A Hat Trick of Payment Options

  Growing the customer base by offering stand-alone products has long been a staple of business strategy for banks. Credit card divisions "sell" new card products and debit card divisions extend a card to checking account customers. Each independent effort creates new revenue streams that build the institution's bottom line.
  For more than a decade, though, banks have seen their traditional, long-term relationships erode as their best customers shop around for other financial institutions willing to offer them the best deal on the individual products that they need. Without collaboration between different product divisions, banks easily-and seemingly inadvertently-lose their customers' main business to competitors.
  Smart banks understand that they must respond to their customers' payment needs, and that those needs may have little to do with offering individual products through individual silos. They are taking a proactive approach to addressing customer needs through collaborative cross-departmental products and product promotion beyond individual credit and debit product silos.
  Banks must recognize that traditional point-of-sale debit cards and credit cards sold as separate products will not meet the payment needs of many customers in the future. The real secret to winning the payments trifecta is a product strategy that offers an integrated suite of payment alternatives with "pay before" (prepaid), "pay now" (debit) and "pay later" (credit) card products tailored to customers' needs, whether at the individual or segment level.
  This hat trick of payment options is now possible with the advent of prepaid cards, such as payroll cards and stored-value Visa and MasterCard products, ensuring for the first time that virtually every transaction can be handled through some form of plastic payment device.
  Card payment products are a strong entr?e to retaining and enhancing customer relationships. As banks seek ways to broaden customer relationships, cards, especially prepaid cards, become the key to courting entry-level customers, who may eventually graduate to setting up multiple accounts from personal checking and savings, and then to mortgage, business checking and credit-line accounts. Prepaid cards are low risk for banks, but they provide a tool to introduce further services to the young or entry-level customer and to those customers previously relegated to the periphery of the banking business such as recent immigrants.
  "Next-generation" debit card products, including gift cards, stored-value payroll cards and business debit cards are the most exciting new opportunities in the card business. Reflecting this trend, the American Bankers Association's 2003 Bank Card Survey conducted with our firm reports that the number of banks issuing stored-value cards will nearly triple, from 8% of survey respondents in 2002 to 21% this year, making prepaid cards one of the fastest-growing sectors of the payments market.
  These next-gen debit products give holders purchasing power without the hassles of checks or cash and are ideal for those without established bank accounts. Employers with a large percentage of staff without bank accounts view stored-value payroll cards as ideal. Salaries are deposited into an account and are reloadable the next payday. Many carry the Visa or MasterCard logo, so they work at both the checkout counter for purchases and at the ATM to withdraw cash.
  In the small-business segment, business debit cards are beginning to resonate with business owners because they are efficient, convenient and can be used in lieu of checks. Though banks have historically promoted debit cards to consumers, smart institutions are seeing business debit as another way to broaden their business customer relationships.
  Instead of being fixed on individual product silos, it is time that banks become more attentive to the financial requirements of their customers by providing them payment alternatives across the spectrum of needs. This means adopting an integrated payments strategy, and organizing around the customer, to market your products and services.
  The reality today is that card technology may be ahead of banks' abilities to fully utilize it. While next-gen products are available, banks have not gotten their internal organizations in sync with their other product lines or with their external outreach to customers. Those realizing success will be the banks that move quickly to integrated payment strategies to meet customers' needs instead of meeting product managers' expectations.
  David A. Poe is CEO of San Francisco-based Edgar, Dunn & Company, a global strategy consulting firm specializing in payments and financial services. EDC recently compiled the American Bankers Association's annual Bank Card Survey. He can be reached at david.poe edgardunn.com.