Leader: Banks bow to PayPal

Don't force fat kids to run races they'll lose - let them win at something else.

Banks are lagging behind in the online transactions race like a fat kid on sports day. They are struggling to keep up with an agile PayPal, which has swiftly slashed transaction prices for its 70 million-plus customers, which means it's now cheaper for folks to sell stuff on the web.

According to the industry prophet Gartner, PayPal is in a superior position to banks and card suppliers because it can offer payment methods cheaper than the companies it left behind some years ago.

Banks seem to have failed to realise they have one huge advantage in the online world that could land them a firm stake in the internet until its very end - and that is identity.

Gartner is right in suggesting that banks should look to work with PayPal. They should play to their strengths and find a niche of their own. They are too sluggish to flex their muscles and move business models as fast as PayPal. Besides, risk is always an intimidating obstacle for them. There has to come a point when they realise their talents lie elsewhere.

And they certainly do lie elsewhere. Banks seem to have failed to realise they have one huge advantage in the online world that could land them a firm stake in the internet until its very end - and that is identity.

Proving an online identity is still largely left to technology, which as yet has not been successful in discovering who is using the internet. But banks have been checking physical identities for hundreds of years - only allowing people to have accounts if they have the correct paperwork, such as passports, proof of address and other documents. Essentially, registration for a bank account is much tougher than registration for a PayPal account.

With this in mind, banks could do themselves a huge favour by moving to a slower, steadier game - security. If banks were to move their expertise in credential-checking to the internet, perhaps we would find that fraud becomes a tougher game to play.

The question becomes: will they have the sense to shift sideways or keep running the same race?