FIs face USD 250 bln challenge to improve customer's digital experience

By 2030, 60% of global consumers will have made a transaction using a unit of value other than fiat currency, while 73% of global consumer payments will be processed by non-financial institutions on the Internet of Payments. These forecasts by market research firm IDC reinforce the need for incumbent financial institutions to adapt their technology quickly for a market in which consumers expect more choice in terms of units of value – including digital assets and loyalty programme points – as well as more tailored payments and credit propositions. 

They also spell out the cost of failing to adapt: USD 250 billion of payments revenue could otherwise move to non-financial institutions by 2030, according to IDC estimates. IDC’s data shows that 73% of financial institutions around the world have technology infrastructures for payments that are ill-equipped to handle payments for 2021 and beyond. For many incumbents, that means existing payments infrastructure needs to be upgraded, payment workflows need to be more data-driven, and risk management needs to be more flexible to adapt to the regulatory requirements for non-fiat currencies and other units of value.

Yet legacy technology is costing financial institutions more and more, restricting investment in vital digital transformation. IDC estimates that financial institutions’ global spending on payments technology will double from USD 39.7 billion in 2020 to USD 80.3 billion in 2030. With the rise of embedded finance, and Banking-as-a-Service solutions, non-financial players can offer payments solutions and are increasingly owning the customer relationship. By 2030, IDC forecasts that 74% of digital consumer payments globally will be conducted via platforms owned by nonfinancial institutions.  Although banks will no longer dominate payments as they have in the past, this does not mean they may be side lined altogether. Instead, they need to rethink how they interact with fintechs as well as the new generation of blockchain-based digital finance provides, according to Episode Six.