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Forget payments, think value

When I began talking to banks many moons ago, everyone referred to payments as “Money Transmissions”.

Money Transmissions were the core service of the bank.

Money Transmissions were payments, and Money Transmissions locked customers into the bank because of their high frequency and regular contact with the customer.

Money Transmissions were the ultimate banking service and ruled the roost.

Over time, Money Transmissions evolved into Payments Processing and now Transaction Services.

It became less important as other areas, such as investment banking, became profitable and gained favour.

Nevertheless, as mentioned earlier this week, payments and everything about payments is very much back in vogue as a reliable source of revenue and profitability.

There’s a problem with this however, as the whole thing is still very much geared towards the same focal point of moving information about money between people and businesses.

This is still the heart of banking.

The thing is that the heart is being transplanted as we speak, and few seem to be noticing the change.

This only occurred to me recently when I realised that the reason we cannot get rid of cash is that it is a physical manifestation of value.

To steal my cash, you have to physically take it from me.

To steal my money transmissions however, you only need to access the data involved in the transmission.

Once you get hold of a 16-digit card number, combined with a valid name and address, you can raid someone’s account as much as you want. This is why we are so wrapped up in securing our data, and believe that by adding CVC numbers – another 3 or 4 digit secure code – and PINs to the card details, we can protect ourselves and our customers from fraud.

But this is missing the point.

The point is that we focus upon transmission, payment and the exchange of data about money.

But we do not need to think this way, and it certainly is not the customer’s focus.

Customers don’t think about exchanging money.

They think about exchanging value.

You have something of value that I need – goods and services – and I have something of value that you need – which might be money, but could just as easily be airmiles, labour, time, prizes … you name it.

You see value can take many forms.

Value can be points collected in airmiles or loyalty programmes.

And value can be the ability to gain access to areas that are inaccessible, such as a backstage pass to a Beyonce concert.

And value can have different levels of value depending upon your view. For example, I believe that a backstage Beyonce pass has far more value than a backstage Britney Spears pass.

However, a Britney Spears fan would say the value of the latter is way beyond the former.

In fact, if we start thinking about value exchanges instead of monetary exchanges, we can start to think differently.

We can think about eBay as a value exchange for goods and services priced at the point of value for the buyer. But the buyer is not paying with money for goods, rather they are setting a value on the meaning of the goods to their life.

This is why some may pay $1,000’s for a backstage pass to a Liza Minnelli concert when most of us would pay $1,000’s not to have one.

Banks could re-engineer their business to be far wider, deeper and meaningful if they dropped the idea of money and replaced the thinking with value.

Banks as a safehold for value and valuable items.

Banks as a transaction service for exchanging value between buyers and sellers.

Banks as a secure processor of global value.

Maybe it’s semantics or maybe it’s not, for a value exchange moves the remit of a bank to be far more than just a transmitter of data about money.

It means the bank can be a transmitter of data about anything.

A bank could be a transmitter of ideas, patents, music, books, documents … anything.

Aha, you might say, but isn’t that what the internet does?

Absolutely, but the internet does this without any guarantee of security.

This is why financial infrastructures are so important, building their businesses upon such secure foundations.

Secure transmissions of data about payments.

But some are changing that remit.

For example, I remember SWIFT releasing their 2010 vision back in 2006 with the following statement from the then CEO, Lenny Schrank:

“You don’t change visions too often, but for 2010, we’re considering modifying one word. Although it’s still work in progress, we might change ‘messaging’ to ‘transaction management’ or ‘business process management’. That is profound and deep. Many of our members have transaction businesses. We think we can move up the value chain from offering just messaging to offering messaging with transaction management services.”

It’s also what the European Payments Council is doing with the Single Euro Payments Area, as things like e-invoicing have related to, but is not actually part of the bank’s processing for making payments. Sure, it’s affiliated, but e-invoicing is far more to do with the secure transmission of data about goods and services.

