U.S. Bancorp scrambles to keep pace in payments field

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In an industry where most regional banks look quite a bit alike, U.S. Bancorp has distinguished itself through its expansive, international payments business.

The business has been a reliable generator of fees in recent years, helping to offset the pressure of low interest rates. But with the Minneapolis company’s dim outlook for processing revenue in the months ahead, analysts have begun asking questions about whether it is keeping pace in a field where fintech firms — such as Stripe and Square — have largely changed the game.

U.S. Bancorp executives said during a conference call Wednesday that their recent decision to exit two payments-related partnerships is expected to “mute revenue growth” in the coming year. Merchant processing income was nearly flat from a year earlier, edging up 1% to $407 million. Total payments services income, which also includes credit cards and corporate payments, has plunged 20%.

Like other companies in the payments business — including megabanks such as JPMorgan Chase — U.S. Bancorp faces the challenges of maintaining a competitive scale and standing out in a largely commoditized market. CEO Andy Cecere emphasized that the business is changing and that innovation will be vital.

“It’s migrating from a financial transaction business to an information business,” Cecere said. “Our focus is in that information, in terms of innovation and technology, providing it beyond the financial transaction.”

Retailers and other merchants, for instance, want easy-to-use information on loyalty programs or customers' buying patterns. That is particularly true on the e-commerce side of the industry.

Asked whether he thinks U.S. Bancorp’s e-commerce capabilities are up to snuff, Cecere said bluntly: “I think they’re fine. I want them to be better.”

The comments coincide with recent consolidation in the payments business. Vantiv — the processor in which Fifth Third Bancorp has a significant stake — this month agreed to buy Worldpay, a British payments company, in a deal valued at about $10 billion.

JPMorgan also approached the processor about a potential takeover.

During an interview Wednesday after the earnings call, Terry Dolan, chief financial officer at the $463.8 billion-asset U.S. Bancorp, discussed the blockbuster deal, saying it will allow the Cincinnati-based Vantiv to get a foothold in Europe.

“We didn’t really need that, and we already have scale in Europe, so we didn’t see it as having the same strategic importance as [Vantiv did],” Dolan said. U.S. Bancorp is one of the top five payment processors in Europe, where it operates under the Elavon brand, he said.

During the second quarter, U.S. Bancorp exited two joint payments ventures with other big-name banks. One of the joint ventures was in Spain, where it sold back its stake in a partnership with Banco Santander.

Dolan said that, while U.S. Bancorp remains committed to working with companies in Spain, the two companies began to drift apart in terms of their priorities for the venture.

“That’s always the risk you have with a joint venture structure,” Dolan said.

The other partnership was with KeyCorp in Cleveland. The $132.3 billion-asset company recently decided to end its payment-processing relationship with U.S. Bancorp so that it could have greater control over its client relationships.

“We understand, and that priority changed over time,” Dolan said, noting that U.S. Bancorp is retaining some of its clients from the KeyCorp partnership.

Through its Elavon brand, U.S. Bancorp has focused on specialized industries, in both the U.S. and Europe, such as hotels, airlines, entertainment and travel. Within those industries, the company has developed platforms that provide merchants with information that they can use to expand their business.

For instance, Evalon integrates into hotel management systems, giving executives information, for instance, about whether customers are buying meals at the hotel restaurant.

To stay competitive, U.S. Bancorp needs to continue to develop new ways to gather and display customer data for its most profitable customers, especially as it relates to online purchases.

“We need to take that, and we need to leverage that and make it more ubiquitous across all of e-commerce,” Dolan said. “We’re making good progress — we just need to make more.”

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