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Daily Briefing - 15 February 2017

Next month, Lafferty will publish its next thought leadership report, titled Payments Power. Author Peter Kinahan argues passionately that banks must hold on to and develop their payments infrastructures rather than let fintech players run away with this business. Why the passion? Today's crop of news stories makes it plain.

For a start, the 'Bank of Tech' is coming. As we've pointed out recently, Facebook has quietly acquired an e-payments licence in Ireland for Europe. Ant Financial applied for an e-money licence in the UK. The tech businesses are, at the very least, deeply involved in the payments business. David Parker, head of banking for the UK and Ireland at Accenture tells the FT today that big tech companies such as Google, Facebook and Amazon have a more intimate relationship with their customers. That's debatable. Google and Facebook have users, not customers, and their relationships with their users are closer to creepy than intimate. But they certainly have scale, and if they decide to jump into the remittances market, for instance, they could take out several existing businesses. "Banks would be justified in feeling endangered by Big Tech's inroads: in January, one in three global banking and insurance customers said they would switch their accounts to Google, Amazon or Facebook if they could, according to a new Accenture survey polling 32,715 people across 18 countries." Accenture recently announced it will hire 200 new staff in Dublin, where its offices nestle on the quays of the Liffey, surrounded by the very banks and tech companies vying for our custom.

However, there's reason to keep an eye on Amazon too. Alex Rampell, a general partner at the venture capital firm Andreessen Horowitz, believes that in the longer run it will be Amazon, with its appetite for and experience in low-margin businesses, that will capture the internet payments market. "Amazon is the most formidable," said Rampell, speaking to Fortune magazine. "If Amazon can get you lower-debt payments or give you a bank account, you'll buy more stuff on Amazon." With its sideways move into "content", previously known as news (Washington Post) and entertainment (Amazon Prime), Amazon is hooking new customers with offers to watch gems such as Seinfeld for a couple of dollars a month. Rampell is betting that Jeff Bezos will do the same with banking and payments. There's a massive caveat here that has long been sounded by critics. Amazon's AI, which suggests books based on what you're already read, is really not that smart. "If you like this, then you'll like that" treats us as pretty dumb creatures. Still, Amazon may indeed be the one to watch.

But how will this play out outside of the wealthier nations? In Nigeria, 39 percent of people have access to the internet. That means that in theory, 61 percent of people have to pay bills and so on with cash or at a cash-in service of some sort, likely to be a physical location. Kudi is among the new businesses tackling that conundrum. It is basically a chatbot that installs inside Facebook Messenger, so users can send payments to a phone number for free. The internet part? With Facebook's Free Basics — aka internet.org — Kudi users can take advantage of the free Facebook platform, without incurring data costs. Kudi charges 100 naira as a fee for paying bills. "A few services have tried mobile apps but consumers are tired of installing and figuring out new apps," Kudi co-founder Pelumi Aboluwarin told TechCrunch. "Some aren't even that sophisticated to handle the nuances that accompany every new mobile app and will rather stick with those they already use. Messaging on the other hand is a more compelling interface as it works for people across generations. This is because everyone understood messaging right from the days of SMS and chat apps have been the most successful apps on the continent."

So it's appropriate to wrap up this morning's briefing with news that US megaretailer Target has declined to accept Apple Pay in its stores. There is scant consolation for Apple Pay in the fact that the retailer has allowed Apple Pay to be installed inside its Target mobile app, but it's a blow for Apple and Apple Pay. Target is one of the top ten or eleven retailers in the US, and a member of the ill-fated Merchant Customer Exchange (MCX) group which also included Walmart, Best Buy and CVS. Amid speculation that MCX discovered that the implementation of a payments network was more work that it expected, the consortium folded and its members gradually started accepting Apple Pay. But Target is holding out and only accepting Apple Pay on its own terms and inside its own app. GAFA won't have things entirely its own way.

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