Banks told to step up or lose out to Apple, Google in payments war

The banks have three to five years to fend off tech giants such as Apple and Google.

Morgan Stanley says digital wallets issued by tech giants like Apple and Google are outpacing banks’ mobile payments.

The nation’s major banks have three to five years to fend off technology giants such as Apple and Google in the payments market or risk losing $22 billion of industry revenue, analysts at Morgan Stanley warn.

The findings are part of a series of reports titled, Australia in transition: the disruption we have to have, the latest of which delves into challenges facing three sectors.

In banking, Morgan Stanley believes digital wallets offered by technology heavyweights could replace mobile banking apps unless Australia’s bank step up their investment.

The base case is local banks protect their patch but will need to “sacrifice some revenues” to ensure they have compelling technology to keep custosers.

But the research says the risks are skewed to the downside and a bear case of 10 per cent earnings downgrades if banks don’t get moving. The $22bn reflects 20 per cent of local bank industry revenues.

“They have three to five years here to get this right,” Morgan Stanley analyst Andrei Stadnik said. “The big threat here is big tech.”

A digital wallet — often a mobile app — can store users’ payment information and passwords allowing access to several payment methods and websites.

In its own assessment of bank apps, Morgan Stanley found Commonwealth Bank scored highest on features and functionality at 91 per cent while ANZ was dragging the chain 53 per cent.

CBA chief executive Matt Comyn this week stressed the importance of technology spend as he talked up a $5bn investment over five years. The bank is also releasing an upgraded version of its app in coming months.

CBA did, however, cede ground to Apple earlier this year when it became the second major bank after ANZ to start accepting Apple Pay. National Australia Bank has also jumped on the bandwagon.

Morgan Stanley cited Roy Morgan data from January that showed use of digital wallets from large technology firms outpacing the banks’ mobile payments. Roy Morgan said 6.8 per cent of Australians had used digital payments from third parties in the past 12 months, with Apple Pay the most popular, compared with 5.8 per cent using payments via bank apps.

The Morgan Stanley report stressed that payments technology was important for banks as they relied on deposits to help fund their operations.

Morgan Stanley analyst Richard Wiles said payments technology was a key driver of which bank Australians would put their money with. “There is a much bigger revenue pool where the payment capability will influence your decision,” he said.

Morgan Stanley strategist Chris Nicol said it was difficult to win back lost customers across a host of local sectors and noted incumbents were having to “self disrupt” to confront technological threats.