Is there money for payments?

[Dave Birch] I’ve heard two different versions in the last week, both from people in retail banks. The first version says that payments doesn’t generate very big returns (banks don’t make a lot of money out of payments at all) but they do generate returns. So since the bank has poured billions into Florida real estate, it now needs to invest in more solid businesses that bring in cash. Hence they are about to spend a considerable amount on expanding their card business. The second version says that nothing is happening in the card business, so any investment is pointless, and if the bank does nothing then gross dollar volume will continue to increase anyway. So they’re spending nothing.

I don’t know enough about business to know who’s right, but the latter example seems a little short term to me. It’s easy to make a business look better by not investing in new products and services and then getting the hell out before your successor has to deal with falling market share.

When I was talking to someone from the innovation area in a large U.K. corporate yesterday, he reiterated the essential innovator’s dilemma. Just when a company needs to innovate, the core businesses come under pressure. Since no innovation can generate a better return next quarter than growing core business by a miniscule percentage, scarce resource will always be snaffled by sales and marketing. When they’ve got nothing left to sell, they’ll move on! So if you’re looking at limited budget, would you leave the core card businesses alone and invest in some new stuff? There’s another factor where banks are involved though: They are not subject to exactly the same competitive pressures as other businesses in other sectors:

Speaking at Cards & Payments 08 in Sydney, Nickless outlined why banks are usually late to the party on innovation – the need to grapple with complex systems, the weight of back book profitability, and the threat to the existing brand of responding to disruptive start-ups.

It’s a sad indictment on our industry that our major banks have for a long time sailed along on the profitability delivered by complacent or misinformed consumers.

[From The Better Banking Blog]

This may well be a good strategy for the time being, but I think we should probably have something in the locker just in case the general public learn what an APR is.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]