Gareth Lodge for Chancellor - "Save our Payments!"

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5 February 2013
Gareth Lodge
Yesterday, George Osborne, the Chancellor for the UK, made a speech about the reform of the UK banking industry. It covers a number of points, but some of the closing remarks are of particular interest to me as they relate to the payments infrastructure in the UK. Much of the preceding speech was, frankly, yada, yada, yada, “you’re not the messiah, you’re a very naughty boy” that we’ve come to expect from any and every politician talking about the banking industry. Details of the speech in detail can be found here As the points on the payments systems are worth analysing in more detail. In essence, George was making a number of points, which we’ll cover off separately. Firstly, there was an accusation that the payment systems were a closed shop, and that was hindering the success of new entrants, drawing a correlation that the big 4 had 75% of the current account market. My initial reaction was to laugh out loud. This speech was to a bank who are, to the best of my knowledge, only a member of only one clearing scheme, and is, according to his logic, struggling as a result. That “poor”, put down bank? JP Morgan. Yeah, they obviously suffering from a lack of access to payments systems.... Secondly, he made the following statement:

The last Government let the established players off the hook by failing to implement the conclusions of the review they themselves commissioned, and allowing the big existing banks to regulate themselves.

This is somewhat fudging the issue. The recommendations were from the OFT, who are supposed to be independent and apolitical, and most of the recommendations were put in place, despite many in the payments industry being unconvinced that these changes would actually improve matters. Indeed, there is, so far as I am aware, no definitive study to have even measured whether the changes had achieved what they had set out to do. Indeed, I would suggest that the cheque debacle was in part due to the changes, and that the Government cannot and should not continue to try and use sloping shoulders to absolve itself from its role. But the most telling point was this statement:

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. ……And it other walks of life, like telecoms, we don’t operate like that.

In both cases (electricity and telecoms), the infrastructure piece of the puzzle is moving in the exact opposite direction to that George is proposing. The electricity market structure was created by the Government, and is widely perceived to have failed the customer. The telecoms market is seeing that either it’s a specialist market with each building their own network (dataworks, landlines) or that the infrastructure isn’t a competitive differentiator, and are moving to sharing, or even selling their networks. Now there are some broad brush statements but far more granular than those George made. Indeed, some other statements were laughable, but more worryingly showed a complete lack of understanding of even the basics or business sense. So here’s my manifesto, assuming that this is happening regardless.
  1. A clear statement of objectives, because currently they aren’t and are just populist in nature
  2. A clear statement of assumptions. They seem to want the infrastructure to be both commercial and nationalised. It patently can’t be both, so which is it?
  3. A clear statement of the costs and benefits, and to whom, for making the changes. For example, cheques are free to consumers. They could be cleared faster, but that will cost A LOT of money. They’d also, probably, have to legislate/force/bribe a private company, Unisys, to do it! So – who pays? And will that really matter? And what are the consequences?
  4. Be bold. Every other country bar one in the world is to trying to, or already has, abolish cheques, yet it seems George wants us to invest massively in them. Do the right thing, not the vote winning thing.

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