October 31, 2018 • 24 mins
A global patchwork of financial institutions has long handled the funds of big corporations. But those big corporate customers are losing patience with the banks, especially as they see consumer payment apps such as Alipay or Venmo make moving money look so easy. That's putting pressure on lenders to overhaul their corporate-payments systems or risk losing their grip on a lucrative business. Bloomberg’s Jennifer Surane reports from the streets of New York, and then sits down with Stephanie and Bloomberg Opinion writer Lionel Laurent to discuss the future of banking and FinTech.
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Speaker 1 (00:01):
Hello, and welcome to the New Economy. I'm Stephanie Flanders,
head of Bloomberg Economics. You can't talk about the new
global economy without talking about the future of finance and
financial technology. Bankers used to say complacently they didn't worry
too much about tech startups stealing their business. Once people
(00:23):
have real money, the argument ran, they're not going to
trust it to an unregulated upstart, They're going to take
it to a bank. Then came the global financial crisis,
the ultimate own goal for the banks. Suddenly the idea
of trusting someone else to handle your cash didn't sound
so crazy after all. A bit later, I'm going to
have a chat about the future of money and banking
(00:45):
with Bloomberg Finance reporter Jennifer Seraine an opinion columnist Leonel Laurent.
But first I asked Jenny to tell us how payment
apps like Alipay when we chat pay and raising the
bath for global banks everywhere and making them a bit
nervous as well. Hi, I'm actually I'm a journalist. I'm
(01:14):
here to meet with Leo. You're here with here to know?
What's your name, Jenny? Jenny? Is he expecting me? I
think so? Yeah, that's me, Jenny Seraine. I write about
banking and payments for Bloomberg News here in New York,
and like most New Yorkers, I've noticed a little blue
logo with Chinese lettering popping up all over the city,
(01:35):
from the iconic luxury store one knows on Fifth Avenue,
or cash registers at grocery stores and restaurants. It's even
been popping up in the back of taxi cabs and
at tourist destinations. That's what led me here to v
our World, an entertainment center focused on virtual reality attractions
located in Midtown Manhattan. When we'll look at it and
(01:56):
we'll look like a lot of the Asian business that
we have, we figured the alipay was a natural platform
that should be includive in what we accept as the
form of fame. That's Leeve Summer. He's the chief executive
officer of vr World. Earlier this year, it became one
of the first places in New York with that little
(02:17):
blue logo when it began accepting the Chinese payment app
allie pay. But customers have been happy that you have
it as one of the options. Customers have been very thrilled.
Um I personally had seen Asians that would have American Express,
but they would recognize Alibay and they would smile and
that it's just another element of making people comfortable. Uh.
(02:39):
For sure. It worked very well and we will continue
offering Alipay as the business expands across the United States.
In China, a shocking amount of money closed through a
pair of mobile payment apps Ali Baba groups Allie Pay
and Tencent Holdings we chat Pay. They're actually part of
two vast digital ecosystems that blend banking, commerce and social media.
(03:02):
You can shop online, pay street vendors, or send money
to friends. Together, they boast more than one point five
billion monthly active users and have a combined market share
of in the mobile payments market. Now, Ali Pay and
we Chat are slowly bringing their payment services to the US,
sparking fear among bankers who are scrambling to revamp many
(03:25):
of their core payment offerings. Ali Bob has brought it
here to kind of really push home the message that
this is the new economy, and boy have the numbers
really been quite staggered. And I'm in your view, how
far are we away from a cash list society? Well,
it depends where you are. If you spend any time
in China these days, it may feel like you already
are in one. How big is and financial really big?
(03:47):
Coming Now it's all encompassing some of these Chinese payment systems,
but talk about the different systems. Banks need to make
sure that these apps don't sweep through the US like
they did in China, so they have started off by
rushing out some platforms of their own. So far, a
lot of the innovation in the payment space has happened
on the consumer side, think zell or one click checkout
(04:10):
on Amazon or Apple Bay. Now startups and banks alike
are realizing the bigger opportunity lies on the business side
of payments, from the bodega down the street to fortune
one companies. Businesses around the world send one hundred and
twenty seven trillion dollars and payments every year. Today we're
(04:34):
looking at the money businesses send overseas, known as cross
border payments. This is a tricky, opaque business. Money can't
just transfer between banks in different countries. Instead, it gets
routed through so called correspondent banks, and once a company
has sent a payment, it often doesn't know when that
(04:56):
payment will arrive to its supplier, or which banks will
handle it along the way, or even how much will
be deducted in fees. This is a big business for banks.
Analyst at Goldman Sachs estimate that banks around the world
read about one trillion dollars of fees from cross border payments.
(05:16):
I spoke about the hassles of using banks to move
money with Kristin Michow. She's the managing director of Treasury
Operations at General Electric. Sometimes UM I think the assumption
is that it's easy like Cassius moves, and you have
transparency and they related to the consumer side, and unfortunately
the industry hasn't made it there YETA and so kind
(05:37):
of a day in the life UM you might have
a supplier calling you up saying they didn't get paid,
and then you're spending days working with multiple banking partners
to chase down the status of a transaction. UM. So
this is a big pain point for multinationals UM, something
that that everybody's been pushing for in the industry with
the banks. Kristen is part of a growing chorus of
(05:58):
corporate treasures who are as skiing banks and startups to
come together to improve business to business payments. Here's the
problem she sometimes has. She sends money to her suppliers
and banks deduct their fees along the way. By the
time it arrives, the recipient looks at the amount and
isn't sure what it's for. She's been complaining about this
(06:20):
for years. The good news banks have received the message
loud and clear. If you're sending a hundred dollars, it
might receive at your beneficiary at and then sometimes they'll
return it because they don't know how to apply that cash.
