Death of a cash cow? Funds transfers are the lifeblood of most banks. Consumers and business clients make their deposits, transfer money to pay bills and suppliers, and pay the bank a seemingly modest service fee for the privilege. Sometimes the fee is a tiny percentage of each transaction; sometimes there is a per-transaction fee; sometimes it’s a flat monthly service charge. In many cases no fee is actually charged, but the customer is still paying through the loss of float (because the bank has access to the capital).
Simply put, funds transfers have long been a cash cow for banks. And, for a long time, they have been the exclusive domain of financial institutions. But things are changing. Banks are now dealing with a new competitor: electronic payment services.
This is the conclusion of a recent report “Industry Compass 2012 Credit Institutions” from Steria Mummert Consulting and the F.A.Z. Institute. They questioned 120 industry professionals from 120 credit institutions throughout Germany and Austria. The consensus: The pressure exerted on bank revenues by non-traditional players in the market is increasing, due in large measure to newcomers who are able to combine technological innovation with customer-friendly financial services.
Consider, for example, the rapid rise of mobile payments through apps with payment functions—such as myTaxi, iZettle, Square, SumUp. These combine smartphone and credit or debit cards, offering an uncomplicated card-acceptance facility that companies can offer to their customers over their billing systems. This development is particularly useful for small businesses.
According to the survey respondents, it is not only Internet-based payment services that are threatening the banks’ cash cow. Even more ominous for banks are new peer-to-peer (P2P) systems that use virtual platforms to broker financial operations between Internet users. “Crowd funding” is one example that is gaining popularity: films such as Iron Sky and Stromberg successfully generated a significant part of their production budgets in this manner.
Already, 36 percent of banking experts surveyed see social media and P2P platforms as a competitive threat. Among traditional savings banks this figure rises to one in two.
And nowhere is the rise of direct, real-time funds transfer more potentially impactful than in the B2B payment transaction sector—the area where the highest volume of funds transfers takes place. According to Boston Consulting Group, 2010 alone saw over 65 billion transactions recorded between companies. The total market is valued at around $245 billion U.S. annually. Today, many commercial banks still rely on 20-year-old systems and handle their payments via hand-written processes. This leads to companies being denied important liquidity as a result of their funds being tied up in the system for anywhere between one and five days – in relation to the sums involved, this is a small eternity. This fact shows the importance of real-time payment solutions, which provide companies with instant access to their financial resources. The result will be that traditional payment periods quickly become obsolete.
The banks are facing a choice as the momentum builds for direct, real-time funds transfer: try to continue with business as usual and witness steady erosion in revenue, or embrace the change and be part of the innovation that is reshaping the competitive landscape in B2B financial flows.
Traxpay’s relationship with net-m Privatbank 1891 provides an example of a way forward for banks. Through cooperation with the bank, we create a new role for a “near-bank” (as opposed to a non-bank) that can help increase the efficiency of a company’s capital base. The Traxpay payment solution adds value for both the bank and its customers: it offers simple, reliable, real-time transaction execution 24/7 across the B2B supply chain—with total visibility and instant traceability, ensuring that companies always know where they stand financially.
The above-mentioned Industry Compass report shows that Traxpay is on the right path. We have the confidence to expand our services into the future. Why? Because we offer customers the choice between the current services offered by traditional banks, and full control over a transparent payment process. For banks and the customers they serve, it’s a win-win.