A recent study by McKinsey, "Global Payments 2014" provides a great overview of how the payments industry is changing and the impacts that these changes will have on banks. The report argues technology firms and startups will provide the most competition to the incumbents.
"They (banks) did create online banking, but they did it at banking speed. Now they have to operate at Silicon Valley speed.”
The global payment business is growing at a healthy pace and by 2018 will account for 43 percent of all banking revenue, up from 34 percent in 2009, McKinsey concluded in a recently released study, “Global Payments 2014.” Asia-Pacific (APAC)—which currently accounts for the largest share of payments revenues (40 percent)—will continue to be the engine of growth, contributing 56 percent to the global increase in revenues over the next five years, the study reported. China alone will account for 40 percent. Western Europe and developed Asia, where growth has been negative in recent years, will return to positive growth. The digital transformation of payments, particularly through smartphones and tablets, is helping to grow merchant payments. “The question is whether incumbents will be nimble and innovative enough to tap into a significant share of this growth.” Incumbents, in this case, means banks. “I don’t think banks are going to lose,” said Philip Bruno, a senior partner in McKinsey’s Global Payments Practice. Back in the days of Internet 1.0 it was popular to say the world needs banking it just doesn’t need banks, he recalled. The threats then were mostly small startup while today banks face potential competition from large, tech-savvy companies with ample treasuries — Google and Apple, for example. “The payment market then was $112 billion and banks owned it end to end, Today in US it is $290 billion and banks have well over a 90 percent share.”