[Dave Birch] There’s a front page story in today’s New York Times titled “As People Shun High Bank Fees, Wal-Mart Unexpectedly Gains”.

Americans say they are fed up with banks. They are protesting on Wall Street and raising a ruckus over outsize fees. Now there is a surprising beneficiary: Wal-Mart.

[From Wal-Mart Benefits From Anger Over Banking Fees – NYTimes.com]

Two things struck me about this story. The first thing is that use of the word “unexpectedly”. This is a little harsh on Wal-Mart, don’t you think? It makes it sound as if they had invested considerable time and money developing their Money Center businesses just in the vague hope that they might attract some business in future. Come on – credit (sic) where credit is due. Wal-Mart saw a business they thought they could compete in, and went for it. That’s competition for you. “Unexpectedly” makes it sound like the weather changed.

The second thing is that what the people quoted in the story are doing at Wal-Mart is not “banking” at all. It is, by and large, payments. The story says, clearly, thank Wal-Mart has “no intention” of reviving its plans to become a bank in the US, although it has obtained bank charters in Canada and Mexico. All of which brings me back to the question about whether payments are part of banking or not, a recurring theme in my blogging over the years. This is being discussed at more elevated levels than my e-jotting.

[Simon Newstead, managing director, head of FI market & business strategy, Global Transaction Services, RBS] says, “There is nothing like new competition and emerging technology to stimulate a focus on product development.”

[From Do Banks Have a Place in the Future of Payments? – Bank Systems & Technology]

This is spot on, and one of key conclusions that I drew from last year’s Centre for the Study of Financial Innovation (CSFI) Research Fellowship in Payments, which was kindly supported by Visa Europe. There was a clear sentiment from the roundtable participants that creating a regulatory environment that allowed more competition around the utility business of payments was more likely to lead to good outcomes than having regulators attempt to determine what the payments business should look like. The European Commission itself has decided the same, which is why it is getting frustrated at slow progress.

The EC has opened an antitrust investigation into whether the European Payments Council (EPC) is blocking new, non-bank, players from entering the online payments market.

[From Finextra: EC launches antitrust investigation into EPC and e-payments market]

Personally, I’ve not seen any evidence that this is case, but that doesn’t mean anything really. If there was a top secret conspiracy to prevent innovation new players from taking on the banks, they’d hardly publicise it! My position is that the EPC comes from the world of banking, and banks take a long time to agree on new co-opetive platforms. I think the Commission is probably wrong to assume anti-competitive behaviour. The point is that we should be getting more competition, and we are, but the market is moving slowly. Banks, as much as anyone else, need to focus on this because payments are a significant cost to banks.

Olivier Denecker of McKinsey… Payments = 30% of the €150 billion cost base of EU banks… What struck me as Olivier talked is that banks don’t view payments as a separate product stream.

[From The Financial Services Club’s Blog: Banking as components or integrators]

I don’t think they’re a separate product stream, I think they’re a separate business and as time goes by I become more convinced of the case. Perhaps banks shouldn’t be running payments anymore than they should be building their own offices or generating their own electricity. Payments are a utility that should be provided in an open, transparent and non-discriminatory way to banks and non-banks alike. Here’s some fighting talk that suggests that Wal-Mart and M-PESA might not be isolated cases.

Nobuhiko Sugiura, a professor in e-money law and part of the team which developed Mondex, says the reason Mondex failed highlights why European and US prepaid spending, particularly for low-value transactions, has lagged Japan. The emphasis for Mondex, he says, was purely bank-led. His experience in Japan over the last decade suggests that non-financial companies, particularly retailers, often have more to gain from issuing e-money products. They also are able to provide more convenience for end-users.

[From Prepaid in Japan: A ‘Clicks and Mortar’ Approach | MasterCard®]

Setting aside retailers, which we’ll come back to in a few future post, I’m writing from Management World Americas 2011, which is a telecommunications industry event, and telecommunications operators are one obvious category of the organisations other than banks that have something to contribute to the payments world. There certainly does seem to be some correlation (which does not, of course, imply causality) between new payment schemes that are very successful (in Japan, Korea, Kenya, Philippines and so on) and schemes that are not led by banks, whether cards, phones or anything else. Maybe banks are just not very good at low-value, retail payments and have owned the turf only because of a series of historical accidents.

Non-bank payment specialists are cropping up all over the world, using technological advancements to steal a march on the banking industry. But are these companies a threat to the more traditional providers of payments, or do these largely niche businesses present partnership opportunities to banks?

[From Are non-bank specialists challengers or partners to banks? – Reports – The Banker]

If banks did move their payment businesses out into non-bank subsidiaries, and those businesses then moved with their own dynamics to consolidate or fragment, then we might reasonably expect to see a more competitive but also more innovation landscape as a result. In the Europe, we have the framework in place and, while some observers might complain that the pace is too slow, the fact is that a large number of non-banks have obtained licenses as Payment Institutions (PIs) or Electronic Money Institutions (ELMIs) and change is on the way.

In the United States, however, the current laws are designed prevent a Verizon or AT&T from doing what Rogers did in Canada. The Bank Holding Company Act, enacted in the 1950s, prohibits the mingling of banking and commerce and generally limits non-banking institutions from controlling banks.

[From Regulatory Uncertainty Casts Doubts On Legal Status of Mobile Payment Services | BNA]

Not only will this prevent American carriers from acting Canadian, it will also stop them from acting Japanese (where DoCoMo took over Sumitomo Mitsui to offer a credit product) or even European (where some carriers have already obtained the PI licences mentioned above).

These are personal opinions and should not be misunderstood as representing the opinions of
Consult Hyperion or any of its clients or suppliers


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