Banks defend their payments turf
The launch of Apple Pay, the re-launch of PayPal as a separate company and the move to allow mobile operators to add payment for goods to phone bills across Europe are all threatening the hegemony of banks. But is it going to be as disruptive as many outside the banking world hope?
Without Apple, PayPal or anyone else outside the banking world represented on the panel, yesterday’s session ‘Will we be sending payments by iTunes?’ took the stance that, while these new entrants – and the many other alternative payment service providers out there – were shaking things up, the role of the bank was still central to payments. Panellists suggested that none of these new-fangled ways of paying for stuff can work without them.
“I don’t see any possibility of banks being uninvolved,” said Michael Fiore, senior vice-president and group head personal payments and mobile money, emerging payments, MasterCard. “Apple Pay is really a collaboration between Apple, merchants and the banks to create a good service. This is exactly what should be happening.”
What the delegates say
How disruptive do Sibos delegates think ApplePay, Ripple, the new standalone PayPal and other such newcomers will be and will they monopolise the customer front-end?
Mark Hartley, chief of innovation,Clear2Pay: “I cannot believe the complacency on the floor here. I think ApplePay, Ripple and so forth do provide a genuine payment alternative; they’re not a fad. Also, remember Ripple is not a cypto currency, it’s a payment protocol that has the potential to take the cost and complexity out of traditional correspondent banking and clearinghouse relationships.”
Amanda Gilmour, product director, payments, Temenos: “I don’t think we can beat banks up with both sides of the same stick. In other words you cannot complain about a lack of innovation, while not providing a level regulatory playing field. Temenos did a survey recently of 220 corporates in the FTSE 500 comprising of global firms where 25 per cent of them said they’d considered using an alternative payment provider. In Europe, 47 per cent of respondents had investigated an alternative, so the issue is obviously on end-users’ radars.”
R. Karthikeyan, chief general manager (international banking), State Bank of India: “These new technologies are disruptive. How quickly they’ll be adopted by banks and customers, however, is still the key unanswered question. End-users can be conservative when using these new payment mechanisms because it involves their money, so they’re naturally cautious. This means it can take time to get customer acceptance and entrench usage. In India we have many new mobile and other payment channels, a new ACH and authentication infrastructure, plus lots of other innovations, but these disruptive technologies could amount to another way to market.”
Michael Vrontamitis, head of trade product management, transaction banking, Standard Chartered: “My view is that it’s all about the client experience. ApplePay, for instance, does that very well because they partner. They solve the interaction puzzle and provide a good customer front-end, but crucially they don’t disintermediate the bank or other providers in the payments chain.”
Paul Thomalla, senior vice-president and managing director, ACI: “In regard to your specific examples, ApplePay is partner-based, linking in to all the major cards schemes; Ripple is a rip and replace solution that in my opinion is still looking for a problem to solve; and PayPal is problematic because of its 3 per cent fee. Out of all of them I’d say ApplePay is potentially the most disruptive.”
Gail Hodges, global head of mobile payments and retail product digital capabilities, HSBC, was more specific: “Banks are absolutely key. Customers want banks to look after their funds. These other players are just driving payments.”
Both Fiore and Hodges agreed that banks need to work harder to understand where their customers are and what they want. Both conceded that the impetus to handle small-value payments, remittances and other peer to peer payments was lacking since these account for such a small percentage of banking profits.
But these services, being delivered cheaply and conveniently through the digital world of mobile and the Web are what consumers are increasingly coming to expect from their own money.
And this is the dichotomy in the world of payments currently. There is a huge push outside the banking community to create and implement mobile payment solutions and services and these brands – led now by Apple Pay, but also featuring Amazon, PayPal, Zapp, Square and Boku – are looking to make a play as the consumer facing brands that customers come to use. Even mobile network operators are getting in on the act, rolling out the ability to pay for digital, quasi-physical and physical goods by charging them to the user’s mobile phone bill.
Some 68 per cent of the session audience believe that, while Apple Pay lies at the front end, it is going to be disruptive to banks. Three per cent thought it would have no impact at all.
The panel disagreed. “Apple’s value proposition comes from having 800 million customers, but those 800 million customers want to see their bank logo in the corner of the payments screen to feel secure,” said Fiore.