South-east Asian banks could miss out on as much as US$5 billion (S$6.8 billion) in payments revenue due to competition from fintech rivals, said a new report.
It noted that over the next six years, banks will face further pressure on income from card transactions and fees, with free payments putting 9.6 per cent of payments revenue at risk in the region.
In addition, competition from non-banks in invisible payments - which are completed in a "virtual wallet" on a mobile app or device - will put 3.1 per cent of bank revenues at risk, said professional services firm Accenture, which conducted the study.
Another threat comes from cards being displaced by instant payments, where funds are settled and transferred in real time, meaning banks make little to no interest. This is projected to put an additional 1.7 per cent of payment revenue in jeopardy.
Mr Divyesh Vithlani, who leads Accenture's financial services practice in Asean, said: "The world of instant, invisible and free payments is here to stay, squeezing margins further on a business that was already feeling a lot of pressure from new competition, particularly in South-east Asia with the proliferation of e-wallets.
"As payments modernisation has already made headway in Asean, revenue from the consumer space is already low or near zero, except in the cards space, so the push to find alternate sources of revenue and optimise costs is already an immediate concern here."
Mr Vithlani added that the payments market is booming, creating a multibillion-dollar opportunity for those willing to invest in new technologies and business models.
In Singapore, as much as 20 per cent of bank payments revenue, or nearly US$1.3 billion, is likely to be displaced by the growth of digital payments and competition from non-banks, Accenture said.
The world of instant, invisible and free payments is here to stay, squeezing margins further on a business that was already feeling a lot of pressure from new competition, particularly in South-east Asia with the proliferation of e-wallets.
MR DIVYESH VITHLANI, who leads Accenture's financial services practice in South-east Asia, on new payment technology affecting banks in the region.
However, with payments revenue here growing at an annual rate of 3.6 per cent, from US$6 billion this year to an estimated US$7.5 billion or so by 2025, banks will still have an opportunity worth about US$1.4 billion in incremental revenue growth to tap.
Overall, the survey, which polled 240 payments executives from the largest banks across 23 markets, found that the industry is aware of the challenges posed by new payment technology.
It noted that 71 per cent of the banking executives polled agree that payments are becoming free, while 73 per cent believe that most payments are already invisible or will become so over the next year.
And 78 per cent said payments are either already instant or will become so over the next year.
"The digital transformation in payments throughout the region 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 Mr Vithlani. "Banks previously earned billions of dollars from some of these channels... so they'll need to develop new digital business models to compete."
The study noted that 18 per cent of respondents said the main priority for banks in meeting these challenges is to build security into retail payments transactions.
Artificial intelligence, robotics, machine learning and innovative payments hubs were cited by 22 per cent as being the key technological capabilities they need to adapt their core systems to high-speed and continuous payment flows.
The report also recommended that banks scale their technology to re-imagine how their core payments operations are done, and to differentiate themselves by adding value in a low-margin, high-volume business.
Three tactics to better differentiate their payments business and increase profitability include focusing on customer-centric value-added services, open banking for corporates and data monetisation, said Accenture.