US banks should set up cross-disciplinary 'payments councils' comprising representation from the retail, wholesale and operational arms of the business if they are to protect their lucrative payments franchises from the shift to electronic transactions, according to a report by Chicago consultancy firm DiamondCluster.
The rapid replacement of cheques and cash with credit and debit cards, gift cards, electronic cheque conversion, and wireless payments is opening up the payments business to non-banks, says DiamondCluster.
According to the report, the retail store and the point-of-sale is the new payments battleground and banks need to develop new strategies and new retailer partnerships if they are to influence consumer spending patterns to their advantage.
DiamondCluster partner Carl Hugener, says: "Technology is changing both the payment product as well as the retail purchasing process. Payment mechanisms such as wireless phones, stored-value cards, and debit cards are giving banks and non-banks major opportunities to improve the way consumers shop and manage their finances, as well as dramatically improve the way merchants market and get consumers to and through their stores."
The financial ramifications are enormous, he says, for the 40 biggest US banks, payments-related revenue accounts for up to 40% of total revenues.
Hugener suggests that banks copy the strategy adopted by Bank of America in 2003 by setting up a cross-disciplinary payments council. This would provide a forum to bring heads of the payment divisions together with technology staff and top management in order to develop strategies that cross all departments.
Key decisions must be made across the payment portfolio of businesses, says the report, including: investment or divestment of payment businesses, technology investments, which payment methods to market or not market, how to get consumers to switch payment products, and which customers to keep.
Concludes Hugener: "There is still plenty of opportunity for banks to offer new value to consumers and merchants that will warrant attractive payment fees and new revenue streams."