Retail customers now expect to be able to integrate e-commerce, social media and retail payments. They also expect to be able to switch seamlessly across digital platforms. These are not areas of strength for many banks: given their heavier compliance obligations, banks have traditionally invested more in the security and resilience of their systems rather than optimising the user experience. BIS central bankers’ speeches  1  Third, payments technology is evolving at an unprecedented speed. Contactless cards, online payments, mobile payments, are all becoming more prevalent. Keeping pace with those technologies will require major investment from banks, and they have to contend with the fact that their new competitors – for example PayPal and Apple – already have an edge in digital technology. The initial effect of this disruption in the payments may well be to reduce the role of cash payments, which will not fundamentally affect banks. But in my view banks should not take this challenge lightly. According to estimates by Deloitte, retail payments will generate around € billion in revenues for banks in 2015, or around a quarter of total European retail banking revenues. 1 With profits already depressed on lending activities, banks can scarcely afford to start seeing margins being squeezed and market share lost in other areas. So banks would be well-advised, to my mind, to face this challenge head on. Whether via joint ventures or higher investment, they need to keep up with technological change if they are to have a long-term business model.
From my viewpoint as a central banker, I hope that banks indeed seize on this opportunity, because I think it would ultimately lead to a more robust banking sector as a whole. For example, European securitisation markets would improve risk-sharing among banks: one can imagine a world where small, local banks originate loans while larger, global banks securitise and market them. And a true CMU would also mean convergence of some parts of insolvency law and deepening of markets for distressed debt, which would help banks work through NPLs more quickly in future and hence increase the resilience of the banking sector to shocks. Moreover, if bank finance declines in importance over the longer-term, that might also encourage some much needed consolidation in the banking sector, which would in my view be beneficial for the real economy. We see at the moment that overcapacity hinders the recovery of bank profitability, as weaker banks distort competition and make it difficult for other banks to re-price loans.4 Whether all this materialises, however, hinges crucially on how far-reaching the CMU project really is. The Commission’s Action Plan for CMU has put forward many areas for further work, but each will take years to implement. What type of CMU will ultimately emerge therefore remains to be seen. I am sure Commissioner Hill will give us more guidance on this tomorrow. 3  Ryan, R., O’Toole, C. and McCann, F. (2014), “Does bank market power affect SME financing constraints?”, Journal of Banking and Finance.