According to a recent IDC Financial Insights study, around 74% of consumer payments will be dealt with by non-FSIs (non-traditional financial service institutions) within the decade. While this paradigm shift is great news for innovative alternative payment service providers, it’s not such good news for traditional payment handlers like banks.

According to the IDC InfoBrief, payments processed by FSIs are growing at a rate of 6% annually, compared to 16% for non-FSIs. As the online payments landscape continues to morph and develop, it’s only a matter of time before traditional banking institutions lose out even more to sleeker, more streamlined institutions that can meet the strenuous needs of the industry. 

Reshaping payments 

The report notes that in 2020, the split between payments made using FSIs and non-FSIs was around the 60/40 mark, in favor of the former, worldwide. Decentralized financial institutions seem to be the trend moving forward as global commerce looks toward 2030. Many argue that in the wake of the global pandemic, a financial revolution is already very much underway. Either way, according to experts, online payments will top $476.1 trillion within the decade. Much of this is due to the increasing popularity of alternative payment methods like eWallets, and other services, including Buy-Now-Pay-Later, which is a popular payment method in emerging regions and markets. 

Moving forward

FSIs likely will not be extinct within the next few years, though they will need to adapt. Keeping in mind that many FSIs have massive resources at their disposal, they will be swept up in the winds of change along with everyone else. These will include the growing popularity of real-time payments, as well as other point-of-sale options. It is predicted that 60% of global consumers will make transactions using asset classes other than fiat currency by 2030, with a staggering “95% of physical non-cash payments to be made through contactless methods and Buy-Now-Pay-Later,” according to the study. 

Open banking

The study found that as well as regulations playing a vital part in the future of payments, open banking and real-time payment schemes are really shaking things up within the industry, acting as serious disruptors for traditional financial institutions. The issue here is that the study concluded that only 3% of FSIs are ready in terms of the technological ability to handle that amount of digital payments. At the same time, non-FSIs already have various infrastructures in place to be ready for the future and are ideally placed to handle payments.

Rapid evolution

The groundbreaking study concluded that FSIs need to invest a lot more in their infrastructure in order to be ready for what’s inevitably coming in the not-too-distant future, and that failure to adapt could be costly. According to Michael Yeo, Associate Research Director at IDC Financial Insights, “The world of consumer payments is rapidly evolving; from the way we make them to the companies that handle them.” He added that, “What this change presents is both a challenge and opportunity for incumbent FSIs. Despite the trends which are unfolding, FSIs can fight their displacement from consumer payments by reshaping the role that they fulfill in the payments landscape of tomorrow.”

Final thoughts

With the current shift from traditional to non-traditional banking, as outlined in the IDC study, the way people bank and track their money is evolving fast. As the global economy moves towards non-FSIs, the way people shop online is also changing and transforming quicker than ever. While FSIs will almost certainly never go extinct, more and more people favor their competition.

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