Can payments be profitable?

Written by Paul Thomalla Non-Executive Director, Payments Historian, Podcaster, and Specialist
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In recent years, many banks have struggled to achieve profitability from payments. At the same time, regulatory bodies have acted to include third parties in the payments process – and rich companies are increasingly looking at ways to harness the opportunities in this area.

Against this backdrop, should banks regard payments as mere plumbing – or can this be a profitable business moving forward? This question sits at the heart of one of the sessions at our upcoming Finastra Universe event, which will feature an expert panel including Vincent Brennan, Head of Group Payments at Bank of Ireland; Independent Payments & Banking Expert Dr Ruth Wandhöfer; and Eric Grover, Principal of corporate development and strategy consultancy Intrepid Ventures.

As the discussion will reveal, there are different ways of looking at the nature of payments. On the one hand, Grover argues that payments isn’t, and shouldn’t be, regarded as plumbing. “Payments treated as a service – regulated by the competition, by the market, by the consumers – delivers superior, sustainable value to banks, to consumers and to merchants,” he says.

Brennan, meanwhile, is comfortable describing himself as a “happy plumber” – but he also notes that just as plumbing doesn’t exist purely for its own benefit, “the movement of money doesn’t exist just for the fun of moving money. It exists to enable experiences, to enable commerce, and to enable all elements around it.”

Understanding the value of payments

However you define payments, the question of profitability continues to be a pressing one. As Wandhöfer notes, in recent years traditional banks have not necessarily adjusted their business models in order to take advantage of opportunities for profitability in the area of payments. And those that say payments is not profitable are usually those that have not focused their attention on creating new solutions and different economic models.

But the picture continues to evolve. Some banks that were initially slow to recognize the opportunities in this area have more recently changed course as they seek to harness the value of payments more effectively.

What’s more, as the experts explain, payments is not a homogenous area – and the value of payments may be realized differently in different sectors. While consumer payments may bring value through experience, for example, the focus for corporate payments is on solutions that add value across areas such as liquidity, risk and fraud prevention.

Other topics covered during the discussion include:

  • Who pays for payments? And what exactly are different parties prepared to pay for?
  • Technology platforms. How are these platforms approaching payments, and why does this pose a threat to the traditional payments industry?
  • Regulation. What role has regulation played in opening up markets and driving innovation and competition?
  • Collaboration. Why is collaboration an important defensive play for the banking sector? And can developments like the European Payments Initiative (EPI) help the industry create scale and tackle payments more effectively?

To hear more from the panelists about the quest for profitability in payments, register here to hear the full session at our event.

Written by
Paul Thomalla

Paul Thomalla

Non-Executive Director, Payments Historian, Podcaster, and Specialist

Paul is accountable for the development of Payments within Finastra and externally to understand, influence and ultimately, help lead the change in payments across the globe. Amongst other areas he has advised on the UK’s NPA, PS2 and PSD3, CRD5, the role of AI and Blockchain in Payments and how to...

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