In banks, there is no glamour in being responsible for the payment services business. The volumes of payment transactions are high, but the fee chargeable on each is negligible: it feels like being responsible for the plumbing infrastructure. Professionals with an eye on this year’s bonus are naturally drawn to investment banking, where large transactions mean high fees. There is magnificent irony in the fact that infrastructure deals attract big bonuses when running the infrastructure itself does not. Who would be interested in standing at the door to collect tickets when the big deals are being made elsewhere?
It is strange then, that the ‘smart money’ outside the banking sector is being invested in exactly that – building payment services businesses. Something is going on that seems to be about more than moving money.
Old-world thinking approaches the problem in a straight forward way: moving money must be about the money – they must have found a way to improve the margins. Certainly with technological innovation, the apparent marginal cost for payment services fees is quite low, giving a better ROI. This is usually the business case put forward by IT departments (and their suppliers) in the banks; improve the margin to gain a small fraction of a large and steady flow.
Such infrastructure plays could be justified by a low-margin high-volume business case, if the barriers to entry are high and customer inertia is even higher. But technology brings the barriers down (slightly) and customer willingness to change is increasing. Tech companies know this, yet they are investing in their own payment systems. Their business cases cannot be assuming a one-off shift in customer loyalty and then monopolistic control. They must be applying some different thinking. The long-term strategy to win and retain payment customers cannot be built on short-term ROI. What have they seen that the banks might be missing?
In the old days (let’s say, before 1987 and disintermediation in Financial Services in the UK), bankers would say that banking is about getting two things right: Trust Broking and Maturity Transformation. Banks enable buyers and sellers, employers and employees to trust each other. With disintermediation, the emphasis shifted to financial engineering of Maturity Transformation alone. So banks have largely moved from a position of “You can trust each other because we know you both,” to “You don’t need to know each other, just trust us.”
But payment services are not about Maturity Transformation. They are more about Trust Broking. Might the business case for payment services actually rest on what sort of relationships you want?
What sort of relationship do banks and customers want? What sort of relationship do banks want between their customers? If the answer is “as little as possible” (as it was when the ATM was introduced), then payment services will be seen as unglamorous and merely a necessary part of the infrastructure. But if the payment services provider sees their role as trust broking, then they will promote and invest in a service that users value: A service that creates value for the user.
Imagine a club that helped its members stay loyal to each other. The building of loyalty and trust between members would generate and sustain loyalty to the club itself. The big difference between the banks and some of the new entrants in payment services is that the new entrants are busy trying to help businesses and people build relationships, even when it is only for one transaction. The business case is about the long game. It is not even about monetising the big data. It is about the corporate understanding and proficiency that is gained from paying attention to the relationships between customers. In a market with low barriers and low loyalty, a payment services provider without an understanding of relationships between customers is likely to miss important changes and be seen as out of touch with business.
If your organisation is not interested in its relationship with customers and relationships between customers, then high volume low margin business will be neglected. But it is clear that customers who care about their transactional relationships are shifting to organisations that pay attention to what makes a good relationship.
Investment banking has often paid attention to brokering trust between clients when the transaction size is high. The challenge is whether banks can now pay attention to brokering trust between clients when the volumes are high.
Is there a need for a new breed of Relationship Manager? One that is responsible for enabling the stakeholders of a bank to have effective relationships with each other? Perhaps then the stakeholders might want strong relationships with the bank itself too.