Banks in Hong Kong, mainland China must buck up or lose US$61 billion in revenue to e-payment providers, Accenture says

Banks in China and Hong Kong could lose as much as US$61 billion in revenue from payments in the next six years as digital wallets and competition from technology companies and other non-banks continues to increase, according to a report by Accenture.

In new data to be released on Monday, Accenture found that 2019 payments revenue is expected to increase by 69 per cent to US$494 billion by 2025 on the mainland, from US$292 billion this year. Hong Kong’s payments revenue growth is slower by comparison, increasing by 12.6 per cent over the same period to US$10.7 billion by 2025.

Accenture, the consulting and professional services firm, said banks will be required to change their business models and focus on providing more value-added services to capture the growth in payments revenue.

“The payments industry has been under a lot of pressure from new competition and margins are likely to get squeezed even further because the world of instant, invisible and free payments is here to stay,” said Albert Chan, Accenture’s financial services practice lead for Greater China.

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The report was based in part on the results of an online survey of 240 retail and corporate payments executives at global banks that was conducted in February and in March.

Accenture found that the worldwide payments industry could increase by more than US$2 trillion by 2025, with banks having the opportunity to capture US$500 billion of that growth.

The report comes as technology giants, such as Alibaba Group Holding and Tencent Holdings, are dominating the payments space in mainland China and Hong Kong’s first virtual banks are expected to begin offering services later this year or early next year.

Traditional banks, such as HSBC, Standard Chartered and Bank of China have responded by building out their own digital banking services or teaming up with technology partners.

HSBC, one of the major banks to eschew a virtual banking licence in Hong Kong, has expanded its PayMe e-wallet service to businesses this year and has been increasing its digital offerings in the city.

Standard Chartered has partnered with Chinese online travel group Ctrip.com and Hong Kong telecommunications companies HKT and PCCW to start a virtual bank, while developing its own digital offerings in Africa and in other parts of Asia. Standard Chartered expects its digital bank to begin operating by the second half of next year.

Accenture’s report found that free payments will put pressure on bank income from card transactions and fees – 5.2 per cent of revenue are at risk on the mainland and 23.9 per cent in Hong Kong. E-wallets, where consumers use mobile devices for payments, will put further pressure on payments, with 4 per cent of revenue at risk in China and 2.6 per cent of revenue at risk in Hong Kong, Accenture said.

Instant payments, where funds are transferred in real time and banks make little to no interest, will put an additional 3.6 per cent and 2 per cent of payment revenues at risk in mainland China and Hong Kong respectively, the company said.

Accenture noted that revenue from credit card transactions by business dropped by 33 per cent globally between 2015 and 2018, while consumer debit card transactions fell by nearly 15 per cent during that period.

“The digital transformation underway in payments will have a deep impact on all industry players and banks will have to fundamentally change how they think about their revenue in this area,” said Chan, the Accenture executive. “The billions of dollars banks previously earned from some of these channels will dry up, so they’ll need to develop new digital business models to compete in this new era. Banks lagging behind risk being relegated to the plumbing of payments.”