[Dave Birch] We had the last of the lunchtime round tables in the Innovation in Payment series at the Armourer's Hall with Sandra Alzetta from Visa Europe, Ruth Wandhofer from Citi and Chris Skinner of Balatro on the panel and a terrific delegate turn out. I thought I'd better arm myself in case of hostile feedback.
Fortunately the assembled crowd were unarmed, generally friendly and their honest and constructive criticism was genuinely welcomed.
It was with some sadness that I present this final roundtable report, since the programme has been wonderful, educational and interesting. I am very happy to be able to report that the CSFI and Visa Europe are to continue their collaboration and as of today I am the Visa Europe CSFI Research Fellow for the coming year. The topic for the coming year's programme will be "Identity in Financial Services" and I hope that you will join us at the new blog of the same name. The first roundtable, scheduled for 16th December, will be announced there later today.
Well, a big thank -- in fact, a very big thank you, to everyone who came along to this final roundtable in the Payments Innovation series. I was lucky enough to be able to persuade Chris Skinner and Ruth Wandhofer to come along and give their views on my findings from the roundtables and I am very happy (and relieved) to report that they while they didn't agree with the report in every respect (and nor would I have expected them too) they did broadly support the analysis and recommendations. Phew! And especially phew since the programme sponsor, Sandra Alzetta of Visa Europe was sitting right next to me!
I explained that the current state of the European payments market is not as advanced as many might think: payments cost Europe well over €100 billion per annum and a more efficient payment sector could easily add 0.5% to European GDP. Despite decades of technological evolution, most payments are still made in cash and the bank costs easily exceed bank profits in payments (mainly because banks cannot charge the full cost of cash and cheques). In many countries, customers make few electronic payments per annum still. There is plenty of room for innovation to grow the e-payments business.
Having set the scene, most of the discussion followed this and came around the three scenarios that I used to illustrate some of the key points that came out of the roundtables: these were the
- A scenario in which technology drivers dominate. I call this the "business as usual" scenario. In this scenario, consumers will continue to enjoy the benefits of their existing payment mechanisms in more convenient packaging but there will be no fundamental changes in the market. I think this is least likely scenario (In fact I think there is evidence that we are already out of this scenario). Ruth felt that technological responses to fraud and cybercrime might be important though, so perhaps what I classified as the "disconnection technologies" might turn out to be drivers (although to be fair, I have to report that the audience was mixed in their view of one of the key disconnection technologies, biometrics).
- A scenario in which business drivers dominate. I call this the "market evolution" scenario. In this scenario, new (primarily non-bank) entrants will deliver new payment mechanisms into the market and these will compete with existing schemes across a number of channels. I think this is the most likely medium-term scenario and I think I'm right in saying that the round table discussion that followed my exposition served to reinforce this view, although I do take on board Ruth's point that we ought to have engaged a wider stakeholder group since banks and regulators (for example) do not always reflect the requirements of consumer and retailers accurately.
- A scenario in which social drivers dominate. I call this the "payment revolution" scenario. In this scenario, new institutions arise to manage the new payment mechanisms that arise to exploit new technology delivered by new players. Why new institutions? Because people may turn away from existing institutions: suppose European decide to use gold, or Facebook credits or community currencies instead of euros? I think this is less likely, but it is a possibility.
Chris also felt that the influence of regulation and new entrants would shape the payment market over any reasonable timeframe, so he made me think I'd made the right decision in promoting the business and social drivers over the technology drivers. An Ruth's informed comments about the relationship between SEPA/PSD and innovation also served to support some of my findings around the importance of competition as the basis for innovation.
We discussed the different paths for innovation -- unchallenged orthodoxies, underleveraged competences, underappreciated trends and unarticulated needs -- without knowing where these paths will end, since we cannot predict how the scenarios will unfold, I still wanted to make a small number of specific recommendations for the stakeholders to at least allow organizations to explore paths toward the fundamental goal of minimizing total social costs. In the end, I decided that these should be that
- Regulators should focus on increasing competition in the payments industry as the main way to reduce the total social costs over the medium terms and, in particular, the regulatory burden on low-value, cash-replacement payment schemes should be reduced. The EC’s central mechanism for achieving more competition, the separation of payments and banking through the PSD, appears to be working.
- Banks should consider separating their payments businesses from their core banking businesses. If competition is the right way forward, then banks will need to make a choice as to whether to compete themselves, or whether to benefit for other organisations’ efforts to improve cost/benefit ratios.
- Industry bodies should direct standardization efforts toward payment-related data. The SEPA experience has shown that standardization in payments is not enough: to drive value-added services, to reduce processing costs, to enhance functionality in the “payment cloud” the industry must standardize the data around payments, such as invoices, receipts and bills.
In summary: building healthy payments businesses that compete outside the banking sector to provide value-added functionality on top of standardized platforms will deliver the innovation that Europe needs. The full report will be published by the CSFI and will be available from their web site shortly.
Now I cannot finish without acknowledgements. Sincere thanks to Visa Europe for their sponsorship of the CSFI Research Fellowship and their support for the research programme into innovation. Particular thanks are due to Sandra Alzetta, SVP Innovation, New Product and Channel Development at Visa Europe for her support for the the Programme and her valuable guidance. Thanks also to Caroline Hawkett of Visa Europe for her support and steering of the workshop programme and agendas.
I would like to give particular thanks to my colleagues at Consult Hyperion and from McKinsey and Deloitte. I was able to create a very useful structure for my analysis (and the contents of this document) by synthesising the frameworks, timelines and perspectives given in their inputs to the roundtable programme.
Thanks to the CSFI for their support throughout and particular thanks to Andrew Hilton, Director of the CSFI, for his unswerving backing throughout the research programme.
Perhaps the most important use of money - It saves time.
Author W. Somerset Maugham (1943).