Transaction banking faces continued pressure from disruptive solutions from blockchain and cryptocurrency ventures, which are taking a significant share of a once-upon-a-time undisputed market.
While bleeding customers and transaction volumes, banks remain confident that its legacy technology is ‘good enough for now.’
Banking Industry in Denial While Losing International Payments Business
Over the last year, banks have lost 40% of market share for consumer-to-consumer (C2C) cross-border payments to non-banks.
Data on consumer-to-business (C2B) and business-to-business (B2B) payments also show that businesses are going around financial institutions in order to have their international payments processed in a fast, secure, and cheaper way. Banks have lost 30% of the C2B payments market and 5% of the B2B market.
Jinal Surti, Director of Business Operations at Ripple, the real-time gross settlement system and remittance network based on distributed ledger technology, is appalled that banks at the annual BAFT Conference this month are okay with their legacy systems in spite of the disruption in the space.
“It worries me that banks believe this. Far too many leaders in the space are missing the forest for the trees — shrugging off advances as not important to their business objectives today, or in the future.”
Non-banks are taking over an increased market share of international payments and are being able to cater to a wider range of client profiles in an increased number of services.
TransferWise used to serve consumers only and is now offering services, including process batched payments, to small- to medium-enterprises (SMEs). The platform’s role has widened from being a cross-border payments service to a multi-currency account holder for businesses and a deposit holder with its customers.
Non-bank institutions are proving banks are no longer essential as they become just a ‘utility’ in the system. The economy no longer needs liquidity services from banks to process international payments as digital assets made it possible for small banks and non-banks to send money with no pre-funded destination liquidity.
Cryptocurrency is democratizing the global access to finance and liquidity while forcing a re-shuffle of the banking hierarchy. Quality customer experience will dictate the industry leaders in the business as they compete with scalable, real-time, and on-demand infrastructure that reduces the marginal cost of a transaction, potentially to zero.
“The traditional banking infrastructure is failing and banks need to employ new technology today to remain competitive. Because payments are just the beginning. Losing payments leads to losing a lot more,” Ripple’s Surti added, as the company positions itself as a remittance solutions provider for the banking industry.