There’s been a lot of buzz around Bill Gates’ challenge to bank the unbanked, set out in this excellent Verge article. Naturally I agree with the sentiments, but the use of the word “unbanked” bothers me.
What’s the big picture around banking, payments and innovation? Maybe the new paradigm will be the bank as facilitator of innovation rather than innovator. Maybe we want banks to be boring and efficient.
It might, in some circumstances, be better for both the banks and their customers if they let someone else deal with payments – leaving banks free to concentrate on core business.
I had a lovely time at the Payments Forward afternoon tea discussion on “When do you build, buy or partner to innovate in payments”. But in payments, new services are more likely to “assembled” aren’t they?
I think I got a clear steer on areas for innovation at Next Bank Europe in Barcelona, and you won’t be surprised to discover that the top ones are all related to identity, not money.
Biometric authentication against a device with tamper-resistant hardware is a good general-purpose solution for mass-market online login. For the foreseeable future, that device will be the mobile phone and that biometrics will be the fingerprint, but Barclays use of finger vein scanning is still interesting.
The bank will change from being the place that looks after your money to being the place that looks after you identity.
APIs will certainly revolutionise the services the banks provide, but they will also revolutionise the way banks work.
I got caught up in Bitcoin media mania. Things are getting out of control. Doesn’t any of the media comment seem, well, just a little, oh, I don’t know, crazy?
In the end, there was general agreement that someone would make a big bet investment and turn the tide.
[From Glenbrook Partners: Report from CTIA – Mobile Payments Eventually]
I’m sure she’s right, because that’s the way of these things. Someone needs to be the American Express, the Apple or the Walmart that animates the new business models made possible by the new technologies. But who? If I actually knew, naturally, I wouldn’t be doing this job, but I think that some of our recent experiences might allow us to do better than random guesses or non-commital management consultancy blandishments. So here’s a bit of informed speculation. If it’s going to be a big bet investment, then it has to be a game changer, not simply the shift of some existing payment instruments over the handset.
Could banks themselves be the game changers? Other people are starting to wonder what the world might look like if banks started breaking off from the international payment scheme networks and becoming their own networks. Banks like HSBC, Citi, Bank of America could simply operate their own payment schemes: they have enough customers. If WalMart took Citi cards, that’s a lot of volume. But it’s also a different basis for competition. As the literature tell us, “two-sided” payment networks have to balance the interests of customers, retailers and banks to work. In practice, this means that the banks (who owned the networks) structure the business. One of the effects of this has been to send a portion of the merchant service charge (MSC) levied on retailers back to the issuers in the form of interchange. Banks then use some of this interchange to incentivise customers (I’m happy to say: my Barclaycard Paypass card is currently giving me 2% cashback on petrol and supermarket transactions). This is the source of a great deal of friction between retailers and issuing banks (not to mention legal action and regulation around the world).
But if a network isn’t competing to sign up issuer banks, perhaps the incentives change. This might lead to the development of real value-added services for merchants (data mining, e.g.) or to more meaningful product differentiation (not just variations in rewards programs) for consumers. In short, shaking up the structure of the payments field might encourage payment companies to do a little more thinking outside the box.
[From Credit Slips: The Visa IPO]
It seems to me, though, that banks have a quite enough on their plates at present and this kind of big strategic decision must be hovering around bottom of the list of strategic decisions that need to be made real soon now. So who else could be the game changer?
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