So actually having the transparency to where those sees are
coming out, who's abducting those sees, what the total amount
is that receives on the supplier side is huge. This
(06:41):
is where an organization called Swift comes in. Swift operates
the messaging system that connects the ten thousand banks around
the world. Right now, Swift is in the throes of
introducing what it's calling its Global Payments Innovation Initiative or
gp I. Banks that are a part of the Swift
network are required to provide transparency about the cross border
(07:05):
payments they send and received for clients. Correspondent banking has
been around for a long time, and it's done a
good job for many years. That's Harry Newman, head of
banking at Swift, but it's it's obviously a child of
the eighties and it lacked the transparency and predictability you
really want to see in a modern payment mechanism. So
Swift and a group of the large banks came together
(07:25):
and agree it was retime to modernize the service. But
what's perhaps most interesting about Swift's new efforts is who's
leading the charge. Chinese banks. They need a way to
fend off the apps taking over their business. Chinese banks
are are indeed some of the most enthusiastic about joining GPI,
and they see it as a a means to adapt
(07:46):
to it to an international payment infrastructure. And I think
a lot of that is to do with the presence
of new entrants in China and in that area of
the world. Asia is adopting new technology and sometimes leaping
a generation of technology, and what He's doing Chinese banks
is an opportunity to approve the ability they have to
provide services to their clients. So they value the speed
(08:07):
and transparency and the ability to integrate it general electrics.
Christian Michelle feels the same way as is a huge
driver of this change, right, so you would think this
is initiative coming out of the United States. Definitely not right.
There is kind of the later adopters. The question for
banks is whether they will be able to maintain their
hold on payments between companies. Apps and tech companies are
(08:30):
showing interest and taking that over. Bankers I spoke to
said the fight is just getting started. To learn more,
I'm visiting City Groups headquarters in downtown Manhattan. I'm here
to talk to Miniche Khali, global head of Payments and
Receivables at City Groups. Did you see you. I'm sorry,
(08:54):
I'm so late. Miniche says the era of waiting several
days or a week for money to move internationally needs
to end, and that big US banks like his are
working hard to speed things up. He says one problem
is that some other banks still sit on the money
after they get it. He's trying to spread the word
(09:15):
that Swift has started to solve that problem with GPI.
Fifty of payments that move through gp I get paid
cross border in less than thirty minutes. We see that
more than nine of payments that go through Swift gp
I get credited to the beneficiary within one working day,
so you know, some of the industry mits going around
(09:37):
the cross board of payments takes seven days, five days,
ten days to pay. Actually, now, just because you can
measure it, you actually see that some of those facts
are not to Some banks will say, well, I take
you know, three hours to process, and I'm starting to see,
you know, payment volumes move away from me. I'm going
to do it in five seconds or three seconds because
(09:59):
I want to be the bank that attracts the maximum
of payments to come from it. So I think those
changes are now only starting top. So there's hope yet
for cross border payments to improve any minisia's view, it
will be the banks that are leading the charge. It's
you know, you neique to see the industry galvanized together
(10:19):
to do something which is really transformated. So I think
that change in mindset of let's collaborate together to improve
the industry itself is amazing. So Jenny's joined me in
the studio here in New York, and we have Bloomberg
(10:39):
columnist Leonel Lauren joining the conversation from London. Um Lionel,
does ali pay really represent anything new or hint at
anything new? As we were hearing in that piece, I mean,
we've seen a lot of new sort of fintech upstarts
getting into very consumer oriented stuff, but not much the
(11:00):
sort of financial plumbing of the of the global system,
things like international payment system. You know, is that something
that you actually see happening or is it still very
consume more intoed Yeah, I think I think this is
something that is new in terms of the size, the
scale and the kind of innovation on show. I mean,
this is this is still a very Chinese phenomenon, right
(11:21):
China is one of these countries that has jumped almost
directly from cash bank notes into mobile payments. That sort
of skipped a whole generation of tech that we in
Europe and the US are still used to in terms
of plastic cards and checks, and that has allowed actors
like Alipay to get of the size and the scale
and offer the kind of products that banks very much
(11:43):
still dominates here here in Europe and and the US.
So I think that right now, firstly, the question is
how far does it go in China before regulators start
getting a bit worried. We've we've already seen a few
a few steps towards that. And secondly, whether they can
export this model to the rest of the world, which again,
(12:04):
when when you look at the regulators reception of certain
steps made by Chinese companies in the rest of the world,
it's still very cautious. So I'd say right now it
is definitely new. I just think it seems quite unique
and maybe you know, particular to Asia, particular to China,
and it's going to take a longer time for us
to see things like this happening in the West. Well,
(12:27):
that's I mean, there's a lot to unpack in there
that I think we can we could get into discussing.
