It's all about the Barriers
The Ongoing Evolution of Payments
Consumer Interest in Mobile Commerce Extends Beyond Banking
Sponsor our Latest Study of Consumer Payment Preferences
Industry Conferences
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| Home > On Payments > Q1 - 2008 | Issue #22 |
As banks struggle to maintain financial stability in the midst of the subprime lending crisis, their sources of non-interest income are becoming increasingly important. The revenues associated with different payment products—and the customer relationships they help to cement—are crucial in today’s environment. Effectively managing its payments business and maximizing the financial opportunities that payments present has never been more important to an FI’s bottom line.
In this issue of On Payments, we discuss the implications of the results of the latest Federal Reserve Payment Study, and what FIs still need to do to realize the opportunity that small business payments could afford.
To sign up for an online subscription to On Payments, please click here.
It’s all about the Barriers:
Migrating Small Business Invoice Payments from Paper to Plastic
When business leaders hear about multi-trillion dollar opportunities, their ears usually perk up. As such, it is not surprising that credit card executives are talking about the small business market. After all, the segment’s total spending has been sized at approximately five trillion dollars. While experts disagree about the percentage of this spending that can be migrated onto plastic, they all agree that the opportunity could be a windfall for issuers. In order capture the market, many FIs have created targeted offerings geared toward the small business segment. Despite these efforts, however, small business spending remains largely ‘un-plasticized’ and the opportunity is still largely untapped.
In a recent study on small business payment preferences, we found that many of the large small business spending categories are dominated by paper checks, while only a few of the categories are highly penetrated by plastic. Moreover, those categories where cards are most prevalent, such as T&E, fuel and office supplies, tend to be those completed at the point of sale, while invoiced categories, such as inventory, equipment and business services are most often settled by paper checks.
With all of the efforts from large FIs focused on driving card usage amongst small businesses, why does the opportunity remain largely under-penetrated, particularly for invoiced expenses? The answer is barriers—deep structural barriers that cannot be overcome by consumer-centric solutions such as rewards and cash back.
To learn more about the barriers to migration and what FIs are doing to address them, click here to read the full article.
The Ongoing Evolution of Payments:
Implications of the 2007 Federal Reserve Payments Study Results
Ten short years ago, cell phones were just beginning to take off, the Internet was an exciting new phenomenon, and debit cards were exhibiting very strong growth rates, albeit off a relatively small base. It’s amazing what can happen in a decade. Today cell phones are everywhere, the Internet is an essential part of daily life, and debit cards are still exhibiting strong growth rates. Debit’s growth is now being driven off a far larger base of transactions, however, and it does not show any signs of slowing down anytime soon.
It almost goes without saying that the payments landscape continues to evolve rapidly. Consider the following findings from the recently released 2007 Federal Reserve Payments Study:
- Despite thoughts three years ago that debit growth would slow, it has continued at a torrid pace.
- Debit transactions now exceed credit transactions, although credit still exceeds debit in terms of total dollar volume spent;
- Debit transaction volume likely surpassed check transaction volume in 2007;
- Credit transaction volume continues to grow and to carry relatively high average ticket sizes;
- ACH payment volumes are growing even faster than debit volumes, and ACH transactions are moving downstream to capture higher volumes at smaller dollar values;
- Check volume is declining, but will certainly not disappear overnight.
The 2007 Federal Reserve Payments Study confirms what many people have long suspected: Electronic payments are replacing paper payments. However, it also confirms that there will very likely be a long tail when it comes to paper payments. The challenge is—and will be—managing a complex and expanding array of payment mechanisms, each of which offers a different value proposition for payors, payees, FIs, and payments providers.
To read more about the results of the 2007 Federal Reserve Payments Study and what it means for FIs, click here to read the full article.
Consumer Interest in Mobile Commerce Extends Beyond Banking
According to our latest research, U.S. consumers are ready to adopt a broad set of mobile commerce applications—including mobile payments at the point of sale. The research, sponsored by PSCU Financial Services, was conducted using focus groups in multiple cities, and gauged consumer interest in and predicted future usage of three major mobile applications: mobile banking, mobile payment at the point-of-sale, and mobile person-to-person payments.
To read the full press release, click here.
Sponsor our Latest Study of Consumer Payments Preferences
We are currently seeking a few select sponsors for the 2008 Study of Consumer Payment Preferences, which we are conducting in partnership with the BAI.
This study will be the fifth in a series of studies tracking the evolution of consumers’ payments behavior across each of the major payments venues: in-store, Internet and bill payments, and will provide insights into how consumers pay today, and how their payment habits are likely to evolve going forward. The design phase of the 2008 Study will commence in April, and final results are expected by the end of August.
For more information about sponsorship opportunities, click here.
If you have questions or would like to become a sponsor, please contact Chris Allen at 617-753-9250.
Industry Conferences
We hope you were able to join us earlier this month in Grapevine, Texas for the BAI TransPay Conference & Expo, where Ed Bachelder served on a panel with the Federal Reserve to discuss results from the recently released 2007 Electronic Payments Study, and David Dove and Joel Stanton co-presented a session on “Unlocking the Hidden Value of ATMs: The Impact of ATMs on Customer Retention.”
If you missed us at TransPay, we hope you’ll join us for SourceMedia’s Card Forum & Expo or NACHA Payments 2008.
This year’s Card Forum & Expo is being held in Miami from April 6-8. On Monday, April 7, David Dove will be chairing a track on Alternative Payments and presenting a session entitled “Understanding the New Dynamic of Alternative Payments,” focused on understanding the value proposition of alternative payments for different constituents across the payments value chain. Later that afternoon, Chris Allen will lead a panel discussion on mobile banking entitled “Mobile Banking Implementation Experiences and Best Practices”, featuring Nancy Rainy from Firethorn and Jim Dufon from Sapphire Mobile.
NACHA Payments 2008 will be taking place in Las Vegas from May 18-21, and Ed Bachelder will once again take the stage with the Federal Reserve to discuss the 2007 Electronic Payments Study and examine the future outlook for both electronic and paper payments.