There has been 20 years of uninterrupted growth in the global payments market. But that growth is tailing off and with that, the revenue that banks generate from the payments business is also tailing off.
Clients are becoming more efficient, new non-bank players are moving in on the business and consolidation among clients and banks is diminishing the returns banks can make.
Allied to this is the general accusation clients make that banks charge too much for basic payments services. The banks respond that they charge too little. It seems as if the market is reaching a tipping point where the chasm of expectation and delivery could force a collapse of the business.
At yesterday's Sibos, a panel of leading cash management bankers outlined the moves they were planning to make to stay relevant, growing and profitable.
"We need new revenue sources and so we need to experiment with new business models," said Joanne Brode from Bank of America. She said moves she was thinking about were investing more in imaging technology to reflect the move away from paper in the US. "We need to take the plunge and invest in technology," she said. Brode was also looking at breaking down the silos, within her own bank, within her clients' companies and between the different countries that Bank of America operates in.
Chris Furness, Standard CharteredÆs global head of cash management, outlined four areas of focus for his bank, which he said were critical aspirations for success. Firstly banks need to get their clients' balances working harder, untrapping trapped liquidity. They had to adopt fully transparent pricing from end to end. And they had to adopt better risk management solutions.
Getting closer to clients was what Harold Young, Deutsche Bank's global head of payments, said would differentiate his bank from the others. But he said that banks need to articulate and to quantify the real value and benefits of what they did for their clients.
One area where banks could do this was in real time reporting of payments and balances, he said. This would allow clients to manage their liquidity, balance their account positions, use their resources better, manage their risks better, forecast better and provide decision support. Even still he said, all this was not possible, unless banks had a clear idea of the value they were creating for their clients and priced it accordingly. "We have broken the link between value and prices," he said. "Not just broken it but obliterated it."
Finally, John Mohr from Bank of America opined that creating value in as many ways as possible was the only way for banks to maintain their growth in the payments business. Once they had thought of imaginative ways of creating value, they also had to understand where they should collaborate with the competition in order to generate higher volumes.
The discussion showed that leading bankers were talking seriously about the issues in the payments business that were so enraging their clients. The solutions being offered and value created should go some way to bridging the growing divide between banks and their customers.
