26 July 2014

Elizabeth Lumley

Elizabeth Lumley - Finextra

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Finance 2.0

A community for discussing the application of Web 2.0 technologies to financial services.

Banking lets all the 'fun fashionable' stuff happen

16 March 2012  |  5103 views  |  8

OK, so some of you may know I spoke at SXSW in Austin, Texas on Monday. But before I get into the gist of what I talked about - I attended three panels - all looking at various angles on the theme of money.

  • Taming the market in your pocket
  • Credit Coins Cash: Social currency and Finance 2.0
  • The Future of Money

As you can guess, most of the panels focused on 'How we are going to disrupt traditional banking and transactions' - so there were no traditional financial services people anywhere (unless you count Visa who were on the Credit Coins Cash panel - the best of the bunch, if you ask me)

Now I'm not arguing against disrupting banking. If fact I'm all for it. There is a lot that is wrong with modern banking and a good dose of combative competition is good for everyone in the industry. 

What struck me was the juxtaposition of the bravado coupled with the fairly shocking display of ignorance on how international banking and payments happen. 

For example, Andrew Vilcsak, Mobile Platform Lead, Airbnb (an online B&B finder and booker) in the first panel described teething problems the site had when they launched the site in Europe because 'international payments are complicated' - No shit, Sherlock.

At the next panel, Ren Reynolds of the TerraNova blog (who was actually very good) warned the audience that their Facebook credits were not secure and did not offer any consumer protection. While that is correct, it took Jeremy Nusser Sr. Director, PlaySpan BD Visa to make the point that '90% of Facebook credits are bought using cards, mobile, PayPal or prepaid - and those things do offer consumer protection'

See where I'm going with this? It took the guy from Visa to point out that it is payments services offered by banks and the established financial services players (by which I mean PayPal) that offer this consumer protection. It is the banks (and PayPal) which develop and manage the established regulated payments processing networks. 

Moving on - the first 20 minutes of the Future of Money Panel was basically a bitch fest about PayPal (having two online payments start-ups on the panel Stripe and WePay - it wasn't surprising)

But it was this statement from Dave Boyce, CEO, Fundly that sums up what I think is wrong with all this 'disruptive banking' boasting.

Fundly is an online social fundraising platform that does partner with a bank for its payments processing. At the end of the panel Boyce said the site was wary of putting 'bank-type' logos on their site because - 'we were about fun and giving - not boring banky stuff'. However, they had to relent because the site found people seemed to be reluctant about handing over bank details to a website without some sort of visual reassurance that the payments were supported by a bank network. (I guess some people still trust the banks).

This guy has an MBA from Harvard Business School and he thought it was unfashionable to reassure people that their payments were secure and protected? Huh?

So anyway, moving on to my panel - I started out telling my little story about building communities (it was captivating) - however I wanted to make a point that many people forget while they're trying to be cool, hip, fashionable, and disruptive. 

SXSW is a Film, Music and Interactive festival. If you are a young person who plays guitar or who has made a film, I don't care how much you go on about your art (or how much you want to disrupt the status quo), someday you will want someone to buy tickets to your show. Let me repeat that - YOU WILL WANT SOMEONE TO PURCHASE, WITH MONEY, TICKETS TO WATCH YOUR SHOW. Guess how paying for a ticket happens 99% of the time (in the first world)? - Correct, via a bank account. 

Banking is the platform that lets all the 'fun and fashionable' stuff happen. 

Yes, payments and transactions will most likely become a commodity in the near future. Yes, customer front ends, such as Simple, Google Wallet or Movenbank, may be how you access you bank account in the coming years. But those railroad tracks, the aging legacy infrastructure that everyone moans about, are not going away anytime soon. 

Dismissing the importance of established infrastructures or ignoring the experience of firms who have trodden the potholed path of complicated regulations - doesn't make you a rebel, it makes you naive. 

 

TagsPaymentsRetail banking

Comments: (10)

Danielle Sheerin - NixonMcInnes - Brighton | 16 March, 2012, 14:32

Great post!

Its so easy to laud the latest bit of distruptive tech and disparage traditional banks for having hulking legacy systems that hold them back, whilst forgetting that it is these very legacy systems that make traditional banking work in a (largely) safe and secure way.

Brett King - Moven - New York | 16 March, 2012, 15:19

Liz,

You're absolutely right. We need the manufacturing layer, the pipes/wires to transmit securely, along with the regulatory guarantees for safety and security. We're not going to circumvent the banking 'system' in this respect any time soon.

