Payments

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Kathy Burger
Kathy Burger
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The Promise Of Payments

Technology has made banks more proficient at handling payments, but it also has enabled competitors and criminals. Can banks keep up in the emerging payments environment?

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.


Transformed At The CoreThe September 2013 digital issue of Bank Systems & Technology examines eight big stories transforming the payments landscape, including the mainstreaming of virtual currencies, new forms of payments fraud, and adoption of cloud-based payments. To read more, download our September 2013 digital issue now.

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.

[How to Reach the Underbanked with Mobile Check Deposit]

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.

Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio

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Jonathan_Camhi
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Jonathan_Camhi,
User Rank: Author
8/30/2013 | 9:30:44 PM
re: The Promise Of Payments
There are so many examples in other countries of different payments efforts, especially around mobile, aimed at the unbanked. U.S. banks are fortunate to have the opportunity to examine some of these efforts going on around the world and learn lessons that they can apply here for similar ends.
Greg MacSweeney
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Greg MacSweeney,
User Rank: Author
9/3/2013 | 12:49:39 PM
re: The Promise Of Payments
Good point. The US banks have let the other firms around the world learn the harsh lessons of different payment methods. Hopefully, the US-based banks will learn from the mistakes, and not repeat them.
KBurger
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KBurger,
User Rank: Strategist
9/3/2013 | 2:04:44 PM
re: The Promise Of Payments
A few years ago (pre-crisis?) there was a lot of discussion in U.S. banking about the opportunities to serve the unbanked/underbanked. At that time the tech focus was around the risk management aspect and the extent to which untraditional credit factors could be considered & used in extending financial products (mortgages, etc.) to this segment. I think that has been a casualty of the subprime mess. But in the meantime mobile has transformed the unbanked "market", what the channel enables I think has superceded discussions about credit risk. I think U.S. banks definitely are going to be playing catch-up. Maybe too late?
Guest
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Guest,
User Rank: Apprentice
9/4/2013 | 4:46:12 AM
re: The Promise Of Payments
Major problems must be dealt with:
Security both the customer data to gain access to the customer's capital and credit.
Fraud the transactions being presented are ONLY from our customer and not allowing scammers to setup accounts in our organizations.
Money Laundering organization must be able to identify the actual owner and that they are not illegally moving and cleaning illegal funds.
Privacy for each customer must be assured and proven that their information is not given out without proper authority.
Greg MacSweeney
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Greg MacSweeney,
User Rank: Author
9/4/2013 | 11:05:35 AM
re: The Promise Of Payments
These are all important safeguards that any payments system should have. Most banks have these security, risk, AML and privacy processes in place for other products, so it shouldn't be that much of a leap to include these in a payments service.
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