Banks have realized for some time that payments are becoming something of a commodity. Technology, in large part, has made the space more accessible to players of all sizes, both banks and nonbanks, and the increased competition is cutting into profit margins. Further, the introduction of regulations (think: Single Euro Payments Area) threatens to squeeze more money from financial institutions' coffers as they race to implement compliant technologies and procedures.
Consequently, banks are faced with a dilemma around the extent to which they should remain in the payments business. Is it worth all the hassle of revamping their long-lived payments systems that have worked quite well for so many years? The quandary is especially evident in the corporate payments area, where clients' dealings cross the borders of nations and continents. Multinational companies are growing tired of being locked into the proprietary payments processing systems of their banks and have become vocal about their desires to simplify things.
Clearly, standards will assist the industry in meeting the growing demands of their corporate clients while also helping to streamline banks' operations. However, there is a fear among some financial institutions that standards will commoditize payments further, leaving individual banks with few options to differentiate themselves. Additionally, the debate about the best approach to standardizing global payments processes continues.
"Standards are the conversation," says George Doolittle, managing director, head of global financial institution payment services, for Charlotte, N.C.-based Wachovia ($553.6 billion in assets). "This is ultimately the most important issue in the industry today," adds Doolittle, who sits on several global banking committees, including SWIFT and CHIPS.
Banking standards are not new, notes Arthur Brieske, director and head, global ACH and db-worldPAS, with Frankfurt-based Deutsche Bank (US$1.3 trillion in assets). But, "The recent discussions have been around the globalization of standards -- a standard payments kernel across the world for all industries," he points out. "Standards will help us in terms of scale, automation and STP [straight-through processing]."
Robert Blair, a board alternate and member of the payments committee at Washington, D.C.-based standards body X9 and a VP in the treasury services, global client access area, with New York-based JPMorgan Chase ($1.3 trillion in assets), says the next iteration of standards discussions is related to the evolution of technology and world markets. "Since the introduction of computing into banking, standards have had a role," he says. "This is the next go-round for the next generation of payments systems to better support security, efficiency and interoperability in the development of global payments. It's the promise of efficiency and interoperability on a cross-border basis."