With all the new payment options available – such as mobile and contactless payments – it is unlikely that a financial institution is going to have the ability to support them all. Assuming that is true, the question becomes: where is the right place to focus? James Poteet explains.
“A few years ago people were predicting a chashless society. Today, cash spending totals $1.6 trillion and is projected to be $1.8 trillion in 2013.”
1. What is driving the current renewed focus on payments?
I would describe what is happening now as 'back to basics.' Over the past several years, the focus was on high-yield investment products. Now it's shifting back towards payments, which offer a way to deliver value for both commercial and consumer customers - and produce a stable annuity stream of income for the banks. Regardless of the size of the commercial business or the socio-economic status of a consumer, they both need payment mechanisms to transact business.
2. How are new payments options impacting the landscape?
The statistics show we are not only adding payment methods, but none of the existing payment options are going away in the near term. Take cash as an example. A few years ago people were predicting a cashless society. Today, cash spending totals $1.6 trillion and is projected to be $1.8 trillion in 2013. So the challenge is to figure out how to accommodate this diverse payments landscape where there is no clear preference for one payment type vs. all the others. A variety of factors will need to be weighed before adding new payment types, including costs, the risk of fraud and consumer acceptance.
3. How is technology influencing the future of payments?
The future of payments will likely revolve around cash, credit, debit, contactless, mobile, and probably other mediums we've yet to even consider. U.S. consumers want it all and expect options and convenience when it comes to how to purchase. Not all transactions are the same and technology-based solutions are often much more expensive to process. For example, a cash transaction costs 53 cents to process, a debit transaction costs 55 cents, and a credit card transaction$2.60. So as new technology is introduced, consumers will assume every retailer and financial institution is ready to accommodate them. One challenge will be overcoming consumers' perception that there are no costs associated with payment options.
4. How will the pending financial reform legislation impact the payments environment?
The looming financial reform legislation poses significant challenges for banks. One likely outcome: FIs will not be able to charge as much in fees for certain payment types. Moreover, the compliance hurdles will be higher to meet and the costs to serve will further challenge banks to provide competitive payment options to their customers. With financial reform, these costs will likely be shared - and in some cases - passed on to consumers in the form of higher fees for services that may have been viewed as 'free' in the past.
5. Where are the opportunities for financial institutions?
The opportunity lies in picking a strategy to match your business plan and the customer segments you are trying to serve. If you don't have the resources or the appetite for risk, this might be the ideal time to look outside your organization and find those partners who have the expertise to help you accomplish your goals. Non-FIs are investing in new technology and in some cases are progressing much more quickly.
6. What will the payments landscape look like in five or ten years?
Right now, there's a focus on electronification and convenience of payments. If the remaining paper - cash and checks - can be eliminated from the payment supply chain, money can be deposited faster and transactions can occur more rapidly. But it's not just about checks and cash. Across the board retailers are looking for ways to consolidate payments at the point of sale to make them more secure and cheaper to process. However, to meet the consumer desire for choice, most retailers still want to be able to offer as many payment options as possible to get new sales, but still reduce costs. Brinks' strategy is to create integrated, automated solutions with built-in security and electronic reporting by using our deployed technology, nationwide infrastructure and industry knowledge.
Jim Poteet is vice president of product development for Brink's, Inc. He has more than 17 years of banking experience in treasury management and payments. Prior to joining Brink's, Poteet was Senior Treasury Support Manager at Fifth Third Bank and has also worked at Wachovia and Bank of America. He is a member of the AFP and TAWPI.