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Changes in European Banking – Role of Payments and importance of PricingPrashanth BhatSunTec Business SolutionsPrashanthb@suntecgroup.comIntroductionThe evolution path the Banking industry has witnessed in the last few years withConsolidations, Expansions, Electronic Banking in Retail, Developments in Riskmanagement, the evolution of the Euro single currency and subsequently theinnovations in payments has made the European banking scene more active than ever.At different points in time the Banks have faced challenges in achieving theabove, powered by organizational growth aspirations in serving the customer baseand driven by regulatory changes affecting the banking industry.The most recent regulatory changes are the efforts of creating a level playingfield in payment instruments in Europe by creating a faster, transparent, standardand cost effective payment infrastructure. OFT (Office of fair trading) in UK andSEPA in European union. This change in direction offers immense challenges forBanks in terms of scaling its IT capabilities and increased competition in themarket.
 
Milestones of Evolution and InnovationsTraditionally Consolidations and expansions were primarily driven byorganizational aspirations to be a global organization. Cross border operationexpanded by reaching new customer bases and strengthening its operations in theindividual national marketplace. This continued until the recent years increasingthe number of branches across the operating countries for the addition of newercustomers.Trend towards Electronic Banking and commoditization of services- The changes intechnology and addition of various new channels of banking made customers usebranches less and less. The association of payments clearing services (APACS) hasannounced for the first time the debit card usage outstripping the cash usage inUK for the year 2005. With banks collectively discovering the truth of decreasedcosts through the increased use of alternative channels of banking, the growth ofInternet banking and alternative points of electronic funds transfer has becomeinevitable.The need for banks here is to develop customer centric services and products thatcould be automatically and dynamically priced to the customers. In this scenariowhere Customer are increasingly relying on use of alternative banking channelsBanks now face competition from new entrants. According the World Retail Bankingreport 2006 what is emerging now in European markets is clearly a level playingfield where the established banks have to compete with newer entrants on Price.Price for core services which the newer entrants are able to beat by eliminatingor limiting their branch networks. Banks hence are moving to a more advisory role.The banks therefore need to empower the relationship managers by giving theflexibility to design low time to market products and develop remote competitivedistribution, partnership and relationship models.Evolution of the single Euro currency - The Euro was first introduced in 2000,withthe vision that by 2010 all European countries including the much resistant UK beusing Euro as the principal currency. The ultimate aim being to dissolveboundaries and create a single world-class financial market place within the EU.The European Commission (EC) and European Central Bank (ECB) have been eager topromote to organizations the benefits of operating in a single currency. Thiscaused lot of changes from banks IT requirements in general and now Euro crossborder payments in particular. This led to the creation of European paymentcouncil (EPC) and subsequently reforms in European payments scenario.Developments in European Payments – SEPASingle European Payments Area is an effort to create a border less paymentinfrastructure in the EU where a payment could be made from any Europeanoriginator to any European Benefactor with the ease and cost of national payments.This includes credit transfers, direct debits, cash and credit/debit cards. Thisis a centralized change and is targeted to be completed by 2010. This is a shiftin focus from risk management to customer’s interest that has led to the paymentreforms. Both these reforms in payments would open up the markets into a widerplayfield or rather a level playing field that would allow the banks andorganization to fiercely compete against each other on price with their servicesand offerings. The change would ease banks to expand their operations and fish forcustomer base in newer territories with the EU. With commoditized services thekeydifferentiator for the banks from profitability perspective would be thepricing of their services and products. Pricing with an ability of the bank toview profitability of the products charted against the costs incurred at thevarious associated service channels at the customer level.According to the world retail banking report 2006 in Euro zone pricing discrepancyamong banks decreased by 4% for the second consecutive year. With the standardprices moving towards convergence in future prices are expected to vary dependingon the customers usage. It was observed that prices varied according the usagepattern with a ratio of 1 to 4.6 between prices paid by very active and less
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