[Dave Birch] I've been in a couple of meetings recently where customers have been talking about the need to cut costs in the card business. Obviously, times are tough here and there. But as I've tried to point out, short-term cost cutting is not always the best response to a challenging environment. I wonder if it's a reflection of the organisational dynamics (senior managers tend not to come from an IT background), which means that IT is seen through a particular lens. I noticed that Gartner have been drawing attention to this point.
"The predominant view of IT is that it is only useful for cutting costs so tactical thinking about automation and rationalisation overwhelms longer-term decision and strategic plans and goals,"[From Finextra: Cost-cutting banks wide open to disruptive IT innovation - Gartner ]
So do we invest in IT across the board? Obviously not: there's no blank cheque. But we might decide whether we are going for the underserved or overserved. This is Warren Buffet, an investor in American Express for decades, talking about Amex's success in the payment market. Bear in mind that they were orginally building a defensive strategy, because they were worried about their traveller's cheque business, you might have expected a constrained strategic response that used cards are lower-cost traveller's cheques. But this isn't what happened, instead
They actually took over the field by establishing themselves not as the low‑priced competitor but, but as the class competitor. It was a great marketing arrangement. Then it swept the country. The card I carry in my pocket says, “Member Since 1964.”[From Transcript: Warren Buffett on What's Next in the Payments Industry - pymnts.com]
Traveller's cheques were costly, Diner's Club was expensive, so Amex countered by making an even more expensive product!
Where might we be seeing this kind of competition emerging today? One obvious example is in mobile. The mobile phone might seem like a very expensive version of a card, so in these difficult times it's a crazy tactic to try to substitute a €500 phone for a €1 chip card.
NFC mobile phones will be used to replace everything from credit cards and loyalty cards to bus and train tickets, library cards, door keys and even cash... What hasn't yet been decided, however, is who will win the battle to provide consumers with their new hi-tech mobile wallets."[From Banks and mobile operators to go head to head for NFC mobile payments business • Near Field Communications World ]
If the goal is to use the mobile phone to "emulate" existing payment instruments, then there is indeed a competition here. But if instead mobile phones are used to create entirely new ways of managing transactions then there may be other arrangements for co-operation along the value chain. One could, for example, envisage a kind of disconnected debit solution where the mobile operator is responsible for authentication and the bank for identification, where the mobile operators knowledge of the device location could be used by the bank as input to its transaction monitoring, where the bank fraud control could use the mobile channel to alert and so on.
In this context, the mobile phone becomes a key element of the most profitable kind of innovation, innovation around business model rather than an expensive add-on in an existing business model.
Perhaps the most important use of money - It saves time.
Author W. Somerset Maugham (1943).