If you're waking up in a cold sweat these days, worried about the future of your business, you're not alone.

What frightens bank CEOs is the future earnings performance of their banks. The market expects them to achieve sustainable 17% return on equity and 6% earnings growth. Since 1993 was a year of record profitability for banks, one might wonder why they're so concerned. I can think of two acquisition-minded institutions that for the past several years have grown 30% and 10%, respectively. And yet when you strip out their deals, they both grew only 2%. Their ability to generate value internally is not being fully realized. Why?

First, there is almost no demand for traditional lending. For the last three years, loan growth for the U.S. banking industry has been less than the rate of inflation--which in some regions of the country means loan growth has been negative. And of what little loan activity has occurred recently, most of it has taken place outside of the bank. In the last four years, non-banks saw a 15% increase in auto loans, an 11% jump in second mortgages and a 28% hike in mortgage originations. Today, the total credit that banks extend represents less than 22% of all consumer debt in this country.

Second, deposit values have been declining for the past four years. Banks currently lay claim to less than 25% of all consumer deposits and investments. And while interest rates, which drive deposit values, are now on the rise, banks won't benefit from the increase for some two to five years.

Third, banks will have a difficult time making up for lost lending income and lost deposit income by increasing fees. Over the past two years, charges on deposits as well as non-deposit service fees have both gone up 10%, while trust fees have risen 9%. But in the credit card business we have learned that consumers increasingly want value--and many of them want it at lower prices.

Given such factors, the cold sweat is understandable. Still, there are things that banks can do to overcome these problems.

They can begin by taking advantage of changing consumer behavior. I conducted a survey on behalf of the Bank Administration Institute last year which concluded that a significant and growing number of profitable consumers no longer view the branch as their banking focal point. Non-branch channels, particularly ATMs and telephones, now handle the majority of transactions. The survey included 35,000 randomly selected households and ran over a six-month period in cities across the United States. The findings showed that 49% of all cash withdrawals made by members of these households took place exclusively at ATMs. Another 28% was a mixture, with three out of every four transactions taking place at an ATM, and the fourth transaction taking place in the branch.

Bankers also can employ the customer service experience that resides in their credit card operations to build other retail businesses. The service quality measures that the card industry has employed for a long time could serve as a benchmark for expectations as consumers migrate to other electronic payment services.

The Card Experience

Finally, bankers can leverage the infrastructure of the credit card system to deliver a full array of payment products and services. Remote banking is a perfect example. In 1990, when I was with Midland Bank in the United Kingdom, I helped launch the world's first branchless bank. Four years later it had 650,000 customers--90% of whom were not Midland customers previously. Like most services, remote banking needs scale to be profitable; once that happens, it will be a resounding success here, too.

The debit card is another prime example of leveraging infrastructure. I helped start the Switch National debit card in the U.K. in 1988. Today it has 22 million cardholders and about 300,000 accepting locations.

Changing consumer behavior offers banks a valuable opportunity to grow. By providing a strong portfolio of payment services and reconfiguring how they deliver those services to take advantage of global payment systems like the credit card, banks can cut costs, deliver high levels of value and realize the profit potential inherent in their customer relationships.

H. Eugene Lockhart is president and CEO of MasterCard International.

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