27 Feb 2008
BAI: Banking Strategies, Retail Delivery Insights. February 27, 2008, Vol.3/No.12
Convergence, commoditization and compliance will be among the three leading drivers to shake up the payments industry this year, according to Ted Iacobuzio, managing director and practice leader for payments at Needham, Mass.-based TowerGroup Inc.
“Convergence in payments is real; it’s happening,” Iacobuzio said. “It’s not just a buzz word.”
Iacobuzio made his remarks during a January 10 presentation entitled, “Top 10 Business Drivers, Strategic Responses, and Technology Initiatives in Payments: Integration, Convergence, Risk, and Revenue.” The Web-based seminar was hosted by TowerGroup, as part of its continuing TowerGroup Live series.
Iacobuzio said convergence rests on the idea that an “abundance of delivery channels” for payments have emerged along with a “high degree of redundancy.” This redundancy, he said, could be solved by converging the payments platforms, which would reduce cost.
Iacobuzio said many payments players are already working to find the commonalities in various payment instruments, so they can “process like transactions and take as much cost out of the system as possible.” One example he cited is the multiple kinds of back-office, lockbox and retail point-of-sale payments now being run through the ACH system.
“We believe the march to payments integration, toward the establishment of an enterprise payments platform, is something that is very real and the subject of a great deal of investment,” Iacobuzio said. “A payment is a payment.”
Iacobuzio said commoditization in payments, especially in consumer payments, is driving the development of value-added services for many payments players, who seek to differentiate themselves from competitors. As an example, he pointed to the “RevolutionCard,” a PIN-based credit card issued by Largo, Fla.-based Revolution Money Inc.
Iacobuzio said RevolutionCard, which circumvents the card associations and plans to charge merchants just 0.5% in interchange fees, as opposed to the 1.9% that traditional processors charge, “explodes the payments value-chain by taking cost out of the process.”
“Differentiation has become an extremely valued item,” he added. “It’s an issue because the payments business is under siege.”
On the compliance front, Iacobuzio predicted that new regulations, especially those aimed at reducing fraud and limiting the potential for money laundering, will have an effect on payments here and abroad. He also cited litigation issues, such as the recent effort by Wal-Mart Stores Inc. to create its own bank and eventually establish its own payment card strategy. Situations such as this, he said, call into question what a bank is and how it should be regulated.
Other major factors shaping payments this year, according to Iacobuzio, include revenue pressure, risk mitigation, competition, the credit crunch, consolidation, globalization and “green” or environmental initiatives.
(For more on changes in payments, see “Five Payments Myths Debunked” in the January/February 2008 issue of BAI’s Banking Strategies. Also see “Payments Strategies for Customers” in the May 23, 2007 issue of BAI’s Banking Strategies Retail Delivery Insights.)
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