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If payments are free, who pays?

One of the big questions we want to focus upon during the Long Finance debates at SIBOS this year is: if payments are free, who pays? The discussion is all around the concept that payments have been so commoditised and disrupted that they are irrelevant as a source of value and revenue generation.

There’s no margins there, and so what is it that a bank should focus upon?

This question goes alongside the previous three discussed here on the blog:

This question is slightly different however, as it’s core to banking. Or is it?

How core is payments to banking?

Can banks exist without making payments?

What does a bank do if payments is not part of its business?

These questions may sound a little existential but I would propose that this is exactly the situation banks find themselves in today.

They exist with something that historically was a core strategic process – making payments – that is now non-core. If it was still core, then how come banks can outsource payments processing?

You don’t outsource strategic processes, as they are the ones you use to leverage differential.

Therefore, payments is already non-core as banks move towards processors for cross-border euro payments and for global payments processing. For example:

So if we accept that payments processing is no longer core to banks, then what is?


Obviously, it’s service.

It’s the value add around the commodity of paying that is core to banks.

That’s why so many banks are focusing upon new information services that enrich the transaction processing with financial management that is core.

That’s why, at Finovate for example (where I am this week), most of the demonstrations are around enriched personal and business financial management applications and apps.

The idea of auto synching budgeting and billing across multiple platforms from desktop to iPad is the key to the new world of enriched and informed financial management.

That’s what everyone is focusing upon.

If that’s the case, then banks become more like energy providers, where they don’t create or manage the payments grid, but just connect the customer to the grid in the best way they can.

“The best way they can” meaning differentiated, leveraged, sophisticated, functional, simple, intuitive, transportable … terms that are new to many banks.

What we mean by these terms is that banks are suddenly focused much more on that front-end delivery of information about payments, rather than making the payment itself.

That’s why a bank could launch based upon an operation that delivers free banking … sponsored by Google ads.

That’s why a bank could launch that offered to manage money and any other form of valuable asset, such as Facebook credits, in a single information portal.

In other words, banks move from being transporters of messages to safekeepers of information.

That’s what eMe was all about at last year’s innotribe.

eMe was all about creating a trustbox that banks could offer to secure a customers’ most private information, including passwords and access details to all their investments and banking services, as well as to other information services such as their Facebook and twitter logons.

You see, if a person disappears then who’s going to know that information?

Who can provide the friends and family with the news of their passing if no-one can log-on and tell them?

That’s where a bank is moving, to being the trusted repository of valuable information that is managed in a simple, intuitive, leveraged and differentiated fashion.

Customers would pay for that … and then the payments themselves? Well, they’re free of course.

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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  • Dean Procter

    I’m still a bit stunned that the govts didn’t go for a better deal on the bail-outs, like a percentage of profits. That sure would have lead to better banking service quickly. (more expenses=less profits) The govts still wouldn’t have got any dough but the public would have had better banking services quicksmart.
    As for a ‘financial meltdown’, it hasn’t even been re-cast yet has it? The stock market is still melting isn’t it? At least it is on the way to being a half dozen ‘gamers’ in a room trying to out-supercompute eachother.
    Payments – I’d expect banks not in the payment cycle will eventually be on their bicycles to nowhere.

  • So what banks exactly are moving in this direction–to becoming a trusted repository of information, and what are they offering?
    Denise Bedell
    Contributing Editor/Blogger

  • Dane

    Can banks exist without making payments? – Yes. They existed for 50 years in Macedonia. No problems for the bank (=> no opportunities => no commission)
    Macedonia was one country in the former Yugoslavian federation (the other countries were: Slovenia, Croatia, Bosnia, Serbia and Montenegro – there it existed, too). We had payments outside of the banks and centralized in the state owned institution since early 1960s. Banks only received information at the end of the day about movement of funds of their clients. They do not have payment counters, nor payments software or clearing houses – it was all centralized. In early 2000 all of the former Yugoslavian countries abolished that agency and returned payments to banks.
    Payments were never free, neither in the state agency then nor in the banks now. 🙂 Now it costs about 10 euro cents for end of day delivery of funds, or 1 euro for real time settlement. Client chooses.

  • Chris Skinner

    Wow Dane
    Fascinating and interesting to see how Macedonia and CEE countries have adapted since joining the Eurozone.

  • Gijs Boudewijn

    But Chris,
    Interesting thought, fully agree with the commoditizing bit. But aren’t digital legacy management services like you mention as the next (paid) step for banks not already being offered by parties like Entrustet, Legacy Locker and Data Inherit ?? Should banks buy those upstarts to provide those with the necessary trust? Would central banks oversee or supervise them?

  • Hi Chris,
    The post is very interesting . But the service is not the same for each client. For example, large corporates have not the same needs than you and me.
    Another example, i can use paypal for buying A 30 $ book but i dont use paypal for my salary.
    Who safeguards the safety of the information?
    If there is a problem, who can the client contact to solve it?
    People wants to have only one contact who is able to take care of their payments.
    How can this works?
    Best regards.