Just about every day we hear of new moves by the major hi tech companies into the payments space, Facebook, Amazon and Google (the FAG trio) are all there as well as other big players like Ant Financial the digital payment arm of Alibaba. These companies have taken emoney licenses in Europe and are all poised to pick off the more profitable parts of the banking business. It’s not just the banks either; the big payment operators like Visa and Mastercard are in for some uncomfortable times. Nobody ever believed that PayPal was going to dominate the on-line payments space but that should have been a wakeup call because the traditional payment card 4-Party model is about to be disrupted on a big scale and card transaction fees are a big part of the retail bank’s profits.
First a little look at some figures, Facebook has 1.86 billion active users, Amazon 304 million user accounts and Google 2.2.billion active users. How many banks have over 100 million customers? HSBC worldwide has just 45 million customers. There is an unfortunate inherent technology genetic fault with the banks. They were first of course to get into the technology but long before the internet was even a twinkle in the eye and they never kept up and now most major banks are hiding behind fundamental legacy systems. The hi tech gorillas don’t have that problem, they are all relatively new bristling with the best technology in the internet space.
You could argue the banks have missed a trick, well quite a few actually. Perhaps not now but back a few years if you asked people why they used the banks it was because they were trusted to look after your money. Now this hasn’t quite gone, but more people are using the FAG and friends than the banks on the internet. Who is the most trusted? Probably still the banks but the ice is getting ever thinner. Curiously the banks could still win this game but they need to re-engineer themselves into the 21st century. It’s another somewhat longer discussion but having secure processes is one thing but you have to have the service levels and attitude to match. I dread having to call the bank but resolving a problem with Amazon is a pleasure. It would be so easy to resolve this mismatch, authentication is at the core but again the banks have fallen behind.
But the problem is even worse than this, the basic payment instruments are changing. The hi tech giants are moving very much into the bank current account space enabling customers to pay directly from their account, this completely disintermediates the payment cards and all the fees being collected on route. They can also solve a major problem the banks are being slow to resolve in the UK at least. When you make a direct account payment using for example the faster payments service there is absolutely no way of knowing where the money is going which can lead to human errors and an open field for the fraudsters. This is a problem hanging over from the legacy systems on which the faster payments service is built. The hi tech giants don’t have that problem they can handle accounts on a global scale.
There is more, digital currencies. We constantly hear about Bitcoin but there are at least 700 other digital currencies. There are only a few major products for which Ripple and Ethereum are the two other most used currencies. These currencies are however not collateralised, there is nothing underneath the bed and they are subject to price volatility issues and also security problems. Not so well known but there are also a growing number of fiat based digital currencies of which MintChip and Tibado are probably the best known although other entrants such as eCurrency Mint are making a presence.
Now here is the interesting point one or more of these digital currencies is going to be another payment disrupter and the question is who is going to be in charge? The banks are currently keeping their distance on the excuse of regulatory issues although it’s difficult to see why they can’t be processed to meet the necessary protection/detection for money laundering and the financing of terrorism. If the banks aren’t careful the hi tech giants are going to take this world as well!
Dr David Everett, SCN Technical Researcher.