Only 9% of the world’s top tier banks are effectively monetising payments data

19 November 2019

London, 19th November 2019 – Icon Solutions, the leading provider of technology solutions and payments expertise, today revealed that only 9% of the world’s top tier banks are effectively monetising payments data. The findings from Aite Group‘s report “The Payments Transformation Race: Criteria for Success”, commissioned by Icon Solutions, also revealed that 82% of banks continue to rely on a transaction based revenue model, despite nearly two thirds of respondents (65%) reporting that payment services are operating close to (or below) profitability.

Transaction-led models are becoming unprofitable

Based on a global survey of senior executives at the world’s top-tier banks, the report reveals that despite high costs, low margins and increasingly commoditised services, banks continue to rely on transaction-based revenue models. This model is based on transaction fees (100%), subscriptions (60%) and account fees (14%), which have historically been the key revenue driver for banks.

However, this model as become unprofitable due to the cost of implementing new payments rails such as Real Time Payments (RTP), underlying infrastructure costs (hardware and software), and the need to reduce transaction fees in response to increased competition. In addition, as Open Banking drives players towards a ‘platform-based’ business model, the ability to partner and collaboratively build new services quickly becomes an imperative that is not cost sustainable today. According to the report these evolving requirements cannot, and will not, be met by existing transaction-led revenue models.

To offset the fall in payment profitability, the report calls for banks to use payments data to develop enhanced business services based on data-analytics that will open up new revenue streams and increases customer ‘stickiness’.

“We’ve reached a tipping point,” said Erika Baumann, Senior Research Analyst, Wholesale Banking & Payments at Aite Group. “Real-time payments data has transformative potential for financial institutions facing an existential crisis precipitated by the rise and threat of ‘Big Tech’ and fintech providers. To date, due to compliance and data governance issues, banks have been unable to harness this data. Open Banking changes that. Banks now have a license to capitalise on these unique and powerful data sets.”

“However, the equivalence inherent in Open Banking means that if financial institutions don’t put available data to work soon, one of their competitors certainly will”, concluded Baumann.

Monetise payments data to unlock new revenues

The report highlights the potential for banks to leverage data-driven revenue models that can monetise rich payments data through the delivery of new services and capabilities. These offerings range from enhanced account and transaction information to potentially pre-integrated into ERP, treasury management, and accounting systems.

For 9% of the world top tier banks, this ideology and revenue model isn’t new. BBVA’s ‘PayStats’ offering provides anonymised and aggregated statistical data from millions of transactions performed with BBVA cards and any other cards in BBVA POS terminals, creating a virtual map comprised of consumers’ habits, demographics and origins – for other companies to purchase. Square provide a similar capability to their merchant customers.

However, most banks are struggling to change revenue models. This is due to three factors:

  • Short-termism: Monetising payments data is a less important driver for change (18%) when compared to RTP (77%). In the US, existing revenue streams from payment transactions mean that banks are reluctant to impact what is still perceived as a ‘cash cow’.
  • Complacency: ‘If it’s not broken, don’t fix it’ attitudes held by the banks. This is dangerous as the tipping point can come very suddenly – just like the “Kodak moment” – and fast, leaving too little time to react.
  • Guidance: Many other banks are aware that they need to use payment data and alter their revenue model, but simply do not know how to transition.

“Merely collecting data is not enough; mining and extracting value from this data will be a decisive differentiating factor for banks and other players looking to compete and take their customer propositions to the next level,” said Simon Wilson, Director of Payments Solutions at Icon Solutions. “Beyond this, by capitalising on the data they have, banks will also be able to offer services like auto saving to retail customers and improving the ‘procure to pay’ process for corporates – from signing the contract to being ready for payment, tying together all the interactions points on the journey could be crucial.”

Wilson continued, “For banks, data – and payments in particular – should be at the epicentre of their strategies to unlock new revenues, better serve customers and better compete with data-centric rivals.”

Download a copy of “The Payments Transformation Race: Criteria for Success” here.