The question today is how much spine the conventional banking industry needs to show to global web service providers like Facebook, Google, WeChat or Alibaba or tech giants like Amazon and Apple.
" Payments ecosystems are incredibly complex and it’s not easy to work out who should pay what."
Andrew Cornell, BlueNotes managing editor
Argus’ point was in handing over the infrastructure behind the home-grown Australian credit card Bankcard, the Australian banks lost control of a not just branding – Bankcard, after all, was eventually killed off – but the revenues which went with processing transactions.
He also argued ceding marketing real estate to international schemes weakened the glue holding customers to a bank.
That was in the 90s. But these issues have re-emerged to threaten banking franchises many times since, as tech companies like Microsoft, telcos, retailers and supermarkets threatened to put their hand in banks’ wallets.
Often it was payments which led the way and the threat was real enough. While banks might still have held the consumers and merchant accounts from and to which funds ultimately flowed, they didn’t want to be reduced to utilities doing only the plumbing.
We have already seen differential pricing where banks will cede some of their processing revenue via discounts or splitting with major merchants or tech players like Apple.
The deeper threat was consumers and merchants might like the service they were getting from non-banks so much they would actually switch their borrowing and lending to them. Supermarkets were offering deposit accounts, retailers home loans, Microsoft bought a bank.
Banks have long faced this threat in markets where post offices offer transaction accounts.
But historically banks have had two great walls standing high against the winter: the cost of building networks. And trust.
So is this time different?
After all, today the social networks are already global, consumers are already immersed in them and seem to have limited compunction against providing huge amounts of private information.
As to the barriers to entry, the great wall is getting lower as digital processes become more advanced and financial technology start-ups – fintechs – in particular lower the cost of making and taking payments.
That allows payments to be seamlessly embedded in transactions, whether e-commerce, mobile, or even in chat applications. The more that happens, the more you approach the point Argus was making about banks being “forgotten” in the transaction, just doing the work in the background.
How about trust? The banking technology analyst Chris Skinner cites research showing 20 per cent of Europeans would bank with Google, Facebook or Amazon.
• More than a third of European consumers would move bank if their existing bank didn’t offer up-to-date technology to aid interaction;
• Nearly a third are already embracing mobile payments, while a fifth are already using wearables and crypto-currency to pay; and
• Almost a fifth would buy banking services from challengers such as Google, Facebook and Amazon.
Banks of course hardly have their heads in the sand and are paying more than lip service to making payments seamless for their customers. Just one example recently, from this bank, ANZ, was a step towards a genuinely virtual credit card.
When a credit card is lost or stolen, the new ‘card’ can be remotely loaded onto the mobile payment device. With Apple Pay and Android Pay, many customers are rarely reaching for the ‘plastic’ anymore, using the phone to tap’n’go, so this is a logical step.
ANZ’s head of products, Katherine Bray, described the move as another milestone down the road to fully digital payments.
Banks also have an offensive opportunity: the survey Skinner cited found one in three consumers said they would consider buying energy for their home from a bank. The same figure agreed on personal data storage while 30 per cent said they would purchase broadband services from their bank.
Banks also appear to have an opportunity to leverage their trust dividend – despite the recent history of scandals and poor behaviour.
Skinner noted across Europe, 97 per cent of those surveyed said they were happy for banks to use their data to offer them a wider range of services. Moreover:
• Almost three in five (59 per cent) would be happy for their bank to use their data to lower their mortgage premium;
• Nearly half (47 per cent) of consumers would allow banks to use their data to recommend relevant products and services; and
• More than two in five (44 per cent) want their data used by banks to keep them informed of their spending habits and offer relevant advice.
More than a third (36 per cent) would like their data used by banks to amend their credit rating
The study Skinner refers to was commissioned by Fujitsu and carried out by independent research company, Coleman Parkes Research, between November and December 2015.
Skinner notes firms like Facebook, Apple, Amazon have the same aim as banks: make it easy, cheap and convenient to pay whilst engaged in entertainments, sharing and fun.
Interestingly, Skinner can see a world where the tables are turned from the Argus era: while the might be squeezed on margin by the behemoths, the traditional card schemes like Visa and MasterCard might be squeezed out.
The future is not clear. As the more than decade long reform of payments in Australia had demonstrated, payments ecosystems are incredibly complex and it’s not easy to work out who should pay what.
Ideally, as more players enter the system, consumers and merchants should pay less. And they should be able to pay more easily. In theory.
Andrew Cornell is managing editor at BlueNotes