Payments are a classic illustration of a long-standing paradox around technology's role in banking. Technology has enabled banks to process payments more quickly, efficiently and securely, to profitably offer payments products and services (such as credit and debit cards) to a wider array of consumer and corporate customers, and to make effective payments handling a foundation of multifaceted and revenue-generating client relationships.
However, payment technology also has created many challenges for banks. It has contributed to the commoditization of payment offerings, which hurts their market share and profitability. At the same time technology has helped make transactions more secure, it also has been a big factor in the rise of payment fraud and related crimes.
This paradox is only going to become more pronounced as mobile, social and analytics technologies provide banks with new opportunities to expand their payment businesses. Meantime, technology firms (such as Google, Apple and now Facebook), startups and other nontraditional competitors -- as well as hackers, criminals and unfriendly governments -- will seize those same opportunities.
It's likely that the next battle for payments dominance will be waged over the "unbanked" (poor people in developing markets, immigrants, students, etc.) and people of all incomes and demographics with a variety of options, many of them involving nonbank entities. According to recent FDIC research, the number of U.S. households managing their finances without a bank rose from 7.7% in 2009 to 8.2% last year.
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The promise of payments is that it can bring disenfranchised individuals into the financial system, a proposition that SWIFT will address at its 2013 Sibos conferencein Dubai. Along with the expected focus on standards, infrastructure, regulation and security will be a panel session addressing "Financial inclusion: Is payments the answer?" featuring executives from MasterCard International, Punjab National Bank, the Al Fardan Exchange, the Alliance for Financial Inclusion and the Bill & Melinda Gates Foundation.
Although banks have done more than dabble in areas such as remittances, peer-to-peer payments, mobile money and stored-value cards, it's not at all clear that they'll be the dominant players (or even want to be) as those businesses expand. But with Gartner forecasting that worldwide mobile transaction value will exceed $235 billion this year (up 44% from the $163 billion spent via mobile devices in 2012), it seems more critical than ever for banks to pursue the promise of payments -- the technology paradox notwithstanding.
There's no question that others are willing to take on the costs and risks to realize that promise.