Tuesday, September 16, 2008

Innovation "just in time"

"If we fail to innovate, the risk is that we will lose business to third parties," said one panellist at today's panel session on "Payments at a tipping point". Here we go again, I thought.

How many Siboses does it take for banks to contemplate the competitive threat from non-banks (PayPal, Google, telco companies, internet portals) before they actually do something innovative in the payments space themselves.

It is abundantly clear that PayPal has been successful where banks could never have been - for one thing banks could never have thrown capital at such a project to get it off the ground, and in today's illiquid climate are banks any better placed to truly innovate?

SEPA and the Payment Services Directive (PSD), or "mandatory spend" may force change in the payments space, although it has to be said SEPA has not resulted in the innovations regulators and corporates hoped for. In fact a number of banks have not significantly invested in re-engineering their platforms for SEPA as they believe there is not enough market traction for the new SEPA payment instruments.

Banks are now talking about pan-European e-invoicing standards in the context of SEPA, but can that really be classed as innovation?

The Payment Services Directive provides the framework for the emergence of payment institutions that are non-banks, but is the threat of a Google or Yahoo offering payment solutions going to be enough for banks to stop talking about innovation and actually do some innovating themselves?

It is only now that mobile payments are starting to gain traction with the banks. Panel members also spoke about "just in time liquidity management", but these are services that have evolved slowly over time and it is only now that banks' legacy payments infrastructure is in a position to leverage these new technologies to deliver payment solutions in the peer-to-peer space.

My bet, howevever, is that lumbered with their legacy systems, a risk averse appetite and regulation, banks will not be able to innovate at the same pace as the Google's Yahoo's and telcos. There is another PayPal-like nemesis on the horizon , and guess what, it is highly unlikely that it will be developed by the banks.

Banks only hope now is to try and partner with the Google's and Yahoo's of the world in the hope that they can be part of the next wave of innovation in payments.

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