As the value of payments declines, the volume of payments transactions increases, prompting banks to find ways to better manage their risk and the fee-generating opportunities around this business, said KPMG.
In its latest white paper, "The Beating Heart of Banking: Insights into Global Payments," KPMG researchers spoke to 25 senior regulators, banking executives and financial technology company executives to seek their insights on the future of the global payments industry through 2014. They discovered that the financial crisis added a new dimension to the area of payments risk.
"The financial crisis unveiled 'systemic risk' for payments providers on an unprecedented scale; the risk that a financial institution counterparty defaults 'in bulk' during the clearing and settlement cycle is an increasing concern," said Carl Carande, a principal in KPMG's Advisory and Banking and Finance practice, in a statement. "This will lead to calls for more disclosure, faster settlement, new risk management systems, and increased regulation."
For this reason respondents to KPMG's survey said that investment in security services, such as common identity management and two-factor authentication, will increase since these are important to risk reduction in payments.
Yet priorities in payments overall have changed since 2007, noted KPMG. Whereas banks two years ago were focused on investing in new products and services like mobile and stored value cards, today banks are more concerned with achieving cost savings—achieving greater scale, consolidating existing systems and reducing marketing and sales budgets.
They are also pulling back on their expansion plans in the U.S. and Europe due to a greater focus on risk and compliance. If anything, companies are looking to expand in Asian and African markets. New priorities around risk now include security, counterparty risk and the value of customer balances.
Researchers also noted that mobile payments and international remittances will change the payments game dramatically as players from other countries, where mobile payments are often more advanced, seek to export their best practices to developed markets like the U.S.
Other findings illustrate a general movement in the industry toward the convergence of payments onto a single platform. However, banks are often hampered in their efforts here since individual areas of the banks desire to manage their own infrastructures. This prevents a unified view of payments and customers. KPMG suggests financial institutions consider partnerships to allow more flexible transaction initiation from a wider range of devices and systems. However, efforts here are slowed due to a lack of agreement on the type of security structures to use.