Basic trends underlying the scenario planning
The purpose of the paper by Atos Consulting is to challenge an payment services provider's existing strategy designed to anticipate the future make-up of the payments market against the scenarios presented here.
The following trends were identified as being rather likely to impact the evolution of the product portfolio, including the aspect of geographic reach as a means to increase volumes in the transaction banking business:
The scenarios evaluated in the paper are established by assigning two extremes to both trends identified above. The scenarios are presented as a realistic future and early indicators are defined that allow predicting how and when a possible situation could in fact materialise.
Scenarios reflecting the impact of regulation on the evolution of the product portfolio are based on the following alternative assumptions:
- Assumption 1: the political influence through regulation either remains stable or is levelled down for reasons varying from (lack of) market acceptance to economic effect.
- Assumption 2: the political influence through regulation is increased to a level that only leaves a market for euro payment products in compliance with those regulations.
Scenarios reflecting the impact of globalisation on geographic reach provided by the supply side (banks) are based on these alternative assumptions:
- Assumption 1: the globalisation trend either comes to a hold, or takes a step back. As a result, most business is done on a regional or respectively domestic scale.
- Assumption 2: the trend is taken one step further to a truly global scale, with increasing demand for products and services supporting this scale.
Accordingly, the scenarios outlined below might arise:
Scenario A: cocooning
In this market, services are delivered on a local-for-local basis. There is a focus on domestic client relationships, and the only regulations or standardisation come from the market players. Services are tailored to a geographical region that is limited in scope, and the same holds for client demand. Clients doing business on a more global scale have to maintain different bank relations in different regions.
- Attention to demand of customers acting locally only becomes disproportionately large.
- Protectionist measures taken by governments, or a broad preference of local customers. Such social trends would support the local-for-local character of this scenario.
Scenario B: tastes differ
Services can differ entirely per region and/or per client, since there is no authorities' regulated market. In this scenario clients are serviced on a global scale, with products specific to local needs. For suppliers to offer local products in an efficient manner, they must find the greatest common denominator in their back-office processes.
- ICT technology such as cloud computing, software-as-a-service (SaaS) and service-oriented-architectures (SOA) become mainstream solutions used in banking.
- Product development occurs in accordance with customer demand.
- Low acceptance or even dismissal of further regulation from regional authorities like the European Union. This scenario explicitly hinges on product diversity - possibly but not necessarily across country borders.
Scenario C: national colours
When products are standardised through authorities-driven regulation and the geographical scope is domestic, the products and services - in fact the entire client relationship - gets a narrow local flavour. This situation will only exist for a longer period of time if there is enforcement from a regulator, since it will inhibit clients doing business efficiently on a more global level.
- This scenario will benefit from authoritative market regulations, for instance by enforcement through strict deadlines.
- Preference of locally acting customers is strong, e.g. because of their trust in strong local brands.
Scenario D: global village
This is a scenario where products and services are standardised through authorities' regulation, and clients are serviced globally. There is limited variation in products, but on the other hand they are available wherever you are doing business.
- If the euro turns into a key currency also for trade in the rest of the world, indirect support for standards ( Credit Transfer, Direct Debit, and EMV) becoming a global standard would be provided.
- This scenario benefits from currently regionally operating banks applying for bank's licenses in other regions.
- Accelerated development of emerging economies resulting in an increasing demand for efficient payments processing towards those regions.
Through the analysis of market trends a coherent set of future scenarios can be depicted. By applying the scenario planning methodology, the enormous diversity of uncertainties that influence the primary question is confined. The early indicators allow assessing the impact of future events, and hence are worth keeping an eye on. The outcome of the scenario planning exercise, therefore, provides important clues as to how the world of payments could look like in 2015.
The early indicators considered having a particularly high impact include the adoption of and the opportunities arising from innovations in information technology. Both these developments are taking place simultaneously and share the objective of generating efficiency gains. However, the additional objective of to drive forward integration of the internal market and monetary union is not necessarily accomplished with the application of smart and cost-effective ICT (Information Communication Technology) only. Going forward, it will therefore be important to pay attention to both these indicators to measure the degree of actual market integration.
As mentioned above, it seems unlikely at this point that the trends towards open standards will switch into reverse mode. However, open standards may not develop as fast as expected by regulators. In this light, the ideal scenario would allow the actors in the payments market to benefit from increased efficiencies and reach due to uniform business rules such as the schemes and globally compatible standards such as the ISO 20022 message standards (the Data Format) or EMV for cards while catering to local customer needs at the same time. The payment professionals defining the schemes and the ISO 20022 messages, respectively, argue that the standardised solutions they offer provide that level of flexibility. Market participants - suppliers and customers alike - are encouraged to put this claim to the test.
Max Geerling is a Principal Consultant at Atos Consulting.
The full white paper can be downloaded from www.atosconsulting.nl/papers mid-August 2009. Atos Consulting will repeat this scenario planning exercise on an annual basis.
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