I mean, you you've read a great column for Bloomberg
a while back talking about how tech firms are behaving
like big banks, and you know, they're doing everything that
banks are doing except getting regulated. I mean, is that
the you talked about regulators maybe getting concerned. Is it
going to be a very different conversation once all of
(12:48):
these companies just start being treated like banks. Yeah, it's
just still very very tenstive. I mean, if you if
you look at the picture in the West, banks still
have this incumbent advantage, they still will dominate, and tech
companies that they are they are nibbling away and you know,
if you look at Google and Apple and Amazon, they
have offerings. They are making in roads, but it's still
(13:10):
very specific. It's very segmented. It will be payments offering
like like Apple pay where your card is replaced by
your phone, or it will be like Amazon lending to
its to its partners, to some of the businesses that
you know sell their wares on Amazon. But it's not
a full frontal assault, and I think for now it
is going to remain that way because none of these
(13:31):
tech companies wants the hassle of being regulated like a bank.
I think the issue for the banks is when does
it become a threat to all of the extra revenues
extra businesses on top of it. Because the day that
Amazon offers the kind of mutual fund or investment products
that Ali pay might offer in in China is the
(13:52):
day that revenue erosion starts to become real. So I
think that you know, regulators are looking, but there's nothing
there yet to get them to to make some forcible moves.
I think we're kind of, you know, making this up
as we as we go along. Yeah, and and and Jenny,
you're you're nodding there. I mean you think that that
you know, that would be that the fundamental shift. Yes,
(14:13):
I agree, I think to Leonel's point, it hasn't been
a full frontal assult so far. We've just seen them
kind of nibbling at their heels. But when we see
kind of these super apps like ally pay, which does
get into some of the mutual fund investing sides, it
does have a lending arm in a credit scoring arm,
it does have the payments capabilities. That's when you start
to wonder, could some of our big tech companies like
(14:35):
Amazon or Facebook duplicate that success um And it's hard
to say. We haven't seen them try yet, but they
certainly have the engagement with their customer base that that
could lead you to believe it might be a possibility.
You know, I would say, I used to work at
a JP Morgan and I when you would hear Jamie
Diamond talk about this, and obviously you'd always get asked
(14:58):
by clients, you know, aren't you worry that all these
new companies are gonna eat your lunch? You know they're
gonna get And he had sort of two sources of complacency.
I would say, whether it was justified or not. He
would say there was a generational thing that you know,
the sort of trendy, the sort of consumer oriented stuff
that people might want in their twenties once they had
serious money. His view was that they would want the
(15:19):
money in the bank and that they would have that
advantage on that. Um And then the other point which
has come up and what we said before, he would say, look,
it's you know, it's all very well. These consumer facing
stuff is fine, but by the way, we're still doing
all of the underlying We're still responsible for that underlying
payment system. We're actually processing stuff for all of these companies.
I'd be interested what both of you think on those
(15:40):
sort of sources of reassurance that the big banks have
had to date. You know, whether it's a the generational
change which could be temporary, and the point about the
underlying infrastructure being something that people didn't want to get into.
Maybe Jenny first, I mean, I think, um, the idea
that the banks will will long be the papes of finance.
(16:01):
That's probably certainly true. That's a really hard technology and
capability to replicate. But is that what they really want?
I mean, that essentially makes them a commodity in many ways,
there's no longer if a consumer has affinity for Amazon
instead of Chase. Chase can't charge the fees that it
charges today. It's a completely different business model. So I
probably agree that it's tough to replicate, and FinTechs don't
(16:23):
really want to get into like the pipes and boring
parts of banking. But I think that there's something to
be said for having that consumer facing capability and maintaining
that kind of top of mind place. When consumers think finance,
they think banks, not fintech. I mean Lee and now
you were saying the money is really not necessarily in
that infrastructure, in the payments, it's in the sort of
(16:43):
add on. Would you would you suggest that Jamie Diamond
needs to be a bit more concerned. Yeah, I think
I think Jenny's right. I think that this is very
similar to the telecom companies. Frequent fear that they're going
to be dumb pipes that essentially they're going to have
to spend and invest in build the infra structure, but
it's going to be all these other companies that end
up skimming the profits off off the top and making
(17:05):
money at at either end. Look, Jamie Diamond, JP Morgan, again,
these are unique banks of a very impressive size. The
US market has been tougher to crack than than than
many other markets. It's very concentrated. I'm sure that Mr
Diamond has a lot of good reasons to feel that
incumbent advantage. But there are markets that are a bit
more maybe vulnerable UK Europe perhaps, And yes, Jenny says,
(17:32):
there are very big tech companies out there who eventually,
almost by accident, could could sleep walk into businesses that
Jamie would would not want to give up. So I
think there's a there's a bit of bravado in there.
But you know, I'm pretty sure that Jamie Diamond is
it a spot that many frankly many banks would would
would love to be in, right, not not just intet companies. Well,
and also I should say, before I'm going to get
(17:53):
all my colleagues rising the angry emails talking about all
the stuff that they're developing, I think they would They
would always have this kind of reassuring face to clients,
but under the surface of also madly trying to innovate
in a lot of these areas. So I wouldn't say
that they were completely complacent. That's probably why they have
done so well, is China actually presenting us with a
(18:16):
different kind of model for how a financial sector might develop.
