Banks must change their business model
BCG and SWIFT’s white paper formulates strategic choices banks face as new forces in international payments drive profound transformation
This press release is also available in Spanish.
Brussels, 3 October 2017 – Findings from a joint white paper produced by Boston Consulting Group (BCG) and SWIFT examine the forces in international payments that are driving profound changes to the banking industry as a whole and specifically to mid-sized banks.
The white paper, entitled “International Payments: Accelerating Banks’ Transformation” , reviews the new forces reshaping the international payments landscape, including the emergence of FinTech competition, globalisation of trade, digitalisation of interfaces, client expectations for more transparency, increasing regulatory activism, new technologies like open APIs, and cybersecurity.
The paper concludes that banks will have to change their business models significantly, as follows:
- Global transaction banks, though well-positioned to address change because of their size and scale, still need to ensure successful integration of new technologies;
- Smaller banks will need to continue to maximise their close relationships with preferred customers while outsourcing their subscale international payments operations to larger players;
- The situation of mid-sized banks is the most problematic. As banking becomes more automated and regulated, their costly branch networks and lack of scale is putting them at a serious disadvantage. These banks may perhaps need to consolidate and transform their business models in order to maintain relevancy in tomorrow's international payment landscape.
Stefan Dab, Global Head of BCG Transaction Banking Practice comments, “If banks want to continue to be successful in international payments, they will have to transform their back offices, service offerings and technological capabilities. Mid-sized banks will face the most difficult strategic choices and change their business model depending on where their competitive advantages lie.”
Other highlights of the report include:
- Cross-border payments, FX transactions and trade services delivered revenues of $145B in 2016 and this revenue is expected to grow at a rate of 6% per annum until 2022;
- However, as banks face increasing competition, an alignment of international payments on domestic price levels could generate a 60% revenue loss, as international payments account for 5% of transactions in volume but represent 12% of the revenues banks derive from payments;
- The revenues of Salesforce, EBay and Expedia are now, respectively, 50%, 60% and 90% API-generated. This trend will be reinforced in banking and payments by new regulations, such as PSD2 in Europe, which are effectively pushing the market towards open-banking.
Harry Newman, SWIFT’s Head of Banking, says, “These new forces in international payments will drive profound change in the financial industry. At SWIFT, we support our banking member community with solutions like SWIFT gpi and The KYC Registry, which help banks to significantly reduce their operational costs, improve their client experience and transform their business models.”
Download the BCG/SWIFT white paper on International Payments.
SWIFT is a global member owned cooperative and the world’s leading provider of secure financial messaging services. We provide our community with a platform for messaging and standards for communicating, and we offer products and services to facilitate access and integration, identification, analysis and regulatory compliance.
Our messaging platform, products and services connect more than 11,000 banking and securities organisations, market infrastructures and corporate customers in more than 200 countries and territories. While SWIFT does not hold funds or manage accounts on behalf of customers, we enable our global community of users to communicate securely, exchanging standardised financial messages in a reliable way, thereby supporting global and local financial flows, as well as trade and commerce all around the world.
As their trusted provider, we relentlessly pursue operational excellence; we support our community in addressing cyber threats; and we continually seek ways to lower costs, reduce risks and eliminate operational inefficiencies. Our products and services support our community’s access and integration, business intelligence, reference data and financial crime compliance needs. SWIFT also brings the financial community together – at global, regional and local levels – to shape market practice, define standards and debate issues of mutual interest or concern.
Headquartered in Belgium, SWIFT’s international governance and oversight reinforces the neutral, global character of its cooperative structure. SWIFT’s global office network ensures an active presence in all the major financial centres.
About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world’s leading advisor on business strategy. With 85 offices in 48 countries.The firm advises clients in the private, public, and not-for-profit sectors around the world. Their specialities include: Consumer insight, corporate development, corporate finance, digital economy, globalization, growth, information technology, innovation, marketing & sales, operations, people & organization, postmerger integration, risk management, strategy, sustainability, transformation
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