Nehmen Banken schließlich E-Payments Ernst?

For the first time ever bankers have launched an EFTPOS advertising campaign.

Could this be an indication that they are becoming worried about the competition they are getting from internet companies such as PayPal, Amazon, Google and Apple (iTunes)? The digital economy is growing much faster than the bricks-and-mortar economy and, while EFTPOS is not going away anytime soon, an increasingly large amount of money is now bypassing their systems. At the same time traditional players in this market such as MasterCard and Visa have far more advanced online payments in place than the banks with their EFTPOS system.

Along with the music industry, the retail industry, newspaper publishers, broadcasters and telcos, banks have concentrated on rear-mirror fights, looking backwards in order to try protecting their traditional business rather than embracing the future. This made it possible for others to step into that space and, while it took many years for these new companies to break into the traditional monopolies/oligopolies, in the end the newcomers began to hurt them — and they are now even demolishing whole sections of the established market.

The reason for the banks' procrastination is, of course, that open networks mean more competition and therefore lower margins. By not moving more quickly into these new e-markets and accepting the inevitable changes that the new environment brings with it many of these sectors are suffering a great deal of pain, and have now created such a gap between the leaders in this emerging market and the traditional players is which is increasing rather than decreasing.

As regards banking, consumer-based international money transfers are now largely bypassing the traditional banking system, which charges $25 for a money transfer for transactions often not much larger than the fee. Even within Australia EFTPOS transactions in remote parts of the country could cost $5 or $10.

No wonder customers are seeking alternatives; and while the alternatives are still small in size they are growing exponentially. In some developing countries we see that consumer m-payments are larger than traditional bank payments. Increasingly mobile phones are being used to bypass the banking system and innovative apps are being developed that allow others to process transactions and make payments without using the traditional banking system.

Banks have never taken a leadership role in internet/mobile-based payment systems. They see these developments as a threat to their operations — very much like the reaction of other sectors that used to enjoy a dominant or monopolistic position in the market. Using the latest technologies, services can now often be provided much more easily by others (competitors) and the banks are now becoming concerned about this.

Remember the first e-cash systems were being tested by the banks in the 1980s. The testing is still going on and hundreds of pilots and projects later they have not developed a good alternative. PayPal was the one that stepped in. iTunes now has something like 250 million customers — more than most, if not all, of the banks. Amazon is another global financial giant.

And so the competition is not coming from other banks — they are all involved in the battles aimed at protecting the past. Competition is coming from outside.

Imagine the potential power of a Google, Facebook or Apple moving more deeply into transactions and e-cash innovations!

By Paul Budde, Managing Director of Paul Budde Communication. Paul is also a contributor of the Paul Budde Communication blog located here.