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The Bright Future of European Payments: Euro Banking Association Report

Euro Banking Association in a joint report with McKinsey examines the options for banks in a changing landscape

Payments and accounts services are at the core of banks’ offering to customers. They contributed about a third of European banks’ total revenues in 2019, and represent banks’ leading source of customer interactions.

Banks’ payments revenues have grown steadily at about 3 percent per year over the past six years. However, some specialist payments providers—processors, acquirers, schemes, and others—have achieved double-digit growth rates over the same period. This suggests that banks’ traditional role at the centre of the payments ecosystem may be coming under challenge.

High ambitions, significant challenges

Almost two-thirds of the executives and experts who were surveyed as part of a joint effort undertaken by McKinsey & Company and the Euro Banking Association between November 2019 and November 2020, believe that banks will continue to be the leading players in European payments over the next five years.

However, survey respondents and interviewees identified a number of challenges faced by banks. These included increasing competition (especially from tech companies and fintechs), the rise of technologies that could allow other payments providers to come between banks and their customer relationships, the lack of flexibility in banks’ operating models, the constrained revenue environment, rising customer expectations, and the complex regulatory outlook. Executives also identified gaps in the capabilities and practices needed to grow their payments business, especially in technology, organisational agility, and monetisation models.

The effects of the pandemic

According to McKinsey’s Global Payments Map, the impact of the COVID-19 pandemic is likely to cause a temporary fall of about 6 percent in European payments revenues in 2020, followed by a rebound. Fee-dependent revenues may recover more rapidly than interest-dependent revenues, although these had less room for decline given the long-term compression of net interest margins in Europe. Further fuel for a rebound may come from an acceleration in electronic payments in southern and eastern Europe as these regions catch up with digital migration in the north and west.

Many of the executives interviewed observed that the crisis had prompted them not to change the direction of their payments business but to reinforce their commitment to digitising customer journeys, introducing machine learning, and improving their technological and operational resilience.

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