Bernard Rame, Sopra’s Head of Payments, and Dr David Andrieux, its Market Intelligence Manager, explain how our world is changing in profound and fundamental ways

Through the combination of new technologies, entrants and regulation, the dominant position of banks and their business models in payments is being challenged. For one thing, payment itself is becoming a commodity, where cost can be higher than its revenues.

ng competition, both between banks and with new entrants, all fighting to keep up with regulatory changes purposefully designed to bring down direct revenues from payments (e.g. lowering card interchange fees).

Bernard Ramé
Bernard Ramé

At the same time, tech companies are moving into the payment space, from Google to Apple, Samsung or, more recently, Microsoft. Why? Because they see enormous digital opportunity – and sense that the traditional way of doing payments is at the end of its days.

The result is a battle for the e-banking relationship with the digital consumer of today and tomorrow. Winning that battle means gaining control over customer data and the ability to offer high-margin services, within and beyond payments. Therefore, banks need to act, or they will risk becoming simple back-office processors, forever (and irrevocably) one step removed from the customer and the revenues that accrue from it.

Apple is a case in point; the Apple Pay electronic wallet that has established a firm foothold in US consumer markets and which is now a reality in Europe, too, is a Chinese Wall between you and your customers. Even though Apple says it wants to co-operate with banks, this co-operation may well ultimately not be to the banks’ advantage. That’s because, if Apple gains enough traction with its wallet, it could end up in a position to dictate pricing, eventually siphoning the payment revenues away from the banks – and making retail banking the next market, after publishing, music and so many others, to be hollowed out by technology.

So, how can banks move forward and best position themselves in this difficult context? The message is loud and insistently clear; they must leverage their (current) dominant position in the card domain to revolutionise their entire transactional business model. New services around cards, innovative and distinctive loyalty programmes, ticketing, buying advice, integrated payment and credit functionalities are but some of the value-added services a digital wallet can provide. Somewhat paradoxically, caps on interchange fees can actually boost cards as a payment instrument – as thanks to this low overhead, merchants may continue to favour cards over other payment instruments. At the same time, they must ruthlessly continue to automate to further reduce costs.

David Andrieux
David Andrieux

None of this vital work can get done without keeping an ever-vigilant eye on the wider compliance market. Regulators are convinced, it seems, that new payment instruments are needed to avoid monopolies: for instance, the European Retail Payment Board is working on the creation of pan-European instant payment schemes based on credit transfer (rather than cards), while the upcoming Payment Service Directive 2 will give third party providers the right to initiate payments, obligating banks to allow them access to their customer accounts.

As a consequence, exploiting your position in the card domain is not enough. Banks must be very careful not to allow a situation to develop, after all, where they (and the card networks) control the card industry, while those new tech-savvy entrants develop competing systems. Banks must thus accelerate the development of new models in which they can play a more central role, such as payment systems based on credit transfers and real-time payments.

So as soon as 2020, the payment landscape will be vastly different, full of new external players and co-opetition will be the norm. The good news is that by reinventing their card model and crafting new payment services and instruments, banks still have a fighting chance of surviving and maintaining at least some of the more rewarding aspects of a digital money relationship with consumers.

The authors are Head of Payments and Market Intelligence Manager at Sopra Banking Software (

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