Nuttawut Atiratana
Senior Analyst
Payment Systems Department
Last year, payment incomes in Thailand accounted for about 14 per cent of total banking revenue. The bright side of payment revenues is their stable and regular character, in contrast to interest income which is more risky and volatile. However, the other side of the coin is less appealing, as payments also represent costs for household and corporate users, charged by banks in the form of payment fees. Increasing complaints regarding inappropriate charges have put banks under pressure.Banks in many developed countries have also tried to maximise their payment revenues, but with much less public resistance. In these countries payment revenues typically account for about 25 per cent of banks' income. The question that popped up in my mind was "How they do that?". After spending a night goggling trusted websites, here's what I found.
(1) Reducing costs: In order to increase payment revenues, banks in developed economies choose to reduce payment operating costs by investing more in innovative payment instruments and networks, as well as taking advantage of advanced IT technology. According to Dr David Humphrey of Florida State University, payments account for one-third of banks' operating costs; most of the costs are from providing cash and cheque services. In order to survive financially, he recommends that banks rely more on electronic payment systems, which carry one-half to one-third of the cost of cash and cheque payments. For bank executives, it would take guts to follow his advice, but the cost saving in the long term will compensate for the short-term high investment.
Australia's experience furnishes an example. In order to reduce huge cash handling costs involved with ATM operation, banks choose to convert customers' ATM cards to enable them to purchase goods and services directly, bypassing the cash withdrawal process at ATMs. It's a win-win solution. For banks, the fewer cash withdrawals at ATMs, the higher their cost saving; for customers, their life is made easier by not needing to get cash before making payments.
(2) Adopting new pricing models: The banking industry has lagged behind its mobile phone counterpart in terms of how it charges its customers. Instead of charging on a transaction basis, mobile operators offer a package-based pricing requiring their customers to pay monthly flat rates to get specified numbers of free services per month. Mobile operators offer various monthly flat rates that fit various customers' habits. Leading banks in several European countries - Germany, France, Italy, Austria, Belgium and Poland - have adopted this package-based pricing for their retail banking and payment services. Instead of being charged per payment transaction, customers pay monthly or annual fees for specified free banking transactions. With this new pricing model, banks not only get more reliable and regular revenues, but also acquire a wider customer base than rival banks who stick to a traditional transaction-based model.
Another pricing strategy is to dismantle surcharges for inter-region phone calls, which makes the lucrative mobile market even more lucrative thanks to increasing transaction volume and a wider customer base. Lastly, it's evident that mobile operators tend not to use pricing to discourage their customers from connecting to other operators' networks, but instead compete to offer better services in order to keep their customers.
In conclusion, there are many different ways to maximise payment revenues. However, as decent financial intermediaries, banks should target more than just strengthening their profits, and aim to generate social benefits for the entire economy. The latest fee reduction for some banking and payment categories has proved that decency still exists among Thai banks and bankers
(The views expressed in this column are the writer's own.) Published in the Nation on Monday, October 11, 2010 Source: Bank of Thailand