16th October 2020

Moody's says global digitisation is calling traditional banks’ retail payment dominance into question

Growing global digitisation will continue intensifying market competition between non-traditional competitors and traditional banks within the retail payments sector, Moody’s Investors Service said in a report published this week.
While US and European banks have been better protected so far by their broad consumer financial product offerings and maintain a central role in global consumer payments, they are under competitive pressure from the so-called BigTech, digital challenger banks, and small FinTech niche players. In China, Alipay from Ant Group Co Ltd and Weixin Pay from Tencent have developed rapidly in retail payments and now hold commanding market shares.

“In this new digital world, banks’ ability to attract, retain and cross-sell to retail customers will likely decline along with their grip on the global market share. As banks’ share of electronic retail payment transactions declines, we expect revenue pressures to go up,” said Warren Kornfeld, Senior Vice President at Moody’s Investors Service, who co-authored the report with Niclas Boheman, a Moody’s Vice President – Senior Analyst.

Longer term, banks may need to pay more to maintain deposit inflows because of greater competition from online deposit offerings and from digital players inserting themselves between the consumer and the bank. In addition to this, consumers will be able to better manage cashflows thanks to digital payment management and budgeting tools, letting them keep lower deposit balances.

Ultimately, banks could lose a portion of their primary consumer relationships and be at risk of being demoted to more of a “product manufacturing role”, which is a lower margin activity. Furthermore, the huge investments required to stay at the forefront of technological change will further force global banking consolidation.

Moody's Trends(44 articles)