As many of us prepare to board flights to Dubai for Sibos, I’m wondering what others are hoping to hear and learn this year.
A few things in my mind:
It’s SWIFT’s 40th birthday, hurrah!
At the London Forum earlier this year, SWIFT reminded us that it all began with the telex machine. Remember punched tape and testkeys?
Today’s world is radically different. At a payments conference in London earlier this year, a speaker reminded us what percentage of the world’s population will have smartphones (or tablets) by next year. Lots. But his next point was more interesting – ‘what
% of the world’s wealth will that represent?’
At SWIFT’s African Regional Conference in Gaborone earlier this year, the answer was 100%. Or perhaps 200%, given that everyone seemed to have both a phone and a tablet. If all corporate treasurers, SMEs, invoice discounters, you name it located anywhere
in the world can download Angry Birds or anything else just as easily as you and I, what does that mean for the future of banking, finance, payments? Hopefully we’ll get some answers in
one of HSBC’s sessions.
Are we innovating enough to serve the changing, wider market; or are we simply sustaining the old model? In the Innovator’s Dilemma, Clayton Christensen describes how the disk storage industry developed late last century; in short, incumbents were able to
maintain successful positions in their chosen markets, but innovators were more successful in growing niche markets….and eventually overcame the incumbents. A couple of quotes come to mind:
- 'The problem established firms seem unable to confront successfully is that of downward vision and mobility'
- 'Their customers were pulling them along a trajectory of 22% capacity growth in a 14 inch platform that would ultimately prove fatal'.
But the payments market is incomparable with the industries Clayton Christensen studied. It won’t happen to us. Our market is different, bigger, more complex and more diverse. Perhaps we have the opposite challenge; what growth option to choose. Though
growth in payments transaction volumes may be less than stellar, technology has massively reduced the barriers to entry for diversification. For example by expanding the scope from bank-to-bank to end-to-end; a clue perhaps in a new strategy paper from the
Federal Reserve Banks which ‘focuses on the end-to-end payment process, whereas past Federal Reserve Bank payment strategies focused on interbank issues’.
Or serving SMEs better: SMEs produce 40 percent of Africa’s GDP; better serving them could create more than $40 billion in new revenue according to
Putting growth back on the agenda’, a special McKinsey paper for Sibos.
Mass adoption of internet and smartphones should surely make the market bigger. We can reach more people more quickly and easily with more sophisticated services than ever before. That must be good – especially in fast-growth economies. ‘Payments in Mid-East
and Africa (MEA) are largely cash-based, and payments, accounts and trade generate over $50bn, about 45% of banking revenues in the economies of the region. Trade among emerging markets grew 14% between 2007 and 2012; but between developed economies it was
only 1%’, according to McKinsey. The report highlights three particularly promising opportunities:
- leveraging growing international connectivity to bolster trade and remittances
- using new technologies to serve unbanked consumers and businesses
- developing infrastructure capable of leapfrogging legacy systems.
How? Banks can’t do it all themselves:
‘Not even the largest global bank can aspire to connect, with the required depth, all the new, geographically dispersed trading markets, most of which have been peripheral until recently. New approaches to partnerships (including deeper organizational and
technological integration among partners) are one of the main avenues to explore in the effort to remain relevant in the trade finance landscape’ continue McKinsey.
In a Community Session last year, we talked about the likelihood of utilities ‘moving up the value chain’ – doing an increasing array of services which used to be deemed to be things banks had to do themselves. This year it’s clearly underway – account switching,
moving domestic payments clearing and settlement to realtime,
Tungsten’s intentions with OB10, and many more. Most of these innovations are collaborative – making the market bigger for everyone, rather than competing for a share of the current pie – a theme which will be covered in the
If you’re going, see you in Dubai. And,
according to SWIFT, don’t schedule back-to-back meetings on opposite ends of Dubai World Trade Centre; it can take up to 20 minutes to walk from one side to the other. Bit late now.
Payment System Improvement - Public Consultation Paper,
Federal Reserve Banks, 10 Sept 2013