New research from KPMG International is urging banks and retailers to form strategic partnerships—or risk falling behind—as businesses attempt to keep up with the rapid pace of change in the payments space.
The report, Partnering for payment modernization by KPMG International, includes responses from 500 banks and 500 retailers to assess their progress on payment modernization. It identifies that while costs are high and modern technology continues to disrupt; a better ecosystem of partnerships between banks, retailers, technology providers and regulators can help improve operations and enhance the payments experience for customers.
The company said the survey reveals that 54% of retailers believe that payment modernization is crucial to the future of their business, including delivering major efficiency and operational gains. However, just over half (53%) of retailers believe that their banks understand their payment modernization goals, with 45% saying their banks are proactively delivering payment solutions tailored to their needs.
With the average retailer planning to increase modernization budgets by 2.5% over the next year, there is scope for more cohesion and development in the area. Banks don’t disagree, with 51% believing that the future winners in payments will be those with the best ecosystems. 60% of banks also indicate an increase in spending this year, with 21% reporting expected increases of 5 to 9% over their existing budgets, it said.
“The quest by consumers for ever faster, lower friction and more secure payment options is relentless and fueling innovation and disruption. Banks and retailers cannot afford to work in isolation or indulge in traditional vendor-customer relationships. The future of payments will likely be defined by a broader ecosystem which extends beyond banks and retailers, to include technology providers, regulators, fintech startups and consumers themselves. Success should be measured by the way companies access new technologies, reduce costs, share expertise, fill skill gaps, accelerate time to market, and mitigate risks,” said Isabelle Allen, Global Head of Consumer, Retail and Leisure at KPMG International.
KPMG said common goals across both sectors include the replacement of legacy payment infrastructure, enhancing fraud prevention and meeting customer expectations. High implementation costs and budget constraints were noted as the top barrier for those starting out on their payment journey (66% in banking and 69% in retail), while 62% in the banking sector also noted outdated legacy infrastructure and technical debt as a major frustration. As they mature their payments modernization capabilities, each sector highlighted meeting customer demand as the main concern (41% of banking leaders and 35% of retail leaders).
“On the retail side, hypermarkets and warehouse clubs report the highest levels of investment due to their high-volume, low-margin models, which rely on fast, efficient checkout processes. Online retailers also invest heavily to support their digital business models. At the same time, more traditional segments (such as department and specialty stores) invest less, likely reflecting limited budgets and customer preferences. Some of the biggest increases over the next year will be invested by those seeking to catch up; department and discount stores will boost spending by over 3%, while supermarkets are targeting increases of nearly 4%,” it said.
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