Deregulated Telecommunications Could Be Model for Payments Industry
Francini, J. Pino, American Banker
As the consumer banking and payments industry deals with the cataclysms wrought by globalization, technology advances, and the accelerating pace of change, it could learn a lesson or two from the telecommunications business.
Telecommunications underpins our business infrastructures. It is where technology has raced forward most rapidly. Yet this technological momentum has not produced the great changes that were widely predicted.
Consider some intriguing similarities with our payment systems.
Until not too long ago, telephone services were a monopoly, or at least an oligopoly, the world over. Many providers were state-owned. Smaller players operated in the giants' shadows, adhering to standards they enforced.
The same can be said for the banking industry. While the number of companies is much larger, the services offered and the method of delivery must still be classified as monopolistic or oligopolistic.
For almost a century the telephone industry provided few plain-vanilla services, with regal disregard for the desires and diversity of its customers. And in spite of some innovations and clever giveaways, payment services remain relatively few. Even when they differ, their availability is often limited by geography and by type of terminal equipment.
Under cover of regulations, communications pricing was bundled, not value-related, and in many cases excessive. And today, there are no markets where consumers applaud the structure, availability, and pricing of payment services.
Years ago, telephone companies saw no need for marketing in its true sense. The industry's status as a public utility rendered the customer captive, arrogantly assumed to be incapable of making intelligent decisions on complex telecommunications matters. Paradoxically, some companies maintained the most advanced laboratories to maintain a technological edge - yet seldom adopted their own significant discoveries.
Banking has seen a worldwide swing away from nationalization and toward privatization. It has begun to master the marketing of its products, few though they may still be, and has at its disposal a plethora of technological advances. Yet the catalyst for real change is still lacking.
Many factors accounted for telephone companies' historical status and way of operating, among them government regulation and internal complacency. But along with these factors, the intrinsic structure of delivery systems was paramount.
Each monopoly owned and operated its own network and strictly regulated how smaller players connected to it. All companies, large or small, public or private, owned every telephone. These jealously guarded jewels of technological stability were mostly "dumb," unable to do anything on their own because they were under the tutelage of Ma Bell and its counterparts around the world.
Many might grumble, but the parallels are evident: MasterCard, Visa, American Express, and Europay frequently raise the specters of security, integrity, reliability, redundancy, and repeatability to justify their grip on the payments business.
Terminals in all areas must adhere to a lowest common denominator because truly universal terminals are economically out of reach. And banks proclaim ownership of all "access devices" - those mostly rectangular pieces of inert plastic whose major distinguishing feature is their artwork.
Things changed rapidly for the telephone industry once deregulation opened the door for competition both on the systems side and in access devices. It did not happen voluntarily and met resistance in the name of maintaining system reliability.
But the system did not collapse. It flourished. Operating costs did not rise. They plummeted. The quality of service did not suffer. It greatly improved in multiple variations to an extent never dreamed possible by the most optimistic forecasters. …