Two of Australia’s top bankers have been sharing their concerns on the threat digital payment platforms could pose to the financial services industry.
ANZ chief executive Mike Smith was said to have described technology’s disruptive potential as “terrifying” after a recent Silicon Valley tour, while Commonwealth Bank CEO Ian Narev spoke in Sydney recently about how technology giants like Google and Paypal were a major competitive threat to the established banks.
Part of that disruptive mix is digital payment platform Braintree, which has set up a base camp in Australia for expansion. They’ve hired Tyson Hackwood, who previously established Paypal Here, and also in town this week is Klas Back, Braintree’s GM of international and payment strategy.
Founded in 2007, the company now claims to be processing $8 billion in payments annually, and says the rate of growth has increased 200 per cent in the past six months.
Braintree is used by popular US cab replacement service Uber (recently launched in Australia), as well as OpenTable which allows booking of restaurant tables through a venue’s website. Both have mainstream consumer awareness in major US cities.
Below in full, with some slight edits for clarity, is what they said about how worried the banks should be by the rise of their breed of digital payments platforms.
Braintree’s platform acts like the “merchant terminal” on websites and mobile device where it’s used, taking a small clip from the transaction as it’s processed. This is the space they fill in the chain of transactions – one that would have been traditionally been taken by a bank by a physical terminal at a checkout counter.
However the Braintree guys argue that they also add value to bank business because the platforms enable more credit card spending. Here’s what they had to say.
Back: On the one hand banks are always part of the value chain. I guess the discussion is more about who is actually the interface, or the final step, between the consumer and the service. And I think there’s a lot of things going on in that space where there’s new products, new services, (and the) ability to unlock innovation that wasn’t there (before).
A lot of that is driven by companies that are not traditionally providing these services, and they pretty much cover the full spectrum of retail banking, whether it’s lending people money, or lending small companies money, doing payments online or doing payments on mobile, accepting payments on their mobile device – there’s quite a few of those.
I think there’s a strong demand to provide solutions in technology together with partners, and on top of the banks in some cases. The banks have not had that as a focus … and the critical mass has already hit.
The speed of innovation and development is so fast, that the early adopters and the early providers of new ideas, new solutions, are not banks any more.
Hackwood: I think naturally, if you look at the value chain, (you can see) the concerns they should have. A lot of our style of services are based on getting people to use credit cards. Now, we don’t control the credit cards – the banks do, so the opportunity is where we are helping convert cash into credit, and that can only actually help a bank (because) it increases use of credit cards and transactions.
I guess where they should be worried is when it’s money or currency that they don’t control, whether it be stored credit or whatever. We don’t play in the stored credit place, a lot of these new providers don’t, but there are a lot of others out there obviously who have, where money exists outside of the banking system … which they can then invest or work with as capital. I think when you get into those kind of systems that may be more the concern. But I think the reverse is, we’re actually helping generate far more revenue for them through credit card fees, through interest charges, and / or making sure their consumer system is working.
Back: And in our back end, we do connect with the banks, as they are, so to speak, gatekeepers to access the card networks since the card networks are only accessible via the banks. On the one hand they are our partner, on the other hand we open abilities for companies to do things that they probably couldn’t have done otherwise in the financial service space by providing technology to them and being able to innovate like Uber and build models that just (weren’t) there a few years ago.
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