Unfortunately for the industry, however, we don't need every bank in the system currently to support the wires - we only need a few. So with this new found discovery of the consumer experience, it is inevitable that slower banks that don't provide key infrastructure to the front-end will simply be consolidated out of existance. It may take a decade or so, but the same forces acting on bookstores and media distributors is already at work in the banking space.

What banks need to work out right now is how they provide value in the new normal. 

Brett King
BANK 2.0 

Elizabeth Lumley - Finextra - London | 16 March, 2012, 15:29

Brett I agree with you. We will see a consolidation within the banking world on who will maintain those 'pipes'. API banking is a real trend and I predict we will be seeing a lot more of it in the future. 

But I have to call you out on comparing banking to bookstore and media. Book stores and media are in no way comparible to the level of regulation banks have to deal with. International regulation actually exists that bars banks from closing branches. It's actually against the law. No regulation like that exits for newspapers or bookstores and that is just one example. A closer comparison could possibly be healthcare. 

Ren Reynolds, during the virtual currency debate at SXSW, warned startups not to allow trading of credits or allowing transactions because 'that would make you a bank and you *don't* want to be a bank' 

Brett King - Moven - New York | 16 March, 2012, 16:34

Liz,

I get the differences. However, banks at the end of the day are businesses. As we've seen in the publishing and media industries, if you don't have customers, you don't have revenue, and thus, you don't have a business.

Regulation won't save you from no revenue unless the government and regulators decides to nationalize the banking industry. However, why would you do that when customers are already clearly showing that they're happy to interact with a new layer that accesses the banking space.

It's far more likely that regulation will have to change.

BK

Elizabeth Lumley - Finextra - London | 16 March, 2012, 16:49

Regulations change? Lol! That gave me the biggest laugh of the day.

Regulations don't change - new regualtions (that do the same thing - only slightly differently) get layered on top of old ones until your swiming in a alligator-filled swamp with interconnecting, overlaying branches, roots and snakes that could bite your arm off. 

Brett King - Moven - New York | 16 March, 2012, 16:58

Exactly!

So in the end - with no revenue, and with changing behavior across the spectrum, the distribution layer fragments and falls apart. There remain a few core banks that have the mass and groundswell to remain viable, but the likelihood of goverment taking over the branch business just to cater to a dwindlining demographic is highly unlikely.

The move instead, will be to protect and regulate this new layer. Thus emerges a secondary licensing structure. However, what doesn't happen in this scenario is that things stay the same and the incumbents at large survive.

There will be blood in the water in the retail FI space over the next decade. If I was a betting man I'd be shorting bank stocks at the lower-end of the spectrum, and commercial real-estate :)

BK

Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune | 19 March, 2012, 07:35

@ElizabethL:

Brilliant post. Thanks for pointing out that, as of today, 'no banks' virtually means 'no payments'. All the PayPals and SQUAREs of the world will cease to exist overnight if there are no bank-issued credit cards. Re. your closing sentence, I'd go one step further and say it makes them "naive rebels"!

Nick Collin - Collin Consulting Ltd - London | 19 March, 2012, 10:50

Excellent post Elizabeth, and very timely.  It's about time the pendulum of fashion started swinging back in favour of good old fashioned banking and payments infrastructure.

Jeanne Capachin - financial insights - framingham | 19 March, 2012, 11:33

Thanks Liz and Brett - great discussion. I would add that equating disruption in banking to new consumer payment methods is missing the point. These are all interesting and the average consumer can relate to new forms of money. But real disruptive in banking will occur in the way they transact and do business wiht each other - and altho not fun, it's much more interesting to people in the business. There will be a growth in infrstructure providers - banks, tech providers, associations - who can deliver scale, security, and speed. This will refocus banks on customers - rather than back-office processing. And then we'll see more innovative financial services that focus on financial management, lending, and investing - not just new ways to pay.

Brett King - Moven - New York | 19 March, 2012, 15:36

Guys,

A very interesting post this morning again looking at how new entrants marginalize the banking rails:

http://m.upi.com/m/story/UPI-77361332153000/

The quote to focus on:

"...the real threat is the way technology is now changing the whole basis of banking. They are like the dinosaurs, just after the meteorite hit but before the sky turns black, the forests burn and their entire ecosystem collapses..."

The more you believe the banking system is secure in its advantages around regulation and rails, the more you will be at risk as a banker.

BK

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name

Elizabeth Lumley

job title

Multimedia and Special Projects Editor

company name

Finextra

member since

2009

location

London

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I am the multimedia and special projects editor at Finextra.

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