Or is it just a feature of its very curious
road to development that it's had this very closed system,
very state led system, and these kind of curious things
have developed, have been able to thrive, but wouldn't necessarily
present a model for the rest of the world. I mean,
(18:37):
how special it is China. You know, maybe maybe we
shouldn't expect the same thing to happen anywhere. Yeah, I
think China is a very unique place. Um, they have
kept their system closed off too many of the U
S companies that would love a crack at China. I
think a good example if you look at Visa and
master Card. You know, they've long wanted to go to
China and bring their technology to that country, but they
(19:00):
have been, you know, told very forcefully, no, you cannot
come here. And Visa and master Card are part of
a system here where you know, merchants pay interchange every
time uh you swipe your card either online or in store,
and the entertained funds credit card rewards which are beloved
by Americans, And so that system alone is one that um,
(19:20):
it's a hard consumer habit to break because people are
going to go from getting two percent back on every
purchase they make to you know, Ali pay doesn't really
offer rewards um beyond just like the speed and convenience
of using it. So there's like little I think features
like that that are really hard to disrupt in the
US and that China never had to deal with because
they didn't have kind of the legacy infrastructure that places
(19:43):
like the US have. I mean, I guess you was
just to go back to this regulation. I mean I
wonder whether we will look back on this era and
say it was a very kind of brief moment in
sort of historical terms, where all of these new companies
and new entrants, some them very big, going into sectors,
whether it's banking or the or media and enjoying a
(20:05):
period where they weren't being treated like banks or like
media companies. You know, Facebook's the obvious example. And once regulators,
once policymakers kind of catch up to the changing environment,
you know, this becomes you know, the business model that
those companies have become something very very different. I mean,
do you think, Leonard, do you think that is um
You know, we're heading for a very different and maybe
(20:28):
less disruptive environment once regulators kind of get a handle
on what's going on, I think it. I think it
depends on a couple of things. Firstly, from from the
bank's side. You know, banks are lobbying quite heavily for this,
as you say, the sort of day in the sun
to end, right. I mean, they want regulators to step
in and they and they want some of these tech
companies to be treated in the same way as as
(20:49):
as them. I just wonder whether they are prepared for
a fight on on equal territory because if we are
heading towards a kind of more open because regulators all
care about the consumer, they care about choice, they care
about openness, and you could hardly accuse a lot of
these banking markets are being very open. So if the
markets get more open and more competitive, and even if
(21:10):
you have a level regulatory playing field, banks could still
find themselves in a bit of a tough spot where
they have to do all these things, you know, cross
sell and and sell more products on the on the
technology platform than than their than their you know, investors
or their or their budget actually is able to deliver.
So I think that you know, it could simultaneously happen
(21:33):
where you get more regulation of these tech companies, but
also more more kind of competition and a and a
more difficult fight for the for the banks as a result.
And I would just quickly say that the size of
these tech companies, right, I mean, we can barely work
out how to tax Amazon and Google. They are so big.
Potentially that the day that we do try and get
our act together and say here's how you should treat
these as financial actors or as media actors, that will
(21:55):
take a lot of cooperation, right, global regulatory cooperation, and
if it's happening at a time when countries are pulling
in totally different directions, that could create again, you know,
more kind of loopholes, more chinks in the in the
in the sort of structure of cross border regulation. It's
a great point, actually, and I think that's that's just
the kind of thing. I think that's why that the
(22:16):
New Economy Forum is trying to bring together this community
of people to think about these issues, because it's clearly
going to involve more countries and more and a lot
of different regulators working together, and we may not get
any easy answers, not even with all those people sitting
in Singapore for a couple of days. But Jenny just
something that did come out. Going back on Lionel's point
(22:38):
on the competition, I mean, you know, part of the
point of value players it is just teaching consumers a
different way of dealing with financial transactions. And surely that
has to have an impact on basis like the US
that we consider to be oh so sophisticated but still
take far longer than any other place to clear a
check or to transfer money. I mean, is it on
some of those basic things, probably the U s could
(22:59):
do with a bit of competition, I think. So you're
certainly right, the US is behind in a lot of
areas in terms of money movement. We still have a
very large check presence in the US and we still
use a lot of cash here, and so certainly competition
is you know, a good thing in that sense. I
think things like Ali pay making their way here, or
you know, the rise of things like Venmo or Zel
(23:21):
from the banks, it does kind of ratchet up expectations
on the consumer side. And then you know corporates, they
send trillions of dollars a year, both in the US
and around the world, and that is also an area
where money moves really slowly. It's a very opaque area,
like we talked about um in the reporting, but basically
it has this effect of kind of raising everyone's standards
(23:41):
and and suddenly banks can no longer sit on their
money for two or three days UM. They have to
get it through and really address their customers needs. Wow. Okay,
Leonel opinion columnist in London, and Jennifer Seraine here in
New York. Thanks very much for joining me on this.
