Banking on Payments?
For the past hundred years or more, payments have been primarily associated with banking, and banking as we know it today—being the result of many centuries of evolution—features a bundling of (at least) three main lines of business: lending, deposit-taking, and payment services. In the past 15 years or so, banks have come under severe competition as providers of payment services. Will “banking on payments” become outmoded and payments untethered from banking, or will payments still have a place in the future of banking?
This paper sets out to explore this question and to address the following two related issues. First, what are the likely consequences (especially for the financing of growth and the provision of liquidity in the form of bank deposits) of the apparent “unbundling” of the traditional connections in banking between lending, deposit-taking, and payment services? Second, what are the implications of the evolution (or revolution) of money, payments, and banking for public policy, monetary theory, and the theory of monetary policy?