Saturday, September 19, 2009

Four Economics

Banks should move up the order-to-payment value chain from payments and down the payment-to-accounting value chain - before invaders move down or up into the payment business. The reasons are fundamental:

- better service - better value - new revenues certainly needed when float disappears, interest margins remain low and fee income in commoditized services erodes

- the networked economy means that banks have to come up with new deeply integrated services - not-changing is not an option

- take the responsibility for society at large as banks can deliver I. four economics, II. support three neutralities, III. use two-sided networks and IV. move to one generic messaging platform.

I. Four economics

Banks are best placed to deliver - for their part (in multi-service-provider networks) these essential lubricants and fuels for the networked economy - and have indeed a responsibility to do so:

1. Economy of repetition

Meaning that a familiar and trusted tool can be used for new purposes. In the technology, device, service and information overflow age (Alex Wright in Glut p 6) this is becoming more important than ever. To get critical mass of user adoption it is not only necessary to have the same user experience across services, but also across roles (private customer, corporate customer, citizen..) and furthermore export the experience to other service providers by embedding the service in their offerings.

Examples of what banks can do is to offer the e-banking log-on tools to the public and other sectors as a service (also for non-banked), deploy the e-banking and payment networks for e-orders, e-invoicing, e-salary and e-notifications.

People in pre-banking age do not have the habit of using strong e-id and payments but are quite used to chatting, messaging, Youtubes, Facebooks, gaming and younameit. Good service to them means that introduction into the inevitable e-banking (and onwards as above) should be built on their habits - importing to banking.

Learn once - use everywhere! It would surely be interesting to study what kind of productivity improvement and GDP effect widespread use of Economy of repetition in these heavy-duty highvolume areas would have.

2. Economy of reuse

As described above strong e-id infra, e-banking portals and file transfer systems can be reused for other sectors.

Not having to invest in separate smart cards for citizens means billions of savings of tax payers money. Less need for support, training and upkeep of systems on EU-level and the prime target - faster uptake is naturally easier with familiar and trusted tools.

Re-using portals, existing routing, addressing, presentment for extended payments means substantial savings for business.

Re-use must be the first option! Especially in the public sector.

3. Economy of scope

Economy of scope means that you can sell more to the same familiar customer > lower sales costs is a benefit for both sides. Buying more from one supplier is also a convenience factor. Transparent pricing is important - both to guide customers and ensure fair competition.

4. Economy of scale

Reuse payment networks for other messages creates substantial economy of scale - as does reuse of bank e-id (annual e-bank volume in Finland with 5 million population is 300-350m - public sector for example so far needs only 10-20m strong id-transacations).

Banks can and should follow the Nordic-Baltic examples - as they have the partly unique ability to make migration to e-services and integrated EASIER, LESS EXPENSIVE, MORE SECURE and FASTER.

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