# Who are banks competing against in payments now?
Author:  Pal Sinha, Barnali 
Author URL: https://financedigest.com/author/pal-sinha-barnali
Published: 2021-03-26
Category: FINANCE
Category URL: https://financedigest.com/category/finance
Meta Title: Challenger Banks and Big Tech: A Threat to Incumbent Banking
Meta Description: Discover how incumbent banks are facing competition from card networks, payment platforms, challenger banks, and big tech players in the rapidly evolving
URL: https://financedigest.com/who-are-banks-competing-against-in-payments-nowhtml

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_By **Simon Wilson,** Co-Head, Payments at [Icon Solutions](https://www.financedigest.com/icon-solutions-expands-services-strategy-to-help-banks-accelerate-digital-transformation.html)_

For several decades, incumbent banks have held a comfortable leadership position in payments. But the rapid growth of digital payments has signalled opportunity for new market entrants to attack this status quo.

To develop effective strategies to stay ahead, incumbents must understand who their competitors are now, and assess how their strengths and weaknesses compare in the key competitive battlegrounds of data, trust, cost, innovation, scale and alternative payment methods.

**Who are incumbent [banks competing](https://www.financedigest.com/can-banks-compete-in-the-digitisation-race-without-effective-data-integrity.html "Can banks compete in the digitisation race without effective data integrity?") against?**

Incumbents are facing increasing competition from card networks, payment platforms, [challenger banks](https://www.financedigest.com/the-rise-of-challenger-banks.html "challenger banks") and big tech players, which is upending the payments ecosystem.

Incumbent [banks’ market](https://www.financedigest.com/bank-of-england-says-it-will-unwind-bond-market-intervention-once-risks-have-subsided.html "Bank of England says it will unwind bond market intervention once risks have subsided") position is underpinned by strong consumer trust and massive scale, but these historic advantages can no longer be taken for granted.

Take trust. This is a layered concept, ranging from transactions being reliably processed, responsible data use and, increasingly, an [expectation that organisations are acting in their customers](https://www.financedigest.com/banking-from-anywhere-embracing-technology-to-exceed-customer-expectations.html "Banking from anywhere: embracing technology to exceed customer expectations") long-term interests. And demographic trends are showing that [consumers](https://www.financedigest.com/the-digital-finance-revolution-empowered-consumers-turn-digital-to-protect-financial-security.html "The digital finance revolution: empowered consumers turn digital to protect financial security") increasingly trust non-bank and alternative providers to deliver financial services.

A recent [Oracle digital banking survey](https://go.oracle.com/LP=104164?elqCampaignID=265735) focused almost exclusively on Gen Z and Millennial customers showed that 64% would recommend their bank for various spending, savings, borrowing, and investing products, but 56% said they would be willing to switch to banking solutions offered by one of the big tech companies. And at the end of 2020, 15% of Gen Z and millennial [consumers considered their ‘primary’ account to be with a challenger](https://www.financedigest.com/unfolding-the-great-payments-disruption-how-consumers-can-navigate-this-new-financial-world-and-how-financial-institutions-can-rise-to-the-challenge.html "Unfolding the Great Payments Disruption – how consumers can navigate this new financial world and how financial institutions can rise to the challenge"), up from 4% at the start of the year.

Elsewhere, [banks are sitting on a goldmine of customer data](https://www.financedigest.com/why-now-is-the-time-for-banks-to-use-their-data-to-support-customers.html "Why now is the time for banks to use their data to support customers") but must start using it more effectively to gain an advantage. In itself, data has no real value, so it is the ability to effectively organise, translate and leverage this data as meaningful [customer insight and value add products and services](https://www.financedigest.com/how-can-financial-firms-improve-customer-service-after-the-pandemic.html "How Can Financial Firms Improve Customer Service after the Pandemic?") that has emerged as a key competitive differentiator.

