The Importance of Being Earnest...about Payments

On May 19^th, I attended the inaugural Swift London Business Forum. This was one of the first public events I’ve attended since joining Celent a few weeks ago, so a good topic for my first blog for Celent. It was good to catch up with people I’ve known in the industry for many years, and was struck as always that payments is a mix somewhere between a club and a village. The flurry of acronyms are the passwords required to gain entrance to this society, but the village analogy strikes me as perhaps better, as you’ll see as I revisit this as a theme through this entry.

The first thing that struck me from the day was the very fact that it was the first such event in London. The attendance – around 450 – showed the interest and demand for such an event. But the theme for the morning, London as a key financial centre, made it all the more surprising that it hadn’t taken place before. Statistics presented in the first session showed that by activity the UK is the biggest market for Swift globally, with 19.9% of Swift traffic, just beating the US at 19.3%. Financial Services are a significant industry for the UK, the Exchequer benefiting in tax revenue in 2010 by £54,000,000,000. Furthermore, according to the organisation the City UK, approximately 1 million people are employed in Financial Services in the UK, with around 1/3^rd of them living in London. The industry generates around 10% of the entire income for the UK.

Why raise this, and how does it equate to a village analogy?

Payments and networks such as Swift play not only a vital role in the global economy, but also face dilemmas less apparent in other parts of the industry. Payments require high levels of standards and therefore co-operation. Yet at the same time payments are fundamental to almost commercially competitive aspect of a bank.

There by lies the conundrum. Where does collaboration end and competition start? How do you balance the needs of your institution, your “village”, the network you may part own, and that of the global village? This isn’t necessarily a new dilemma, as many community owned payment institutions will attest. But the dynamics have certainly changed. The credit crisis has put pressures on budgets. It has raised interesting questions – for example, in countries where Swift is considered “Critical National Infrastructure”, how should or could you manage something your country relies upon? And of course, the “R” word – regulation, a topic that would fill a book, let alone a blog posting.

The crystal ball I own seems to be faulty as the near future looks very cloudy. The reality is that these questions of this type will probably now never go away, and will probably just get more complicated. Networks such as Swift were formed collaboratively because in reality it was the only way to achieve the end result. But today? The City of Retail has being growing rapidly in size and importance next to the Village of Payments, in the same way places such as Beijing are now threatening London as key financial centres. The activity from organizations such as Google and Apple in payments, almost pointedly without the involvement from the banks, show banks need to be taking some more fundamental decisions, and soon. If they don’t, their position may be decided by the non-banks and we may find the Village is bulldozed and redeveloped. That may be stretching the analogy one step too far - but it undoubtedly could have far-reaching consequences for not just banks but for economies reliant on Financial Services.