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Who cares about payments?

By davebirch posted Aug 31 2006 at 11:56 PM

[Dave Birch] This month's Financial World magazine (not available online) has an article by David Lascelles of the CSFI on their annual "Banking Banana Skins" report. They survey 500 "financial practitioners and analysts" around the world to find out what they think are the biggest risks to the banking industry over the coming year. It's a good way of working out where the attention of the people who runs banks is focused (hint: not here).

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The overall level of risk hasn't changed much over the years, although the "spread" has come down (in other words, the magnitude of the biggest risks is now closer to the average). Payment systems are now the 29th most important risk area (down from 25th last year). However important we think the world of electronic payments is, it doesn't keep bankers awake at night. And remember, that's payment systems as a whole. If retail payment systems were taken into a separate category, they would be around 129th.

By the way, when they talk about payment systems risk, I think they mean systemic risk (such as consumers losing faith because of fraud), not the risk that software will screw up and credit a customer with $700 million instead of $70 (although that did happen this week).


"There are no shortage of ways to pay"

True, and if people have to pay for something they need, then they'll find a way. But discretionary spending will certainly fall if the public lose faith in (for example) credit cards on the web.

Dave, I'm not sure you can call "losing faith" a systemic risk. It's more of a marketing risk, as people move to pay using other systems. There are no shortage of ways to pay...

Systemic risk is risk to the system as a whole, such as overall collapse. This could either be the Mondex "meltdown" scenario (as opposed to the GP-ian 2% perpetual fraud scenario) or it could conceivably be a failure in the payments system triggering a collapse elsewhere.

(Some central bankers talk about another risk -- that of the payment system as a vector of systemic flows resulting from other systemic collapses. That view is debatable as they often conclude that they should dampen the payment system's transmission of the risk, when this bottles up the problem. My view is that systemic risk of that nature is generally assisted by fast transmission of the information and needs; the better and faster the payment system can respond, the more value can be moved to meet the crisis.)

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