Politics, Payments and DNA

Yesterday, given that it was a Monday,  was an interesting day in the UK.

We confirmed that we had exhumed Richard III and then George Osbourne had this to say.

“Payments systems sit at the heart of the banking system.

They are the hidden from view wirings that operate every time you get wages paid into your bank account, deposit a cheque or withdraw money from an ATM.

It’s how the money flows around the system.

And it’s a bit like the electricity grid, every person and every business needs to be plugged into them to enter the banking market.

At the moment, a new player in the industry has to go to one of the existing big banks to use the payment system.”

He added one crucial piece “Asking your rival to provide you with the essential services you need at a reasonable price is not a recipe for success”

Whilst this of course is a valid point, the issue is that in the UK 92% of us who are in business, bank with the “same 5 banks” where the core banking services are all the same, and the relationship management which used to be the differentiator, has been eroded and in some cases removed.

Since 2009 I have felt certain that there was a regulatory opportunity for change, ironically brought about by the involvement of the EU competition commission in the drafting of the Payment Service Directives, however, time has moved on. It’s been a while since Monday 6th October, when the global banking industry started its freefall, which ironically immediately ended the “free for all”  offers that some banks had been making, and many taxpayers are still continuing to try to unravel. Of course exhuming the Glass-Steagall Act and announcing that the ring fence is going to be electrified, and, as we near the next election other deterrents will be added, is news (?), however, are we really looking at the issues from the basis of future sound economics? I am not so sure. When the banking crisis became public, in 2008 for those of you still trying to guess the year, all sectors were punished, consumer and commercial alike and today we are living in a flat economic cycle, with consumers still de-leveraging debt, and business frightened to borrow.  Some businesses owners are frightened to even ask their bank for support as they really believe the answer will be no, and worse, if and when the recovery starts, a rejection today will be held against them in the future.

Ring fencing investment and retail banking is a safe political step, the radical step is separating business and consumers. The reason why now “may be the time” to seize that opportunity is that the time “may be right”, It is very difficult to imagine another economic crisis that would create a force to change event as significant as the one we are still living through, save the complete collapse of the Euro.  Having business banking and its activities operating as a separate sector should provide a degree of economic continuity, but to be clear, would not prevent business failure in the face of a consumer led recession. Remember this is not a consumer led recession, but a credit crunch caused by a catalogue of catastrophic failures by the very banks that today remain the principal “historic custodians” of our core payment systems.  

Adrian Kamellard the CEO of the Payment’s Council added his weight to the day saying  “We agree with the Chancellor that ‘payments systems sit at the heart of the banking system’. I am determined that the Payments Council will continue to deliver positive change for the benefit of customers. We recognise the critical need for continuing innovation and vibrant competition, including easy access to payment systems for new entrants. This is why we are focusing on developing a payments strategy that meets the needs of customers, the economy as a whole and satisfies any new regulatory requirements”

Perhaps as we all became aware of the banking crisis on a Monday, albeit  four plus years ago, yesterday announcements point the way for future happier Monday announcements.  That said having exhumed and identified Richard III we now have a vacant grave in a car park in Leicester in which to bury the old, which of course, we didn’t have last Monday.