Maybe this is why I’m thinking we need to get away from thinking about money as part of the financial transmissions process now.

Instead of money transmissions, it’s secure transmissions of things that hold value.

Interesting.

I wonder what new products and services a bank could unleash as a secure transactor of value.

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About Chris M Skinner

Chris M Skinner

Chris Skinner is best known as an independent commentator on the financial markets through his blog, the Finanser.com, as author of the bestselling book Digital Bank, and Chair of the European networking forum the Financial Services Club. He has been voted one of the most influential people in banking by The Financial Brand (as well as one of the best blogs), a FinTech Titan (Next Bank), one of the Fintech Leaders you need to follow (City AM, Deluxe and Jax Finance), as well as one of the Top 40 most influential people in financial technology by the Wall Street Journal’s Financial News. To learn more click here…

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  • examples might include:
    ‘from a corporate perspective, whether it takes one or three days for a payment to arrive is not crucial; having certainty is’.
    ‘In the US a recent study estimated the time spent in reconciling A/P and A/R as 500,000 full time equivalent workers. This is the bulk of the bookkeeping work in America (over $100 bn p.a.)’

  • The problem needs to be decomposed into the recording of value and the exchange of value, and these need to be separated very clearly. One efficient suggestion for recording is the Ricardian Contract, or something like it, because it delinks that recording from the politics surrounding it in a fashion that is resistant to abuse.
    But for a bank to pursue this path also means it has to ease off of its economic grip over customers’ money, and think more like an investment bank than a payments infrastructure. Contractual recordings of value are far too efficient, and open pandora’s box of reduced costs. The likely evolution in this area is for a financial sector startup that doesn’t have an old structure to keep alive, and is focussed on taking new business, not preserving old business.

  • Couldn’t agree more with you Chris.
    In the good old days, banks did two things for us.
    Firstly, they had a big safe to put our money in, we paid them a fee to look after it and we had access to it when we needed it. The fact the banks used that money for other purposes was fine, because the money was valuable to them for their business to grow.
    But secondly, they had safety deposit boxes in which we could store valuables. It didn’t matter what they were, they could be popped in a safety deposit box. The bank didn’t even want to know what was in the box – it just kept it securely for us. The items had value to us, not the bank.
    Now, some of the most valuable things businesses have are data based – including the ideas, patents, music, books and documents you mention.
    Perhaps we need to think of transactions as the movement of electronic safety deposit boxes. We put valuable data items in an electronic safety deposit box and leave it to the bank to keep it safe, but also to transport the secure box containing the data to other banks – where our trusted partners can gain access to it.
    We trust the banks and security firms to manage and plan the routes taken by physical movements of securities, primarily because we can see the physical security measures in operation. But when it comes to data transmittal how can trust be built with the banks, given the general perception among clientele of risk mis-management in the finance industry?
    There exists a need to be able to analyse, plan, and architect the data flows effectively for transmitting valuable data. We need to understand latency, security, encryption, liabilities, and digital certification. And we need to be able to show that data flow governance is paramount, highlighting how these aspects have been taken into consideration.
    Looking towards the future from a data flows perspective is key. It doesn’t matter if it is Money Transmissions, Payments Processing, Transaction Services, Value Transmission or Data Securities … it all relies on dataflow!

