IMGCAP(1)]
This story appears in the December 2008 issue of Cards&Payments.
Despite the fallout of the financial crisis and a looming global recession, banks are unlikely to cut back much on investment in their payments infrastructures, at least for the time being, say industry observers. Burned by risky investments, financial institutions will seek the relative security of the payments market and the related business it brings, they say.
"Payments is one of the least-risky investments in the future; it's the one people are still thinking about," says Steve Brunswick, strategy manager for the information-system security unit at France-based Thales Group.
Banks will continue to invest in rollouts of payment systems, including those for debit cards, as credit gets cut back and consumers curtail spending. And they will fund other payments as well.
For example, even as the financial crisis was taking a turn for the worse in mid-September, U.S.-based JPMorgan Chase & Co. went ahead with an announcement of plans to invest $1 billion in its treasury-services business, including building a new global platform for funds transfers and billing.
Banks also expect to continue to fund compliance with standards for cards, terminals and host systems, for example, to meet mandates of the Single Euro Payments Area in Europe.
"It's a bit like an analogy of an oil tanker: To turn it or stop it takes a very long time. Regulators say [SEPA] has to happen," says Gareth Lodge, regional research director in London for TowerGroup.
Still, Lodge expects the financial crisis to cause banks to miss SEPA deadlines by more than they would have to build infrastructures for payment types such as direct debits. But regulators will be understanding, he says.
An informal survey Brunswick's unit did in October of some 50 representatives of the British banking industry found that 78% believed there will be a renewed interest in payments. And eight in 10 said the crisis would have "little or no effect" on plans for payments projects at financial institutions in the pipeline that fulfill SEPA mandates.
Projects will "continue unabated for now," Lodge says.
While it is too early to tell how the financial crisis will affect investment in the payments infrastructure in Europe and the United States, the credit crunch and expected recession will determine the types of card payments banks promote, especially in the U.S., predicts Steve Mott, head of U.S.-based payments systems consulting firm BetterBuyDesign.
Banks are "concerned the next shoe to drop in the credit crisis is credit card defaults," Mott says. "We're staring at the brink of a complete shift. It's clear we're moving (away) from a credit card-oriented society."
Banks will focus on using their less-risky systems for PIN-debit, prepaid cards and other "pay-as-you-go" products compared with credit and signature-debit, even though both of the latter generally earn issuers more interchange or other fees, Mott says.
In general, banks would be unwise to cut back on the money they spend for fraud-management systems, says Brian Riley, research director for bankcards for TowerGroup. "Bad times bring out bad people," he says. "You need to protect yourself more than ever."
It remains to be seen how much more consolidation and cost cutting will affect payments investments, say observers. Much will depend on just how long the credit crunch lasts. CP
