Bypassing the banks

24th July 2012

And today, seven smaller banks, – joined their bigger brethren to "fess up" to potential mis-selling  – or  "volunteered to review their sales" to use the official jargon –  of interest rate hedging products to small and medium sized businesses.

But perhaps matters are even worse.  The banks may be the final victims of their own excesses as alternatives – fuelled by both new and old technology – move into the space they believe is their own.  Ranging from pennies on credit card transactions to millions on loans, firms are saying "bye, bye" to banks while benefiting both savers and consumers.

Stores say no to bank charges

The British Retail Consortium, which represents many big stores, says that thanks to customer willingness to use new payment technologies that are easier for them, shops can save money compared with the banks' credit and debit card fees pattern.

The BRC says this "should send a message to the payments industry establishment that their existing charging regimes have to change."  Banks act as "merchant acquirers" , taking a percentage of each credit card transaction. The acquirer is often a different bank to the one the store usually uses and it will have no control over the costs which can run from under 0.5% to 5%, depending on the retailer's size.

Already a quarter of self-service tills – around one in twenty of all cash registers – is equipped for contactless payments via mobile devices.  And this number is increasing daily.

Many of these bypass banks with e-payment systems such as PayPal replacing the credit and debit cards from traditional card-issuing banks which would previously have been used to make these payments. Half of the stores which responded to the BRC survey said they would be ready to accept PayPal, Google Checkout or Amazon Payments by the end of this year.

These are far cheaper than the banks – the average cost to a retailer of having a credit or charge card payment processed was 36.2 pence, for a debit card it was 9.6 pence, but for non-card methods (including e-payments), it was 7.9 pence.

Mobile challenge to bank domination

The BRC says: "There are lessons here for the established commercial interests in the payments industry. Customers are adopting new ways of paying that deliver advantages for them and for retailers.  Payment methods, such as mobile, PayPal, Google and similar products, are challenging the banks' market domination. Very quickly, those payment methods have gone from a standing start to accounting for £1.2 billion of retail sales per year."

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