It’s always been fashionable to bash the financial services industry. From anti-capitalist agitators to disgruntled customers, there’s no shortage of people lining up to highlight the “greedy”, “money-grubbing” practices of the sector. But what’s interesting is how often these attacks are based on the shakiest understanding of how banks and other financial institutions actually make their money.
Take the issue of international payments. Yes, fees for ordinary customers are exorbitantly expensive. But these are hardly a big earner for the financial sector, and people forget that participants in, say, SWIFT, pay a significant amount of money to be members of and use the network.
Even so, there’s a lot of truth in the perception that the industry, whether it's the established banks or other payment service providers, treats the rich and poor very differently. For the rich, anything goes: they benefit from a huge range of bespoke services, the very highest level of service and - another privilege of the wealthy - preferential rates for everything from overdrafts to foreign transaction fees. The rest of us get what we’re given.
Let me be clear: this isn’t an attack on the global finance industry. Providing these services at worldwide scale makes it completely unfeasible to deliver bespoke offerings to every customer. So, if someone wants to send money to a relative in Nigeria or India, or a small business wants to receive payments from sales to the US or Europe, then of course they have to pay for the privilege.
Nevertheless, this leaves us with no middle ground. Specialist institutions for high net worth individuals will bend over backwards to accommodate the wishes of their clientele, enabling them to move money at will, anywhere in the world, quickly and often at lower cost. Banks and other financial institutions usually focused on servicing their local markets and can’t be expected to open up a new payments channel to a foreign country for a small proportion of their customers: it would simply be uneconomical.
That might be tough luck for customers, but it’s also bad news for the industry. It means they miss out on the opportunity to grow their customer base by providing the widest range of services; they are also denied the opportunity to be truly “international” financial services players.
So, will banks and other financial institutions be denied the dream of shrinking the world that so many other industries have achieved? If they stick with the traditional ways of making international transactions, certainly. But there are new ways to move money quickly, reliably and cheaply - and not every one of them has much to do with technology.
International payments is mostly about relationships: between individual institutions, of course, but also with regulators, payment service providers and other stakeholders in each foreign territory. While they lack the time to create these channels for a small proportion of their customers, a new breed of nimble yet global payment service providers are busy forging these relationships and opening up new networks, while deploying the technological infrastructure required to support financial institutions.
Once a payment service provider has these partnerships in place and the technological infrastructure supporting it, it has created a network that any international business, wealth manager or financial service provider, whatever their size, can use to send or accept money from overseas.
This represents nothing less than a revolution in international payments. By partnering with a provider that has these payment channels in place, any institutions can piggyback and start providing foreign transactions at a fraction of the price it costs them today.
For the first time any payment service provider - from mass-market retail bank to boutique financial services firms - can deliver bespoke services for all their customers. No longer does the ordinary customer have to pay through the nose to send money abroad, nor small businesses worry about their profit margins being eaten up by high transaction fees.
And best of all? They don’t have to change their business models - they just need to work in closer collaboration with such payment service providers to show new and prospective customers that they have truly global reach.
The financial services industry will always have its critics, and we shouldn’t expect affordable international payments to turn implacable foes into friends. But for the ordinary customer - someone who just wants to send money abroad, or receive payments from overseas - affordable international payments will only lead to a little more love and loyalty towards their financial service provider.