Payments as a profit centre: How to avoid commoditisation by adding real value

Abstract

The UK payments industry has been in turmoil since the beginning of the century. In 2000, the publication of the Cruickshank Report established the legal framework for a new competitive order within UK payments. The recommendations of Cruickshank, however, have been overtaken by events, as the rollout of the single euro payments area (SEPA) and the Payment Services Directive (PSD) have removed the concept of a domestic payments industry. Payment processing is now a truly European industry, and banks must face the twin challenges of fierce competition and an increasing burden of legislative compliance. The payments industry has changed forever, and it is possible that payments will become commoditised. But this is not inevitable. Banks have worked hard to reduce the overheads of processing payments and most have invested heavily to standardise and automate business processes. Costs have been cut and efficiencies gained. But commercial success will not emanate from cost cutting alone, and new business models are evolving fast. Just as geographic borders have been swept away, traditional payment solutions have become outmoded. Geographic reach is now taken as standard, and realtime is becoming the new payment paradigm. Success in the new order requires banks to adopt a fresh approach. Payment processes must be closely aligned with the business processes they support across multiple business channels. Above all else, SEPA provides the opportunity to move payments into a profitable and realtime real world.