I think we've had we've had some bit of reassurance
(24:03):
for the likes of Jamie Diamond, but also massive challenge
for global policymakers when it comes to this interaction of
technology and finance, and plenty to be discussed at the
New Economy Forum in Singapore. Thanks for listening to The
(24:23):
New Economy. Today's episode was reported by Jennifer DuRaine with
editor David Sheer. It was produced by Magnus Hendrickson. Francesco
Levy is the head of Bloomberg Podcast.
Hello, and welcome to the New Economy. I'm Stephanie Flanders,
head of Bloomberg Economics. You can't talk about the new
global economy without talking about the future of finance and
financial technology. Bankers used to say complacently they didn't worry
too much about tech startups stealing their business. Once people
(00:23):
have real money, the argument ran, they're not going to
trust it to an unregulated upstart, They're going to take
it to a bank. Then came the global financial crisis,
the ultimate own goal for the banks. Suddenly the idea
of trusting someone else to handle your cash didn't sound
so crazy after all. A bit later, I'm going to
have a chat about the future of money and banking
(00:45):
with Bloomberg Finance reporter Jennifer Seraine an opinion columnist Leonel Laurent.
But first I asked Jenny to tell us how payment
apps like Alipay when we chat pay and raising the
bath for global banks everywhere and making them a bit
nervous as well. Hi, I'm actually I'm a journalist. I'm
(01:14):
here to meet with Leo. You're here with here to know?
What's your name, Jenny? Jenny? Is he expecting me? I
think so? Yeah, that's me, Jenny Seraine. I write about
banking and payments for Bloomberg News here in New York,
and like most New Yorkers, I've noticed a little blue
logo with Chinese lettering popping up all over the city,
(01:35):
from the iconic luxury store one knows on Fifth Avenue,
or cash registers at grocery stores and restaurants. It's even
been popping up in the back of taxi cabs and
at tourist destinations. That's what led me here to v
our World, an entertainment center focused on virtual reality attractions
located in Midtown Manhattan. When we'll look at it and
(01:56):
we'll look like a lot of the Asian business that
we have, we figured the alipay was a natural platform
that should be includive in what we accept as the
form of fame. That's Leeve Summer. He's the chief executive
officer of vr World. Earlier this year, it became one
of the first places in New York with that little
(02:17):
blue logo when it began accepting the Chinese payment app
allie pay. But customers have been happy that you have
it as one of the options. Customers have been very thrilled.
Um I personally had seen Asians that would have American Express,
but they would recognize Alibay and they would smile and
that it's just another element of making people comfortable. Uh.
(02:39):
For sure. It worked very well and we will continue
offering Alipay as the business expands across the United States.
In China, a shocking amount of money closed through a
pair of mobile payment apps Ali Baba groups Allie Pay
and Tencent Holdings we chat Pay. They're actually part of
two vast digital ecosystems that blend banking, commerce and social media.
(03:02):
You can shop online, pay street vendors, or send money
to friends. Together, they boast more than one point five
billion monthly active users and have a combined market share
of in the mobile payments market. Now, Ali Pay and
we Chat are slowly bringing their payment services to the US,
sparking fear among bankers who are scrambling to revamp many
(03:25):
of their core payment offerings. Ali Bob has brought it
here to kind of really push home the message that
this is the new economy, and boy have the numbers
really been quite staggered. And I'm in your view, how
far are we away from a cash list society? Well,
it depends where you are. If you spend any time
in China these days, it may feel like you already
are in one. How big is and financial really big?
(03:47):
Coming Now it's all encompassing some of these Chinese payment systems,
but talk about the different systems. Banks need to make
sure that these apps don't sweep through the US like
they did in China, so they have started off by
rushing out some platforms of their own. So far, a
lot of the innovation in the payment space has happened
on the consumer side, think zell or one click checkout
(04:10):
on Amazon or Apple Bay. Now startups and banks alike
are realizing the bigger opportunity lies on the business side
of payments, from the bodega down the street to fortune
one companies. Businesses around the world send one hundred and
twenty seven trillion dollars and payments every year. Today we're
(04:34):
looking at the money businesses send overseas, known as cross
border payments. This is a tricky, opaque business. Money can't
just transfer between banks in different countries. Instead, it gets
routed through so called correspondent banks, and once a company
has sent a payment, it often doesn't know when that
(04:56):
payment will arrive to its supplier, or which banks will
handle it along the way, or even how much will
be deducted in fees. This is a big business for banks.
Analyst at Goldman Sachs estimate that banks around the world
read about one trillion dollars of fees from cross border payments.
(05:16):
I spoke about the hassles of using banks to move
money with Kristin Michow. She's the managing director of Treasury
Operations at General Electric. Sometimes UM I think the assumption
is that it's easy like Cassius moves, and you have
transparency and they related to the consumer side, and unfortunately
the industry hasn't made it there YETA and so kind
(05:37):
of a day in the life UM you might have
a supplier calling you up saying they didn't get paid,
and then you're spending days working with multiple banking partners
to chase down the status of a transaction. UM. So
this is a big pain point for multinationals UM, something
that that everybody's been pushing for in the industry with
the banks. Kristen is part of a growing chorus of
(05:58):
corporate treasures who are as skiing banks and startups to
come together to improve business to business payments. Here's the
problem she sometimes has. She sends money to her suppliers
and banks deduct their fees along the way. By the
time it arrives, the recipient looks at the amount and
isn't sure what it's for. She's been complaining about this
(06:20):
for years. The good news banks have received the message
loud and clear. If you're sending a hundred dollars, it
might receive at your beneficiary at and then sometimes they'll
return it because they don't know how to apply that cash.
