Electronic payments look profitable – until you run them at scale

Core Insights - Electronic payments are perceived as a significant growth engine in financial services, with increasing volumes and digital usage, but the operational complexities and cost structures challenge profitability [1][2] Group 1: Volume Growth and Profitability - Electronic payments experience strong growth due to the shift from cash to card usage, the rise of digital commerce, and the integration of embedded payments into various platforms [2] - Profitability in payments does not scale linearly with transaction volume, leading to margin compression despite rising transaction numbers [2][3] Group 2: Operational Complexity - As transaction volumes increase, the complexity of payment systems also rises, with costs related to interchange structures, scheme fees, processing, fraud, chargebacks, and compliance expanding in parallel [3][4] - Many banks that developed payment strategies during earlier growth phases are finding that previous operational assumptions no longer hold true at larger scales [4] Group 3: Fraud as a Structural Cost - Fraud is increasingly viewed as a cost of sales rather than a risk issue, with fraud losses becoming integrated into daily operations as electronic payments grow [5][6] - The costs associated with fraud extend beyond direct financial losses to include investigation time, customer service overhead, and reputational damage, affecting multiple teams within organizations [6] Group 4: Mismatch in Fraud Management - Many institutions continue to manage fraud with outdated mindsets, treating it as an operational exception rather than recognizing it as a consistent economic burden, which is gradually eroding profit margins [7]