Legacy infrastructure also makes it difficult for banks to compete on cost, which is more important than ever as margins evaporate, and [payments become instant](https://www.financedigest.com/the-latest-trends-in-instant-payments-and-how-they-impact-banks.html "The latest trends in instant payments and how they impact banks"), invisible and free. This hampers the ability to realise partnerships to [drive innovation](https://www.financedigest.com/crispy-innovation-to-drive-the-sports-nutrition-market.html "Crispy Innovation To Drive The Sports Nutrition Market") and limits the opportunity to explore alternative payment methods.

And as incumbents look to bolster their strengths and address these challenges, they must also recognise the areas where the competition excel.

**Card networks – [moving beyond](https://www.financedigest.com/the-high-fiber-feed-market-to-move-beyond-the-monotony.html "The High Fiber Feed Market To Move Beyond The Monotony") ‘just’ cards**

[Card payments](https://www.financedigest.com/why-latin-america-chose-biometric-authentication-for-payment-cards.html "Why Latin America Chose Biometric Authentication for Payment Cards") are trusted by millions of consumers and businesses worldwide, with card networks managing massive volumes to realise huge scale advantages. This is combined with recent mergers and acquisitions to [support end-to-end payment](https://www.financedigest.com/fingerprints-supports-two-more-biometric-payment-card-launches-in-the-mena-region.html "FINGERPRINTS’ SUPPORTS TWO MORE BIOMETRIC PAYMENT CARD LAUNCHES IN THE MENA REGION") services and multi-rail offerings. Take Visa’s Crypto APIs, for example, which [enable banking clients to access](https://www.financedigest.com/the-open-banking-revolution-enabling-accessible-and-inclusive-finance.html "The open banking revolution – enabling accessible and inclusive finance") and integrate crypto features more easily and demonstrates the innovation that is happening in this sector. Mastercard has also confirmed it will enable crypto flow across its network in the [near future](https://www.financedigest.com/hyperkalaemia-treatment-market-sale-will-apprehended-to-see-impressive-growth-in-near-future.html "Hyperkalaemia Treatment Market Sale Will Apprehended To See Impressive Growth In Near Future").

**Payment platforms – creating ecosystems**

As the payment ecosystem has expanded and digital volumes have increased, organisations like PayPal, Stripe and Square have evolved from single specialised propositions into comprehensive payments platform businesses, providing previously bank-led offerings such as SME lending, [corporate treasury](https://www.financedigest.com/libor-reform-should-trigger-a-major-reassessment-of-corporate-treasuries-data-operations.html "LIBOR reform should trigger a major reassessment of corporate treasuries’ data operations") services and credit.

Payment platforms are effective at managing high volumes and have the capacity to scale and drive innovation in specific [market segments](https://www.financedigest.com/chondroitin-market-overview-analysis-by-top-players-product-segments-market-size-and-leading-key-players-2022-2029.html "Chondroitin Market Overview & Analysis by Top Players, Product Segments, Market Size and Leading Key Players 2022- 2029"). Platforms are fast to adopt new payment methods such as [digital currencies](https://www.financedigest.com/minding-the-gap-the-importance-of-inclusive-financial-strategies-as-digital-currencies-rise.html "Minding The Gap: The importance of inclusive financial strategies as digital currencies rise "), and their use of data is improving consistently, offering some personalisation to customers.

**Challenger banks – the new(ish) kids on the block**

Challenger banks can best be described as banks without the baggage, unburdened by 50-year-old legacy infrastructure, sprawling bureaucracies and siloed departments.

Challengers have built [market momentum](https://www.financedigest.com/uk-housing-market-keeps-momentum-but-slowdown-ahead-halifax.html "UK housing market keeps momentum but slowdown ahead: Halifax") and presence through their reputation for customer-centric products and services, having made consumer behaviour and experience their focus. Revolut for example offer in app investment in stocks, crypto and commodities, as well as vaults allowing you to [save money](https://www.financedigest.com/money-saving-hacks.html "Money saving hacks") in any currency or commodity.