So actually having the transparency to where those sees are
coming out, who's abducting those sees, what the total amount
is that receives on the supplier side is huge. This
(06:41):
is where an organization called Swift comes in. Swift operates
the messaging system that connects the ten thousand banks around
the world. Right now, Swift is in the throes of
introducing what it's calling its Global Payments Innovation Initiative or
gp I. Banks that are a part of the Swift
network are required to provide transparency about the cross border
(07:05):
payments they send and received for clients. Correspondent banking has
been around for a long time, and it's done a
good job for many years. That's Harry Newman, head of
banking at Swift, but it's it's obviously a child of
the eighties and it lacked the transparency and predictability you
really want to see in a modern payment mechanism. So
Swift and a group of the large banks came together
(07:25):
and agree it was retime to modernize the service. But
what's perhaps most interesting about Swift's new efforts is who's
leading the charge. Chinese banks. They need a way to
fend off the apps taking over their business. Chinese banks
are are indeed some of the most enthusiastic about joining GPI,
and they see it as a a means to adapt
(07:46):
to it to an international payment infrastructure. And I think
a lot of that is to do with the presence
of new entrants in China and in that area of
the world. Asia is adopting new technology and sometimes leaping
a generation of technology, and what He's doing Chinese banks
is an opportunity to approve the ability they have to
provide services to their clients. So they value the speed
(08:07):
and transparency and the ability to integrate it general electrics.
Christian Michelle feels the same way as is a huge
driver of this change, right, so you would think this
is initiative coming out of the United States. Definitely not right.
There is kind of the later adopters. The question for
banks is whether they will be able to maintain their
hold on payments between companies. Apps and tech companies are
(08:30):
showing interest and taking that over. Bankers I spoke to
said the fight is just getting started. To learn more,
I'm visiting City Groups headquarters in downtown Manhattan. I'm here
to talk to Miniche Khali, global head of Payments and
Receivables at City Groups. Did you see you. I'm sorry,
(08:54):
I'm so late. Miniche says the era of waiting several
days or a week for money to move internationally needs
to end, and that big US banks like his are
working hard to speed things up. He says one problem
is that some other banks still sit on the money
after they get it. He's trying to spread the word
(09:15):
that Swift has started to solve that problem with GPI.
Fifty of payments that move through gp I get paid
cross border in less than thirty minutes. We see that
more than nine of payments that go through Swift gp
I get credited to the beneficiary within one working day,
so you know, some of the industry mits going around
(09:37):
the cross board of payments takes seven days, five days,
ten days to pay. Actually, now, just because you can
measure it, you actually see that some of those facts
are not to Some banks will say, well, I take
you know, three hours to process, and I'm starting to see,
you know, payment volumes move away from me. I'm going
to do it in five seconds or three seconds because
(09:59):
I want to be the bank that attracts the maximum
of payments to come from it. So I think those
changes are now only starting top. So there's hope yet
for cross border payments to improve any minisia's view, it
will be the banks that are leading the charge. It's
you know, you neique to see the industry galvanized together
(10:19):
to do something which is really transformated. So I think
that change in mindset of let's collaborate together to improve
the industry itself is amazing. So Jenny's joined me in
the studio here in New York, and we have Bloomberg
(10:39):
columnist Leonel Lauren joining the conversation from London. Um Lionel,
does ali pay really represent anything new or hint at
anything new? As we were hearing in that piece, I mean,
we've seen a lot of new sort of fintech upstarts
getting into very consumer oriented stuff, but not much the
(11:00):
sort of financial plumbing of the of the global system,
things like international payment system. You know, is that something
that you actually see happening or is it still very
consume more intoed Yeah, I think I think this is
something that is new in terms of the size, the
scale and the kind of innovation on show. I mean,
this is this is still a very Chinese phenomenon, right
(11:21):
China is one of these countries that has jumped almost
directly from cash bank notes into mobile payments. That sort
of skipped a whole generation of tech that we in
Europe and the US are still used to in terms
of plastic cards and checks, and that has allowed actors
like Alipay to get of the size and the scale
and offer the kind of products that banks very much
(11:43):
still dominates here here in Europe and and the US.
So I think that right now, firstly, the question is
how far does it go in China before regulators start
getting a bit worried. We've we've already seen a few
a few steps towards that. And secondly, whether they can
export this model to the rest of the world, which again,
(12:04):
when when you look at the regulators reception of certain
steps made by Chinese companies in the rest of the world,
it's still very cautious. So I'd say right now it
is definitely new. I just think it seems quite unique
and maybe you know, particular to Asia, particular to China,
and it's going to take a longer time for us
to see things like this happening in the West. Well,
(12:27):
that's I mean, there's a lot to unpack in there
that I think we can we could get into discussing.
