As Fintechs Like Square and Stripe Threaten Bank Revenue, Banks Turn to Competitors for Help

It’s obvious to many observers that the rising competition from fintech companies including the likes of payment facilitators Square and Stripe is having an impact on banks.

A recent report from Accenture puts a dollar amount on that impact. 

According to the report, competition from nonbanks, along with other environmental factors, could cost banks $280 billion in payments revenue by 2025. 

The study predicts that payments revenue will grow at 5.5% annually – climbing from $1.5 trillion in 2019 to $2 trillion in 2025, representing $500 billion in incremental revenue. Much of that revenue will be claimed by competition from nonbanks and other factors such as price compression, the consulting company said.

The news isn’t all bad for banks, however. Those that adapt their business model to the changing environment and distinguish themselves with a better customer experience will retain more of that new revenue, Accenture said.

“Rather than being at the forefront of the new wave of the booming payments market, banks are feeling the heat from new competition and seeing their margins squeezed,” Gareth Wilson, Accenture’s global payments lead, said in a press release

“We face an inevitable world of instant, invisible and free payments, which spells trouble for banks that don’t want to be relegated to the plumbing of payments. But it also presents an opportunity to tap into a new business model based on this digital boom.”

A separate report from CB Insights suggests that leading banks are already well on their way, shaping their strategies in response to this opportunity. An article in CNBC cites data from the research firm that shows a trend among big banks of investing in potential competitors. They’re seeking either to tap into the fintech companies’ technological know-how, benefit from the companies’ growth, or both. 

Payments and settlement represent the top area of fintech investment for banks such as Citigroup, Goldman Sachs and JP Morgan Chase, according to the CB Insights data. The article highlighted the investments that JP Morgan Chase has recently made in the business through its acquisitions of PFs WePay and InstaMed.

“This is helping them diversify the overall business,” CNBC quoted WePay’s COO Tina Hsiao as saying. “We fit a certain product set and can underpin all of J.P. Morgan’s small business merchant payments, which could be a big future revenue generator.”

Hsiao told the publication that Chase was benefitting from WePay employees’ knowledge about technology and recruiting, calling the deal “a bit of a reverse acquisition” in that way.