IPS 2013 Round-up: market changing faster than players or regulators
By the standards of the rest of the financial services sector, the payments industry has always progressed at a glacial pace. For the past 10 years, the key topic at the long-running International Payments Summit has been the Single Euro Payments Area.
In the same period, the securities industry has been through, among other things, two iterations of the Markets in Financial Instruments Directive, the introduction of the US Dodd-Frank Act and the European Market Infrastructure Regulation.
The last of those involves the non-trivial task of moving the bulk of derivatives trading from an over-the-counter model to an exchange-traded model. SEPA, by contrast, involves banks no longer charging for cross-border euro-denominated transactions.
It’s not as simple as it sounds, of course, and if the comments of many corporate customers during IPS 2013 are any guide, not all that worthwhile.
Peter Frambach, head of international payments at Ages Maut, an international transportation business based in Germany, put numbers to the issue: his firm has calculated that adoption of SEPA Direct Debits will be worth €15,000 a year to the business, but it has so far invested €400,000 to become SEPA compatible. “I wouldn’t call it a good investment,” he said.
While banks have been scrambling to ensure that they are capable of processing SEPA-compliant direct debit and credit transfer instruments in time for the February 2014 implementation deadline, corporates (and, even more so, SMEs) seem largely indifferent, partly because they have made calculations similar to Frambach, and partly because they simply don’t feel any real need. “The EU or whoever can come down on banks as much as they want and no-one will care – they’ll probably cheer – but they are not going to come down on BMW, Volvo or Volkswagen, or Airbus Industries,” said one corporate delegate.
Asked whether his firm was looking forward to any potential side-benefits of SEPA – easier account reconciliation, for instance – Jörg Bermüller, head of cash & risk management at pharmaceutical giant Merck, said: “No. It will make no difference to us at all.”
While the approaching SEPA deadline meant that the topic remained close to the top of the agenda, other issues are perhaps more pressing and it was clear from several presentations that people are thinking about profound shifts in the industry structure and what their role will be in the future.
Mobile is clearly one of the main drivers, with speakers seemingly taking turns to be on one side or the other of the opportunity versus threat debate. Brett King, the well-known author and founder of the Moven mobile banking service, threw this into sharp focus: his view is that branch banking is over, and will go the same way as bookshops and record shops did when faced with Amazon, iTunes and Spotify. That doesn’t mean banking is dead, however – people are still buying books and music – but the delivery channel has changed, and traditional players will have to decide how to deal with that. Moven has no banking charter, he said, it acts as the front end for three banks. The model has changed to being a manufacturer /distributor relationship.
This sense of trying to define a role in a changing ecosystem permeated other aspects of the debate, both onstage and in the numerous networking opportunities between sessions. To some extent, it replaced the long-running new-players-will-eat-your-lunch debate with a marginally more optimistic version of the same: some people will lose, but for the most part there will be a redefinition of the roles different institutions play – as a wholesaler, retailer, manufacturer or distributor, for instance.
This fed into another running theme on the topic of collaboration and outsourcing, which featured in several of the sessions and many conversations, and showed a clear move away from the idea that new players are a special threat to the whole transaction banking and payments industry. King’s point that his Moven is the front for three traditional banks – and more to come, he says – was echoed by Dan Schatt, general manager, financial services innovation, PayPal, who was at pains to point out that his company doesn’t see itself as a competitor to banks. “We are a technology provider to retailers,” he said. “We partner with banks.”
It’s a model that banks seem to be embracing themselves.