New competitors threaten banks' dominance in the payments business.
As the traditional paper check increasingly gives way to electronic payments, banks face losing their traditional roles in the delivery of these services to software and processing companies that have emerged as leaders in this area, the firm said. They face shrinking profit margins at best and, at worst, losing access to customers and customer information. In addition, many banks have outsourced their transaction processing to specialists that have realized economies of scale through consolidation. The firm recommends that banks pay specific attention to retaining control of the customer interface and information. In addition, as consumers become more comfortable with technology, they can easily unbundle financial services and select the best product from separate providers.