An analysis by the investment bank predicts that banks will derive their income mainly from deposits over the next decade, with mortgages facing a “prolonged period of moderate growth”.
Morgan Stanley said it is likely that digital wallets will replace banking apps as consumers’ preferred payment channel.
Banks offer their own digital wallets, but many are owned by larger technology providers, including Google Pay, Apple Pay and PayPal. Morgan Stanley believes that the winners from payments disruption will be “BigTech” or global digital wallet owners.
“Among Australian banks, our analysis suggests that CBA is most likely to benefit from payments disruption given its highest functionality in the Morgan Stanley App Feature Score and its largest retail bank with greater capacity to invest in technology,” Morgan Stanley said.
“We believe ANZ and BOQ are lagging behind in the digital space. More broadly, we believe the burden of technology reinvestment is increasing for all banks, delaying cost reduction aspirations.
Australian regulations are also encouraging payments innovation, with new policies also providing for payments for more disruption. Morgan Stanley highlighted the opening of the banking system, the review of Emoney regulations, the new payment platform and comprehensive credit reporting.
Morgan Stanley predicts that around 11 percent of primary revenues such as transaction accounts will be converted into big banks’ digital wallets, along with 18 percent of secondary revenues such as term deposits.
The company estimates the payments will influence approximately $22 billion in revenue.
“Our base case is that banks can protect their dominance in retail payments and deposits, but will need to invest more in technology and sacrifice some of their revenue, leading to small earnings hurdles and a sustained decline in returns in retail banking,” Morgan Stanley said.
“In our bearish scenario, we see that digital wallets disintermediate banks, leading to earnings degradation of around 10%. On the other hand, we do not see much upside in a bullish situation, as we believe that banks will struggle to find new sources of revenue through payments.”