Challengers also benefit from a low-cost infrastructure to bring [products to market](https://www.financedigest.com/global-liquid-breakfast-products-market-to-reach-us-185-bn-by-2027.html "Global Liquid Breakfast Products Market to reach US$ 185 Bn by 2027") quickly, and have been more willing to explore alternative payments than traditional institutions. Again, take Revolut for example, who offer free and instant transfers in 28+ currencies, crypto and commodities. AndFirst Boulevard neobank will be among the first to pilot Visa’s Cryto APIs to enable their [customers to buy and sell bitcoin through their digital](https://www.financedigest.com/the-cervical-total-disc-replacement-market-to-grow-based-on-customized-digitization.html "The Cervical Total Disc Replacement Market to grow based on customized digitization") accounts.

**Big tech – the [wild card](https://www.financedigest.com/iran-deal-a-wild-card-for-oil-market-strained-by-supply-risks-reuters-poll.html "Iran deal a wild card for oil market strained by supply risks – Reuters poll") entrants**

The big tech GAFA (Google, Apple, Facebook, Amazon) [players are the ‘wild card’ entrants that represent potentially the greatest competitive](https://www.financedigest.com/cardiac-valvulotome-market-growth-latest-trends-top-players-competition-technological-advancements-outlook-and-forecast-2028.html "Cardiac Valvulotome Market Growth, Latest Trends, Top Players, Competition, Technological Advancements, Outlook and Forecast 2028") threat to incumbent banks. One look at China, where Tencent and Alibaba have established dominant positions and massive payment volumes through WeChat and AliPay, is enough to keep [bank executives](https://www.financedigest.com/societe-generale-says-two-senior-executives-to-leave-bank.html "Societe Generale says two senior executives to leave bank") up at night.

Big tech enjoy massive scale but, so far, have been content with relatively limited plays, such as overlaying services through their mobile wallet platforms or partnering with financial [institutions](https://www.financedigest.com/top-5-security-technologies-that-every-finance-institution-workplace-should-consider.html "Top 5 Security Technologies That Every Finance Institution Workplace Should Consider") on limited offerings. We can expect continued investments and acquisitions to support data-driven, experiential [products and services](https://www.financedigest.com/productivity-and-the-four-day-working-week-in-financial-services.html "Productivity and the four-day working week in financial services").

A potential roadblock is that [regulation will make it difficult for big tech](https://www.financedigest.com/uk-poised-to-ditch-plans-to-empower-tech-regulator-ft.html "UK poised to ditch plans to empower tech regulator – FT") to undercut the competition by subsidising services below cost. Regulators have also shown their teeth in [blocking Facebook’s](https://www.financedigest.com/russia-blocks-facebook-accusing-it-of-restricting-access-to-russian-media.html "Russia blocks Facebook, accusing it of restricting access to Russian media") considerable crypto ambitions, forcing a rebrand from Libra to Diem.

**How can banks compete in payments?**

It is clear that incumbent [banks are under significant and sustained](https://www.financedigest.com/deutsche-bank-names-eigendorf-new-chief-sustainability-officer.html "Deutsche Bank names Eigendorf new chief sustainability officer") attack from various competitors and the reality is, this competition is only going to intensify. As J.P. Morgan CEO Jamie Dimon notes, incumbent banks should “expect to see very, very tough, brutal competition in the [next](https://www.financedigest.com/suedzucker-expects-to-raise-its-sugar-prices-again-next-year.html "Suedzucker expects to raise its sugar prices again next year") 10 years.” When asked why JP Morgan intended to focus on buying FinTech and tech firms, Dimon noted, “our new competition is Apple, Amazon, Google, WeChat and AliPay” – rather than other banks.”

Incumbents must therefore focus on combining a clear, executable strategy with flexible [technology solutions](https://www.financedigest.com/grain-and-cereal-crop-market-novel-technological-solutions-will-create-lucrative-growth-opportunities.html "Grain And Cereal Crop Market : Novel Technological Solutions Will Create Lucrative Growth Opportunities") and expert partners to improve data-driven propositions, promote trust, reduce costs, realise scale advantages, drive innovation and support alternative payment methods.


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