Wells Fargo's consumer control hub may benefit merchants the most

Because of the opaque nature of internet retailing and widely publicized data breaches, security concerns remain a pervasive gating factor to digital commerce.

Key to countering this is providing consumers with the tools to monitor and control where their payment credentials are stored online, and this is the core value proposition of Wells Fargo’s Control Tower, a service planned to launch in 2018 that will enable control of when and where account information is shared.

It’s a shrewd move by Wells Fargo that solves a problem for both consumers and online merchants, particularly those that have subscription-based models as their core value proposition.

Patrick T. Fallon/Bloomberg

Challenging churn

Even though Control Tower is focused on the relationship between a bank and a consumer, the biggest beneficiary might be merchants.

There is an important aspect to centralizing a consumer’s online experience. We are increasingly reliant on card on file transactions in our lives, whether that is for digital retail transactions such as Amazon, "gig economy" services such as Uber, or streaming subscriptions such as Hulu and Spotify. According to Nielsen, a third of U.S. households subscribe to streaming video services, with 13% subscribing to two or more. Cord cutting is on the rise and with it, an increasing number of businesses rely on up-to-date information about payment cards they never physically see.

For subscription businesses, the issue of involuntary churn is a major impediment to revenue growth. A 2017 report commissioned by Digital River highlights that renewals account for 62% of revenue for online subscriptions and that these services lose on average more than a third of subscribers to churn. Recurring payment failure, through driven by insufficient funds, credit card limits, credit card expiration or replacement — or technical failure of the payment processor — were the primary reasons for churn. Losses caused by this form of churn account for 17% of revenue.

It is not just an issue for smaller companies; in October 2015, Netflix announced disappointing earnings, which it blamed in part on involuntary churn from EMV card reissuance. "Our over-forecast in the U.S. for Q3 was due to slightly higher-than-expected involuntary churn (inability to collect), which we believe was driven in part by the ongoing transition to chip-based credit and debit cards," the company said in its earnings announcement.

The card industry has tools in its arsenal to address this, such as Visa Account Updater, which pushes out new card credentials to merchants, but not all issuers or merchants have adopted these solutions. Further, this does little to empower the consumer.

The Wells Fargo solution gives that empowerment to binge watchers.

Giving consumers the controls

Consumer comfort level with online retail is improving. Nonetheless, consumer doubts about internet safety are not easily assuaged.

Wells Fargo’s positioning as an FI that places control back into the hands of the consumer should appeal to consumers who have concerns (genuine or perceived) as to where their payment information is being stored. Currently, Wells Fargo is heavily marketing the ability to turn debit or credit cards on or off from its banking app — Control Tower is a logical extension of this, positioning the institution as an FI that gets consumer’s digital concerns.

Control Tower also ties into the company's newer payments initiatives, such as the relaunched Zelle P-to-P service.

There is, however, a double-edged sword to Control Tower — giving transparency to consumers also makes it trivial to cut off subscriptions that they are no longer using. On balance, this is likely to be an impediment only to companies that are not delivering value or that have been exploiting the opacity of the internet to their own ends.

Shining a light on exactly where consumers are connected online can only benefit the perception in the long run of the internet being a safe place to transact.