What effect is commoditisation having on financial businesses – and how are they responding to it? That question was posed to a panel at Money20/20 Europe, with speakers represented companies ranging from UK enterprise software tech Sage to Western Union. No longer able to compete purely on price and often still lacking transparency on items such as fees, the onus is now on the longer-established institutions to put the ‘service’ back into financial services, or risk losing customers to the emerging challengers.
“Commoditisation is driving a lot of lower margins and less value, in what was something of a feeding frenzy and big pool for lots of players to feed from,” said Seamus Smith, chief executive officer (CEO) at Sage Pay, a panel member on the session ‘C-suite perspectives on the changing payment environment’.
“In times of rich margins and good revenues the payments industry has been guilty of serving itself and less focussed on service to the customer,” he added. “What we doing? Reviewing the solutions orientation of what we do. The well that supplied us is not there anymore, so a broader solutions mind-set and focus on the end-user is necessary. That’s at the heart of what the Payment Systems Regulator [PSR] in the UK is doing. Businesses that latch on and broaden their services are those that will be the winners.”
Meanwhile, money transfer services are steadily building their brands and customer bases based on greater transparency about fees and exchange rates. This means that pressure is growing on incumbents such as Western Union.
“Historically the way the business model worked was on foreign exchange [forex],” said Kerry Agiasotis, president at Western Union Business Solutions. “The economic model was money you could make on forex that fed off the fact there was next to no transparency in doing do. Those days are over and it’s forcing that part of the industry to think about the customer.
“When you consider the payments industry today, price is a reflection of frictions and that is not a sustainable model. When you think about what this show is all about and how friction is being removed – the cost of doing business is shifting.”
Commenting on the firm’s launch this week of a business-to-business (B2B) platform to simplify cross border payments for small businesses, Agiasotis said: “Thinking about business purely from transactional side – there’s no longevity in that. Everything we’re focusing on is beyond payments.”
Putting service back
If banks can no longer compete on price, what can they compete on? Another panel member, Tim Tynan, chief executive officer (CEO) of Bank of America Merchant Services CEO talked about layering value-added services on top of competitive pricing.
“Price is important – you have to be competitive and have to have the right models. But it’s not only thing that matters,” he said. The bank has conducted numerous focus group meetings with both past and present customers and also prospective ones to find out what they actually want from their bank. The answers range from financial management help and – at the other end of the scale – services such as analytics and information that help customers understand where their next clients will come from.
“Everyone needs basic services – the pipes to do transactions and pay people,” said Tynan. “To me it’s what you do on top of that – that’s what we focus on. Consumer behaviour is different. People live differently, whether it’s buying on phones and laptops at night to physically in a store, and that is taking commodity to new level.”
While many still think the banking sector is characterised by legacy systems and lack of innovation, this could not be further from the truth. 2018 marks the year when a multitude of external factors will shake up the industry once and for all and reinvent the way people bank. Inevitably, this presents a threat, but also an opportunity.
The global economy has seen about eight years of growth, but we are starting to see the end of this which is triggering some volatility in global markets, Stefan Bielmeier, DZ Bank, argued in his keynote speech at the Bellin annual 1TC conference. Other speakers discussed blockchain, cyber crime and netting.
A series of governments are now very worried about the idea of bitcoin and these currencies because customers would be able to make sustainable ongoing transactions and payments without having to ever introduce the use of a typical financial model or banking system. To combat this potential threat, several countries including major central banks like the Bank of England and the Bank of Israel will be launching their own version of a cryptocurrency. This could bring big advantages to customers.
In modern-day banking, transactions are still a laborious process—sending money across the globe involves time, effort and risk. Payments moving across borders are slow, as they typically hop from one correspondent bank to another, each sitting on the funds, ccollecting afloat for who-knows-how-long.