LAS VEGAS — Bankers say new technologies are putting pressure on their payments revenue.
Analysts and other observers have long estimated that about 40% of banks’ revenue come from payments — $174 billion last year, according to First Annapolis, a Maryland consulting firm. Much of that is interest from credit card accounts.
At the Bank Administration Institute’s annual TransPay conference, executives from major national banking companies and community banks spoke of many threats to their revenue, from within and without the payments industry.
Mitch Christensen, the executive vice president of payments and enterprise strategies at Wells Fargo & Co. of San Francisco, said that today’s challenges go beyond transaction fees and could cut into the deposits that are at the core of bank services.
“You’re seeing lots of balances moving out” to prepaid cards issued by merchants, such as the Borders Inc. bookstore chain and Starbucks Corp., he said Tuesday in a panel discussion. “They’re either sitting in the corporate’s bank account or they’re out of the banking system altogether.”
Cheryl Yavornitzki, the strategic planning manager at Fidelity Bank of Wichita, said banks are finding it harder to compete against nonbanks in emerging payment products, such as pre-paid cards, because of Patriot Act and other regulations. “Nonbank entities have none of these burdens,” she said.
Banks must cover much of the costs of data breaches that have occurred at nonbank processors, said Ms. Yavornitzki, a vice president. Sometimes banks do not even know which companies are responsible, she said.
But such breaches “involve our cards; we’re the ones that take the losses,” she said. “Oversight and regulation of nonbank processors needs to be strengthened.”
Mr. Christensen and others said it is dangerous to let commercial companies such as Wal-Mart Stores Inc. into the banking business. “There is a risk in having unregulated or under-regulated parties playing” in areas that affect the safety and soundness of the system, he said. “How close to we want this commerce and banking to get?”
Lorraine Fischer, the director of the payments strategy group at Wachovia Corp. of Charlotte, said Wal-Mart has forced banks to reevaluate their payments operations. For example, said Ms. Fischer, a senior vice president, automated clearing house payments were “always a treasury product until Wal-Mart started taking … [ACH debits] at the checkout line.”
Mr. Christensen said banks have begun to step up efforts to protect their payments business. Several major banking companies — Wells, Wachovia, Bank of America Corp., BB&T Corp., JPMorgan Chase & Co. — announced Monday that they had joined with First Data Corp. to form a fraud-fighting venture called Early Warning Services LLC.
First Data, through its Primary Payment Systems unit, maintains the shared industry databases that many big banks use now to fight fraud. Early Warning Services is structured to protect the banks’ intellectual property, which has come under increasing attack by patent holders that claim rights to business processes within banks.
John Beran, the chief information officer at Comerica Corp. of Detroit, said that banks are partly to blame for the threats from nonbanks. Banks built the greatest payment systems in the world “and then we sold them to third parties,” said Mr. Beran, an executive vice president.
Merchant acquiring, debit processing, and lockbox operations were once banking services but are now largely the province of nonbanks, he said. “In my own personal belief, it was a huge mistake.”
But Margaret Weichert, the senior vice president of payments and strategy at Bank of America in Charlotte, defended nonbanks. “Some of the third parties that we have come to rely on have created a lot of value,” she said. “They have also created a lot of innovation.”
As examples she mentioned CheckFree Corp., which dominates the online bill payment industry, and the PayPal Inc. unit of eBay Inc., which dominates online auction payments.
“These people are tapping into needs that we missed,” Ms. Weichert said. “They did not take the industry away from us.”
Ms. Yavornitzki said community banks are ahead of big ones in critical ways, such as customer service. For instance, she said, all Fidelity Bank branches can issue debit cards instantly to new customers.
As for image exchange, “We’ve been a fully imaged bank since 1998,” she said. “Image is a mature product for us.”
Ms. Yavornitzki said the Federal Reserve banks’ image exchange network is simple and easy to use, but noted that “if more institutions would plug in, it would work better.”
