The rapid shift to digital payments due to the COVID-19 pandemic is urgently increasing the need for banks to modernize their payment systems, according to a new report from Accenture (NYSE: ACN).

The report, titled “Playing the Long Game in Payments Modernization,” is based on a survey of 120 payments executives at banks globally regarding the transformation of their payments business, as banks make multi-year investments to compete with non-bank digital-payments providers and comply with new regulations.

In the report, Accenture forecasts nearly 420 billion transactions worth USD 7 trillion, globally are expected to shift from cash to cards and digital payments by 2023 – and increase to USD 48 trillion by 2030. In India, 66.6 billion transactions worth USD 270.7 billion are expected to shift from cash to cards and digital payments by 2023 – and increase to USD 856.6 billion by 2030.  The rapid move to digital payments has put additional pressure on banks, with three-quarters (75%) of surveyed bank executives saying that the pandemic has increased the urgency of their plans to modernize payment systems.

“COVID-19 has accelerated the shift to digital payments at a pace banks could not have predicted,” said Sulabh Agarwal, who leads Accenture’s Payments practice globally. “The pandemic will permanently change how consumers shop and pay for products as they prioritize convenience above all else. While banks’ investments in new payments systems have focused primarily on meeting compliance deadlines, the way they will drive value moving forward is by embracing the changing consumer dynamic and improving the customer experience.”

Sonali Kulkarni, Lead – Financial Services, Accenture in India said, “While India has been ahead of the curve in terms of real-time digital payments infrastructure driven by UPI and 24×7 NEFT,  the pandemic has led to a further  increase in digital, contactless payments as consumer behavior has undergone a shift. With newer players launching their payments offerings and increased uptake of ‘Buy Now Pay Later’ schemes, consumer experience and convenience is bound to improve significantly. Banks in India have been making multi-year investments to modernize their payments systems, and going forward, we expect them to strengthen these investments to scale up and improve the resilience of their digital payment operations.” 

The survey finds three quarters (75%) of banks see payments modernization as being driven by national payments infrastructure changes and regulation, which include improving bank-to-bank payments systems, new industry standards with ISO20022 and Open Banking.

Transition to digital payments varies by market

The rapid shift to digital payments differs across countries, depending on the rate of cash decline, adoption of e-commerce and how active Big Tech companies are in providing payment services.

Using Accenture’s Payments Disruptability Index, which measures current and future levels of disruption for the payments industry, the report notes that disruption is highest in the U.S., closely followed by the U.K., as consumers opt for new ways to pay and non-banks seize the opportunity to provide payments services. In China, mobile wallets are rapidly displacing cash payments — 76% of transactions in 2019 originated from mobile wallets, up from 12% in 2014 — as consumers in China have already been accustomed to using mobile apps and QR codes to pay at restaurants and stores for several years.

“COVID-19 has caused consumers to be more open to digital financial transactions, and this shift will increase competition as alternative payments providers vie for market share,” said Alan McIntyre, who leads Accenture’s Banking practice globally. “The e-payments opportunity for banks varies greatly by market and depends on the maturity of the transition to digital payments. In mature markets — such as Western Europe, where payments have been largely commoditized — we expect to see only incremental change. The greatest opportunity will be in markets like Southeast Asia and Latin America, where cash usage has dominated and, in some regions, even increased during the pandemic.”

Modernization programs not generating revenue growth

Although many of the bank executives surveyed cited revenue growth as a key objective for their payments modernization programs, only 13% said that their bank’s payments revenue has increased by more than the average market growth rate of 6% in the last three years, and only 16% expect to grow payments revenues more than the anticipated average growth rate of 5% over the next three years.

While payments transformation is part of most banks’ broader digital transformation efforts, two-thirds (65%) of bank executives said that the cost of maintaining legacy technology in their payments systems is impeding their ability to invest in new customer solutions. For example, even though many banks have adopted cloud systems in other parts of their business to improve operational resiliency, only 38% of banks are investing in cloud systems for payments. With the pandemic creating a new inflection point for companies to accelerate their digital transformations, Accenture recently announced an investment of USD 3 billion over three years to launch its Cloud First practice to help businesses accelerate their move to the cloud.

“Banks are stuck in the cycle of improving their payments systems with ad-hoc technology solutions to meet new industry standards and reduce costs,” Agarwal said. “Banks are waking up to the reality that the way to make meaningful changes that resonate with consumers is to make payments modernization a business priority and that it can no longer be confined to the IT department. Successful banks will be those that embed modern payments into how it runs and is governed, with more attention to flexible IT architecture and cloud technology that is better integrated across the business.”

Accenture’s Banking industry group helps retail and commercial banks and payments providers boost innovation; address business, technology and regulatory challenges; and improve operational performance to build trust and engagement with customers and grow more profitably and securely. To learn more, visit www.accenture.com/us-en/industries/banking-index.