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:

• When will we know there won't be another meltdown?
• Who will be the next global superpower? and
• What happens when there is no more poverty?

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:

• Deutsche Bank and Logica form strategic alliance to outsource SEPA Direct Debits for EU banks
• Citi provide the Agricultural Bank of China with international payments processing

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

Service.

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.