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Banks Under e-Pressure

Back in the early 1980s we witnessed the launch of the first e-payments systems by French banks in Biarritz. A similar project was launched in Japan and a year or so later Berlin also launched their pilot service. In Biarritz the whole town received smartcards and all the shops were given devices to handle e-cash. Over the next 30 years very little happened—nowhere did banks build on this initiative to take a leadership role in e-payments.

In 2007 the good old smartcard became a smartphone, but even then the banks didn’t react. Others, however, saw the opportunity and very rapidly e-payment started to become a big business. However this time the payments were controlled through apps offered by online providers and digital merchants. The banks sprang belatedly into action and over the last two years most now have e-payment systems in place.

As mentioned, the smartcard became the smartphone, and obviously the underlying infrastructure can now handle the processing of these transactions much better. But it is interesting to note that, otherwise, although they were on the old analogue infrastructure, the services launched in the early 1980s were in essence not all that different from the current e-payment systems.

While the payment market still stays firmly in the hands of the banks the newcomers are not sitting still either. And they are certainly making inroads. For them every percentage point of growth means new business, and 1% of the payment business would immediately make you a very large financial player indeed. Companies such as PayPal, Google, Apple, Facebook and many of the large national telcos know this and are working hard to increase their share of the market. Others that are very active in this market include Western Union, Global Collect, Sage, Square and Adyen.

These new players are great innovators, with new services and upgrades following each other up at frequencies that banks can only dream of. The new players are more flexible and agile and can move into niches, such as person-to-person banking (P2P) and cross-border e-commerce activities, which are often ignored by the major banks. They are also able to be far more customer-oriented in their services towards the merchants—and they are less greedy with their margins.

Once these players have created a beachhead in the e-payment market they can also move into other financial services, such as point-of-sale lending and financial planning, and they are tapping into interchange and transaction fees. All of the new players built their systems and services along ‘big data’ and so they have an excellent—hopefully permission based—‘digital trail’ of their customers that they can use to offer them new services.

Apart from this digital trail they also have tools embedded in their services that increase their ability to automate services, and they can use that to offer automated bill payments, managing monthly income and expenses, and even savings and investments. Obviously banks can do this too, but they are in general much slower to launch such services in the market and to do so they will have to cut across the silos within their organisations.

Because of their innovations and customer service many customers love these new digital providers—often in stark contrast to the customer relationship between banks and their customers. And the digital companies will, of course, use that advantage to win more and more customers.

Obviously the banks will maintain their dominant position in the market for a very long time, and perhaps the best thing for customers is that the banks are now being forced to be more customer-focused, offer more services and innovations that customers want, and in general offer a more genuine customer service. I am, however, still waiting for that employee to open the door for me at my bank branch, like they advertise in their TV ads.

Having said that… when was the last time I actually walked into that branch? Hmmmm.

By Paul Budde, Managing Director of Paul Budde Communication

Paul is also a contributor of the Paul Budde Communication blog located here.

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.BANK or .BANQUE or both ? Jean Guillon  –  Nov 21, 2014 8:34 AM

Let’s add this one to banks’ e-pressure. Which domain name will banks choose: will they keep their .COM domain name, will they change to a .BANK or will they go for their own domain name extension in the second round of the ICANN new gTLD program (unless they already applied for theirs)? More information here: https://gtldresult.icann.org/application-result/applicationstatus/applicationdetails/1554 and here: http://www.gexban.net

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