I mean, you you've read a great column for Bloomberg
a while back talking about how tech firms are behaving
like big banks, and you know, they're doing everything that
banks are doing except getting regulated. I mean, is that
the you talked about regulators maybe getting concerned. Is it
going to be a very different conversation once all of
(12:48):
these companies just start being treated like banks. Yeah, it's
just still very very tenstive. I mean, if you if
you look at the picture in the West, banks still
have this incumbent advantage, they still will dominate, and tech
companies that they are they are nibbling away and you know,
if you look at Google and Apple and Amazon, they
have offerings. They are making in roads, but it's still
(13:10):
very specific. It's very segmented. It will be payments offering
like like Apple pay where your card is replaced by
your phone, or it will be like Amazon lending to
its to its partners, to some of the businesses that
you know sell their wares on Amazon. But it's not
a full frontal assault, and I think for now it
is going to remain that way because none of these
(13:31):
tech companies wants the hassle of being regulated like a bank.
I think the issue for the banks is when does
it become a threat to all of the extra revenues
extra businesses on top of it. Because the day that
Amazon offers the kind of mutual fund or investment products
that Ali pay might offer in in China is the
(13:52):
day that revenue erosion starts to become real. So I
think that you know, regulators are looking, but there's nothing
there yet to get them to to make some forcible moves.
I think we're kind of, you know, making this up
as we as we go along. Yeah, and and and Jenny,
you're you're nodding there. I mean you think that that
you know, that would be that the fundamental shift. Yes,
(14:13):
I agree, I think to Leonel's point, it hasn't been
a full frontal assult so far. We've just seen them
kind of nibbling at their heels. But when we see
kind of these super apps like ally pay, which does
get into some of the mutual fund investing sides, it
does have a lending arm in a credit scoring arm,
it does have the payments capabilities. That's when you start
to wonder, could some of our big tech companies like
(14:35):
Amazon or Facebook duplicate that success um And it's hard
to say. We haven't seen them try yet, but they
certainly have the engagement with their customer base that that
could lead you to believe it might be a possibility.
You know, I would say, I used to work at
a JP Morgan and I when you would hear Jamie
Diamond talk about this, and obviously you'd always get asked
(14:58):
by clients, you know, aren't you worry that all these
new companies are gonna eat your lunch? You know they're
gonna get And he had sort of two sources of complacency.
I would say, whether it was justified or not. He
would say there was a generational thing that you know,
the sort of trendy, the sort of consumer oriented stuff
that people might want in their twenties once they had
serious money. His view was that they would want the
(15:19):
money in the bank and that they would have that
advantage on that. Um And then the other point which
has come up and what we said before, he would say, look,
it's you know, it's all very well. These consumer facing
stuff is fine, but by the way, we're still doing
all of the underlying We're still responsible for that underlying
payment system. We're actually processing stuff for all of these companies.
I'd be interested what both of you think on those
(15:40):
sort of sources of reassurance that the big banks have
had to date. You know, whether it's a the generational
change which could be temporary, and the point about the
underlying infrastructure being something that people didn't want to get into.
Maybe Jenny first, I mean, I think, um, the idea
that the banks will will long be the papes of finance.
(16:01):
That's probably certainly true. That's a really hard technology and
capability to replicate. But is that what they really want?
I mean, that essentially makes them a commodity in many ways,
there's no longer if a consumer has affinity for Amazon
instead of Chase. Chase can't charge the fees that it
charges today. It's a completely different business model. So I
probably agree that it's tough to replicate, and FinTechs don't
(16:23):
really want to get into like the pipes and boring
parts of banking. But I think that there's something to
be said for having that consumer facing capability and maintaining
that kind of top of mind place. When consumers think finance,
they think banks, not fintech. I mean Lee and now
you were saying the money is really not necessarily in
that infrastructure, in the payments, it's in the sort of
(16:43):
add on. Would you would you suggest that Jamie Diamond
needs to be a bit more concerned. Yeah, I think
I think Jenny's right. I think that this is very
similar to the telecom companies. Frequent fear that they're going
to be dumb pipes that essentially they're going to have
to spend and invest in build the infra structure, but
it's going to be all these other companies that end
up skimming the profits off off the top and making
(17:05):
money at at either end. Look, Jamie Diamond, JP Morgan, again,
these are unique banks of a very impressive size. The
US market has been tougher to crack than than than
many other markets. It's very concentrated. I'm sure that Mr
Diamond has a lot of good reasons to feel that
incumbent advantage. But there are markets that are a bit
more maybe vulnerable UK Europe perhaps, And yes, Jenny says,
(17:32):
there are very big tech companies out there who eventually,
almost by accident, could could sleep walk into businesses that
Jamie would would not want to give up. So I
think there's a there's a bit of bravado in there.
But you know, I'm pretty sure that Jamie Diamond is
it a spot that many frankly many banks would would
would love to be in, right, not not just intet companies. Well,
and also I should say, before I'm going to get
(17:53):
all my colleagues rising the angry emails talking about all
the stuff that they're developing, I think they would They
would always have this kind of reassuring face to clients,
but under the surface of also madly trying to innovate
in a lot of these areas. So I wouldn't say
that they were completely complacent. That's probably why they have
done so well, is China actually presenting us with a
(18:16):
different kind of model for how a financial sector might develop.