  • Couldn’t agree more with you Chris.
    In the good old days, banks did two things for us.
    Firstly, they had a big safe to put our money in, we paid them a fee to look after it and we had access to it when we needed it. The fact the banks used that money for other purposes was fine, because the money was valuable to them for their business to grow.
    But secondly, they had safety deposit boxes in which we could store valuables. It didn’t matter what they were, they could be popped in a safety deposit box. The bank didn’t even want to know what was in the box – it just kept it securely for us. The items had value to us, not the bank.
    Now, some of the most valuable things businesses have are data based – including the ideas, patents, music, books and documents you mention.
    Perhaps we need to think of transactions as the movement of electronic safety deposit boxes. We put valuable data items in an electronic safety deposit box and leave it to the bank to keep it safe, but also to transport the secure box containing the data to other banks – where our trusted partners can gain access to it.
    We trust the banks and security firms to manage and plan the routes taken by physical movements of securities, primarily because we can see the physical security measures in operation. But when it comes to data transmittal how can trust be built with the banks, given the general perception among clientele of risk mis-management in the finance industry?
    There exists a need to be able to analyse, plan, and architect the data flows effectively for transmitting valuable data. We need to understand latency, security, encryption, liabilities, and digital certification. And we need to be able to show that data flow governance is paramount, highlighting how these aspects have been taken into consideration.
    Looking towards the future from a data flows perspective is key. It doesn’t matter if it is Money Transmissions, Payments Processing, Transaction Services, Value Transmission or Data Securities … it all relies on dataflow!

  • Wim Lettens

    I believe some concepts are being mixed in this blog.
    While it’s an interesting point of view that Banks do not exchange ‘electronic’ money – or money electronically – but just data or value, the extrapolation to consider banks to exchange ‘any’ data with value is one step too far I think. Simply per the definition of financial institutions and their mission, if they move their core business to non-financial ‘value’ exchange, they’re no longer a bank (i.e financial institution). Swift is partly different in that, as they position themselves as ‘telecommunications’, but at the same time their roots are in ‘financial’ business.. So basically that then leaves the discussion open to whether all ‘value’ is financial ? If not, then banks remain exchanging ‘financial value’, which they basically have been doing so far (exchanging bonds, securities, etc next to payments/money).

  • Wim Lettens

    I believe some concepts are being mixed in this blog.
    While it’s an interesting point of view that Banks do not exchange ‘electronic’ money – or money electronically – but just data or value, the extrapolation to consider banks to exchange ‘any’ data with value is one step too far I think. Simply per the definition of financial institutions and their mission, if they move their core business to non-financial ‘value’ exchange, they’re no longer a bank (i.e financial institution). Swift is partly different in that, as they position themselves as ‘telecommunications’, but at the same time their roots are in ‘financial’ business.. So basically that then leaves the discussion open to whether all ‘value’ is financial ? If not, then banks remain exchanging ‘financial value’, which they basically have been doing so far (exchanging bonds, securities, etc next to payments/money).

  • Chris Skinner

    @ Wim
    I don’t think there’s any mixed concepts here. I am saying absolutely that banks can be secure managers of value rather than money.
    The focus of being purely ‘financial’ would be a bit like saying that Amazon should purely focus upon ‘books’ because they’re a book store, or that Google should only focus upon ‘search’ because they are a search engine.
    If Amazon and Google did that, they would be dead meat by now … so you’re suggesting banks should be dead meat I think.
    @ Ian
    Good point about recording and exchange of value being separate as that means we could create two business – a processing business for exchanging value and a management business for recording and holding value.
    That’s actually the difference between infrastructures and institutions that process and manage monies today, and so this is the point of difference.
    Chris

  • Felipe Zavala

    Great article Chris, I agree with the idea that banks should (or must) expand their business areas, that doesn´t mean that they change their core business, they are the keepers of money, they will always be the financial institution.
    The “processing business” currently is done by third party suppliers (IT and bank software company), the bank gives the security and the trust that the users need.

  • Felipe Zavala

    Great article Chris, I agree with the idea that banks should (or must) expand their business areas, that doesn´t mean that they change their core business, they are the keepers of money, they will always be the financial institution.
    The “processing business” currently is done by third party suppliers (IT and bank software company), the bank gives the security and the trust that the users need.

  • Felipe Zavala

    Great article Chris, I agree with the idea that banks should (or must) expand their business areas, that doesn´t mean that they change their core business, they are the keepers of money, they will always be the financial institution.
    The “processing business” currently is done by third party suppliers (IT and bank software company), the bank gives the security and the trust that the users need.