What are the technology vendors to do?

When I agreed again to write this blog, I thought about the previous year’s challenge of identifying appropriate stories to reflect upon. So many announcements come out at Sibos and so much networking goes on that it’s hard to see patterns until the dust has settled. Little did I expect that stories outside the exhibition hall would dominate. Indeed, in my first blog of the week, written just hours before Sibos started, the anger that seems almost understated.

So what does this all mean? A theme that has begun to emerge over the week is the need to change the business model. The traditional “You buy, I sell” will become even more difficult as the banks start to say, actually, “We have no money to buy” or even “Bye-bye” (sorry, a terrible pun). How do technology suppliers ensure they can maintain their share of the banks’ IT investment budgets in an increasingly competitive marketplace?

If we look at other industries, we see that much innovation has occurred in the business models under which they operate. Consider the product-bundling innovations of operators in the telco market. (Note that the telco market was commoditised long before the payments market, and yet operators grow and prosper.) The internet has created all sorts of more radical models, from “reverse auctions” to the “freemium” model, whereby users get the basic service for free but pay small incremental charges for additional services.

So what can vendors do? In reality, we’re seeing some innovations. For example, delivering a service by ASP or SaaS necessarily shifts the model. And the fixed-fee model of SWIFT itself is a form of price bundling. That model has definite appeal with its lower-up front costs and “pay-as-you-go” mentality.

But that isn’t enough. Or rather, some vendors have an opportunity to move from the role of trusted supplier to trusted partner. Cost is a key element, but not the only one. Risk is a key element. Structuring the deal in such a way that the technology supplier has “skin in the game” shares the risk but also the reward.

A supplier’s showing faith and conviction in its own ability to deliver the vision and solution changes the banks’ perception of the supplier. We’re seeing this effect in some companies already but it is a well-kept secret. Those companies are now aiming for the next step — moving from trusted partner to trusted advisor.

SEPA disappointment

It is the last day of Sibos and as the crisis in the global banking sector continues to unravel, banks are also having to acknowledge their failure in another area - SEPA.

While it may be a little too harsh to attribute the lack of uptake of SEPA Credit Transfers (SCTs) wholly to the banks, it does demonstrate the drawbacks of trying to fend off further regulation by devising new payment instruments that nobody wants to use.

With SCTs making up less than 1% of total credit transfers, it is difficult to call SEPA anything other than a failure at this point, although 78% of Sibos delegates surveyed by ACI Worldwide preferred to say that the migration to SEPA instruments had been "disappointing".

SEPA Direct Debits, which are more challenging to implement, are unlikely to enjoy any greater success when they go live next year. "SEPA Direct Debits are a 20th century solution for the 21st century," says Eric Sepkes, chairman of Gresham Computing, but perhaps better known in his former role as a payments industry specialist at Citi. "A three day clearing cycle for [SDDs}, that in itself is criminal," he said.

Sepkes appears to be enjoying his new-found role sitting on the other side of the fence selling technology to the banks he used to work for. It also gives him an opportunity to cast a more critical eye over SEPA than what he would have been able to do if he was still sitting behind his desk at Citi.

Sepkes says the industry has got it the wrong way round and that they should have "eletronified" the supply chain first and then built a solution for direct debits that fits within that world.

It is tempting to say that Sepkes has conviently changed his tune about the banks' response to SEPA as he is now trying to flog supply chain financing solutions in his new role at Gresham. But Sepkes says these are views he has held for some time, even before he took up the role at Gresham.

"Why spend money on something [SEPA] that may not be needed for another five years," he said. Given that banks and corporates are going through one of the worst economic slowdowns since the Great Depression, Sepkes says forcing banks and corporates to invest in SEPA is not the answer.

But looking for a solution to the current SEPA 'impasse' by going back to the very same people that helped architect it, is not the answer either. Forty-six percent of Sibos delegates surveyed by ACI Worldwide said there was nothing more that the banking industry’s self regulation of SEPA can deliver, although I am not quite sure that I agree with them when they say that the time is right for SWIFT to play a role in reversing the present situation.

Let's not forget that SWIFT is owned by the very banks that formulated the industry's response to the European Commission's SEPA vision. And while opening up the SWIFT network to corporates may facilitate higher levels of bank-to-corporate connectivity and the adoption of "end-to-end standards", SWIFT does not have all the answers. Neither do the banks it seems.

It is back to the drawing board for SEPA it seems, but in the current economic climate, the European Commission and the ECB, and those banks that have invested heavily in their SEPA payments infrastructure, may have to wait a lot longer than expected for market traction.