Accenture research finds COVID-19 Increases Urgency for Banks to Transform Payment Systems as Digital Payments Soar

The rapid shift to digital payments due to the COVID-19 pandemic is urgently increasing the need for banks to modernise their payment systems, according to a new report from Accenture.

The report, titled “Playing the Long Game in Payments Modernisation,” is based on a survey of 120 payments executives at banks globally regarding the transformation of their payments business, as banks make multi-year investments to compete with non-bank digital-payments providers and comply with new regulations.

In the report, Accenture forecasts nearly 420 billion transactions worth US$7 trillion are expected to shift from cash to cards and digital payments by 2023 – and increase to US$48 trillion by 2030. The rapid move to digital payments has put additional pressure on banks, with three-quarters (75%) of surveyed bank executives saying that the pandemic has increased the urgency of their plans to modernise payment systems.

“The accelerated shift to digital payments driven by COVID-19 is as prevalent in Ireland as it is globally, where we witnessed a rapid drop-off in ATM cash withdrawals and a surge in online transactions,” said Billy O’Connell, who leads Accenture’s Financial Services practice in Ireland. “The pandemic will permanently change how consumers shop and pay for products as they prioritise convenience above all else. Coupled with these changing expectations, partly driven by Fintechs, banks have a real opportunity to embrace the changing consumer dynamic and create value through innovation, such as enabling the move to real-time payments and expanding digital payment capabilities.”

The survey finds three quarters (75%) of banks see payments modernisation as being driven by national payments infrastructure changes and regulation, which include improving bank-to-bank payments systems, new industry standards with ISO20022 and Open Banking.

Transition to digital payments varies by market

The rapid shift to digital payments differs across countries, depending on the rate of cash decline, adoption of e-commerce and how active Big Tech companies are in providing payment services.

Using Accenture’s Payments Disruptability Index, which measures current and future levels of disruption for the payments industry, the report notes that disruption is highest in the U.S., closely followed by the U.K., as consumers opt for new ways to pay and non-banks seize the opportunity to provide payments services. In China, mobile wallets are rapidly displacing cash payments — 76% of transactions in 2019 originated from mobile wallets, up from 12% in 2014 — as consumers in China have already been accustomed to using mobile apps and QR codes to pay at restaurants and stores for several years.

“COVID-19 has caused consumers to be more open to digital financial transactions, and this shift will increase competition as alternative payments providers vie for market share here in Ireland,” added Billy O’Connell. “Successful banks will be those that embed modern payments into how technology is run and governed within the bank, with more attention to flexible IT architecture and cloud technology that is better integrated across the business.”

Modernisation programmes not generating revenue growth

Although many of the bank executives surveyed cited revenue growth as a key objective for their payments modernisation programmes, only 13% said that their bank’s payments revenue has increased by more than the average market growth rate of 6% in the last three years, and only 16% expect to grow payments revenues more than the anticipated average growth rate of 5% over the next three years.

While payments transformation is part of most banks’ broader digital transformation efforts, two-thirds (65%) of bank executives said that the cost of maintaining legacy technology in their payments systems is impeding their ability to invest in new customer solutions. For example, even though many banks have adopted cloud systems in other parts of their business to improve operational resiliency, only 38% of banks are investing in cloud systems for payments. With the pandemic creating a new inflection point for companies to accelerate their digital transformations, Accenture recently announced an investment of $3bn over three years to launch its Cloud First practice to help businesses accelerate their move to the cloud.

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