Banks eye micropayment acquisitions?

Large banks are looking to scale their traditional payment infrastructures to handle micropayments technologies, which means they are likely to end up competing with -- or acquiring -- companies like PayPal.

Large banks are looking to scale their traditional payment infrastructures to handle micropayments technologies, which means they are likely to end up competing with -- or acquiring -- companies like PayPal.

As demand increases for micropayments -- low value electronic transactions that are too costly to process through traditional payment systems -- banks are likely to start snapping up established vendors in order to break into the market, according to experts speaking at a panel titled Electronic Payments and the Future of Money at the Sibos 2006 conference in Sydney on Wednesday.

One of the best known micropayment merchants is PayPal, which was acquired by auction site eBay around four years ago. This acquisition, according to Aaron McPherson, research director payments at Financial Insights, is something that probably should have been made by one of the major banks.

"PayPal created a whole new economy on eBay, unlocking a lot of economic value. People that saved things in the attic can now sell those things -- they previously had nowhere to sell them," McPherson told ZDNet Australia

"[Big banks] have so much overhead that it's very difficult for them to start up new businesses. Maybe the attitude banks have to take is more about acquisitions. Let the start-ups generate the new ideas and then purchase [the start-up] -- banks are sitting on all this capital so they should use it. Why do banks have to buy other banks -- why don't they buy other companies?" McPherson said.

Dr Jens Hanker, a partner at global consulting firm Accenture, said that banks allowed non-banking firms to build their own transaction processing infrastructures, which cannot be good for the long term.

"You need the clearing and processing infrastructure and they shouldn't give this up to the non-banks.

"If you look at PayPal, at the end of the day you can make a transfer but you have to pay money into your account and that comes from your credit card or a bank transfer. So why not use the bank payment system in the first place," Hanker told ZDNet Australia.

When it comes to security, Thomas Balgheim, senior VP of financial services at software giant SAP, said that micropayments will most likely take the same path as any other payment technology.

"ATM cards were a new technology in the '80s. The technology was picked up and then security concerns were raised -- and we had a small dip.

"Then, the security was solved -- to a certain degree because there is no perfect security -- to an acceptable level and it went through the roof," added Balgheim.

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