Picking a payments strategy – for now and the future

By Jim Poteet, Vice President, Brink’s, Inc.

With all the new payment options coming – such as mobile and contactless technology – it’s unlikely that a financial institution is going to have the ability to support them all. Assuming that’s true, the question becomes: where is the right place to focus?

“A few years ago people were predicting a cashless society. Today, cash spending totals $1.6 trillion and is projected to increase to $1.8 trillion in 2013.”
-By Jim Poteet, Vice President, Brink’s, Inc.

Right now, we're seeing a renewed focus on payments within the financial services industry. I would describe what is happening as a "back to basics" shift. Over the past several years, the focus had been on high-yield investment products. Now it's shifting back towards payments, which is not surprising since both commercial and consumer customers need payment mechanisms to transact business. Regardless of the size of the retail business or the consumer's socio-economic status, they both produce a stable annuity stream of income through payments.

The statistics show that we are not only adding payment methods, but none of the existing payment options are going away in the near term.  This is remarkable when you compare the payments industry to other industries, like automobile manufacturing. As new cars are introduced and features are added, older models are regularly dropped. The reason? Doing away with less favored brands allows companies to redirect resources into innovation and developing new products.

Brink's Payment Management solutions leverage our nationwide secure network and industry knowledge gained through working with both leading retailers and financial institutions. Using our deployed technology and services, we offer built-in security, electronic reporting and integrated solutions. Regardless of the payment type or device, Brink's has a strategy and the infrastructure to support the future of payments.

However, when it comes to payments, U.S. consumers want it all and expect options and convenience when it comes to how to purchase.  The problem is that 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.  As new technology is introduced, consumers will automatically assume that every retailer and financial institution has invested in the technology and resources to accommodate them. 

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. Up until now consumers may not have realized the cost of a credit card transaction compared to a debit card transaction. Going forward, there will be "societal" costs where consumers and providers will have to pay for the services they want to use.

The challenge is to figure out how to accommodate this diverse payments landscape - when there is no clear consumer preference for one payment type vs. all the others.  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 increase to $1.8 trillion in 2013.  As swipe fees are passed on to customers, it's very likely that cash may become even more widely used than it is today. In fact today 54% of American adults still cite cash as their preferred form of payment, despite the prevalence of other methods.

But before a financial institution invests in new payment types, a variety of factors need to be weighed, including costs, the risk of fraud and consumer acceptance. Financial reform legislation also means banks will have higher compliance hurdles to meet.

And until standards are introduced for new types of payments, there is no guarantee that the technology and security will be in place to give financial institutions the confidence to move forward.

The future of payments will likely revolve around cash, credit cards and debit cards - in addition to contactless, mobile, and other mediums we've yet to even consider. The opportunity for financial institutions lies in picking a strategy that matches your business plan and the customer segments you are trying to serve.  If you don't have the resources or an appetite for the 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.

Today we see a focus on eliminating the paper - both cash and checks - from the payments supply chain. If these payments can be changed from paper to electronic forms of payment, money can be deposited faster, transactions can occur more rapidly and they can be monitored for real-time reporting.  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 in order to get new sales, but they still need to reduce costs to remain competitive.

One interesting point to think about is that new payment methods - including debit cards and ATMs - actually came from outside the banking and payments world. Today, there are many companies that are investing in new technology and in some cases are progressing much more quickly that the financial services industry. Partnering may help organizations share costs through joint development and variable cost models vs. large capital expenditures.

Biography

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.