Or is it just a feature of its very curious
road to development that it's had this very closed system,
very state led system, and these kind of curious things
have developed, have been able to thrive, but wouldn't necessarily
present a model for the rest of the world. I mean,
(18:37):
how special it is China. You know, maybe maybe we
shouldn't expect the same thing to happen anywhere. Yeah, I
think China is a very unique place. Um, they have
kept their system closed off too many of the U
S companies that would love a crack at China. I
think a good example if you look at Visa and
master Card. You know, they've long wanted to go to
China and bring their technology to that country, but they
(19:00):
have been, you know, told very forcefully, no, you cannot
come here. And Visa and master Card are part of
a system here where you know, merchants pay interchange every
time uh you swipe your card either online or in store,
and the entertained funds credit card rewards which are beloved
by Americans, And so that system alone is one that um,
(19:20):
it's a hard consumer habit to break because people are
going to go from getting two percent back on every
purchase they make to you know, Ali pay doesn't really
offer rewards um beyond just like the speed and convenience
of using it. So there's like little I think features
like that that are really hard to disrupt in the
US and that China never had to deal with because
they didn't have kind of the legacy infrastructure that places
(19:43):
like the US have. I mean, I guess you was
just to go back to this regulation. I mean I
wonder whether we will look back on this era and
say it was a very kind of brief moment in
sort of historical terms, where all of these new companies
and new entrants, some them very big, going into sectors,
whether it's banking or the or media and enjoying a
(20:05):
period where they weren't being treated like banks or like
media companies. You know, Facebook's the obvious example. And once regulators,
once policymakers kind of catch up to the changing environment,
you know, this becomes you know, the business model that
those companies have become something very very different. I mean,
do you think, Leonard, do you think that is um
You know, we're heading for a very different and maybe
(20:28):
less disruptive environment once regulators kind of get a handle
on what's going on, I think it. I think it
depends on a couple of things. Firstly, from from the
bank's side. You know, banks are lobbying quite heavily for this,
as you say, the sort of day in the sun
to end, right. I mean, they want regulators to step
in and they and they want some of these tech
companies to be treated in the same way as as
(20:49):
as them. I just wonder whether they are prepared for
a fight on on equal territory because if we are
heading towards a kind of more open because regulators all
care about the consumer, they care about choice, they care
about openness, and you could hardly accuse a lot of
these banking markets are being very open. So if the
markets get more open and more competitive, and even if
(21:10):
you have a level regulatory playing field, banks could still
find themselves in a bit of a tough spot where
they have to do all these things, you know, cross
sell and and sell more products on the on the
technology platform than than their than their you know, investors
or their or their budget actually is able to deliver.
So I think that you know, it could simultaneously happen
(21:33):
where you get more regulation of these tech companies, but
also more more kind of competition and a and a
more difficult fight for the for the banks as a result.
And I would just quickly say that the size of
these tech companies, right, I mean, we can barely work
out how to tax Amazon and Google. They are so big.
Potentially that the day that we do try and get
our act together and say here's how you should treat
these as financial actors or as media actors, that will
(21:55):
take a lot of cooperation, right, global regulatory cooperation, and
if it's happening at a time when countries are pulling
in totally different directions, that could create again, you know,
more kind of loopholes, more chinks in the in the
in the sort of structure of cross border regulation. It's
a great point, actually, and I think that's that's just
the kind of thing. I think that's why that the
(22:16):
New Economy Forum is trying to bring together this community
of people to think about these issues, because it's clearly
going to involve more countries and more and a lot
of different regulators working together, and we may not get
any easy answers, not even with all those people sitting
in Singapore for a couple of days. But Jenny just
something that did come out. Going back on Lionel's point
(22:38):
on the competition, I mean, you know, part of the
point of value players it is just teaching consumers a
different way of dealing with financial transactions. And surely that
has to have an impact on basis like the US
that we consider to be oh so sophisticated but still
take far longer than any other place to clear a
check or to transfer money. I mean, is it on
some of those basic things, probably the U s could
(22:59):
do with a bit of competition, I think. So you're
certainly right, the US is behind in a lot of
areas in terms of money movement. We still have a
very large check presence in the US and we still
use a lot of cash here, and so certainly competition
is you know, a good thing in that sense. I
think things like Ali pay making their way here, or
you know, the rise of things like Venmo or Zel
(23:21):
from the banks, it does kind of ratchet up expectations
on the consumer side. And then you know corporates, they
send trillions of dollars a year, both in the US
and around the world, and that is also an area
where money moves really slowly. It's a very opaque area,
like we talked about um in the reporting, but basically
it has this effect of kind of raising everyone's standards
(23:41):
and and suddenly banks can no longer sit on their
money for two or three days UM. They have to
get it through and really address their customers needs. Wow. Okay,
Leonel opinion columnist in London, and Jennifer Seraine here in
New York. Thanks very much for joining me on this.
I think we've had we've had some bit of reassurance
(24:03):
for the likes of Jamie Diamond, but also massive challenge
for global policymakers when it comes to this interaction of
technology and finance, and plenty to be discussed at the
New Economy Forum in Singapore. Thanks for listening to The
(24:23):
New Economy. Today's episode was reported by Jennifer DuRaine with
editor David Sheer. It was produced by Magnus Hendrickson. Francesco
Levy is the head of Bloomberg Podcast.
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