proceed at a slower pace. But for banks with a presence in emerging and high-growth markets where mobile phones outnumber fixed lines and the penetration of banking services is low, both of these products are strategically important and banks from these regions may seek to export their knowledge and systems to more developed markets.”

Among other findings:

• Payments continue to converge on a uniform platform;
• There are organizational barriers to optimizing the technology used for payment processing with each business area (retail, corporate, cards) seeking to manage its own infrastructure;
• Partnerships could allow more flexible transaction initiation from a wider range of devices and systems, but a lack of agreement on the type of security structures hampers them; and
• The need for clear strategic focus has never been greater for payment services providers.

KPMG’s white paper was developed from in-depth interviews of 25 senior representatives of industry regulators, major banks, and financial technology companies conducted to gain their insights on the future of the global payments industry (2009-2014) and the key drivers and opportunities for the sector amidst the changing economic conditions. The results showed a wide range of views from different global regions, types of banks and activities of the respondents.