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BirdsEye View

more opportunities in payments

The universe of payments is expanding.  Most banks have not grown with it, but the opportunity still exists.  As we watch our space being gobbled up by non-bank competitors, creativity among some banks in redefining the business is encouraging.

For example:  Square has transformed the small business payments scene with one fell swoop, or one small white square device that can be attached to the prevalent smart phones.  Banks sat on the sidelines and watched as the basic premise of small business merchant services was questioned, threatened and replaced by a no setup fee, no monthly fee device.  It is thrilling to see that some banks aren't taking this challenge sitting down.  They are either joining Square and selling it to their customers, or, better still, offering their own product.  The barriers to entry for small players have been eliminated by this pricing scheme, which is highly variable in nature.

 Zions Bank, a pioneer in this space, has tested its value proposition among small business customers and found it to be an excellent small business acquisition tool.  This payments device is used as a tool to snare customers from competitors, and the bank's strong sales culture builds a strong relationship around this door-opener.

Another plus is the quick approval process for this service, which is immediate vs. the 3-5 day turnaround for full-blown merchant services.  Speed, plus the pricing simplicity, make for a compelling value proposition.

Zions also set clear demarcation lines such that customers who grow beyond a certain transaction volume are migrated to true merchant services, thusly minimizing self-cannibalization and ensuring that the more profitable product set is sold when appropriate.

A perfect application of this product is also for small charities and donation taking entities whose volume might not justify merchant services but is a great match for this product.

What a great example of a true close follower, where the bank piggy-backs on a technological payments innovation to incorporate into its small business acquisition and cross-selling strategy.  Natural companion products include payroll and positive pay, and the account is yours for years to come.

It should be noted that the product itself isn't the only key to success.  A strong cross-selling discipline and effective leverage of the retail network are also critical to success.  Zions executed on this product through its retail network, and managed the campaign tightly.  The results were impressive.

Another emerging payments technology whose place among banking product suite is unclear is the mobile wallet.  iPhone 5 already comes with the Passbook application that is a place for the user to put valuable items such as coupons, boarding passes etc.  Cash is a likely next item to be put in this wallet; however, our industry isn't ready to compete when the next stage is introduced.  Mobile wallet already exists, and Square is again an example of it.  Most Starbucks customers are now used to the phone app that allows you to pay by one click and order your drink in advance.  Square now offers a broader application that combines this convenience with electronic coupons and special offers for its users.  After downloading the app, all you need to do is enter your card details and take your picture using the phone.  The picture becomes a part of your record and addresses authentication concerns - one look at you and the merchant knows whether you're the cardholder or not.  The app also has a button that says "pay here" for numerous merchants which activates your Square Wallet and adds convenience to the process.

Banks have a great opportunity to compete here by creating a payment platform for their community merchants to replace the old coupon books.  It's a symbiotic relationship that has existed for decades, but the medium by which it is delivered has changed dramatically, from coupon books to website applications and, now, to the mobile wallet.  FIS and other vendors are working on these applications, but the real issue is value created by a wide distribution and valuable coupons.  These programs have traditionally been merchant-funded, and that need not change.  Square is beginning to gather its merchant communities around the country.  Banks shouldn't be too far behind...

How can your bank capitalize upon these and other payments opportunities when the responsibility for each one resides in a different part of the bank and resources are painfully scarce?  Establish a Payments Council with participants from every line of business and major operational area.  It creates a platform that heightens awareness and gets the conversation across divisions going.  This is the place where payments revenue statements should be developed and reviewed monthly for trends, and where ownership for various income streams is established.  The Payments Council can also help direct scarce resources to annual strategic initiatives, such as mobile payments, cards etc., and then help monitor performance relative to expectations.  It brings visibility to the entire business.

Having an advisory group to support the Council which is comprised of young and junior people who are more connected to this space is a great way to engage up and comers and tap into their wisdom and generational knowledge.

Marketing these bleeding-edge products helps reposition your bank brand as an innovator.  Most banks are struggling to appeal to younger customers.  These payments ideas and others aren't just money-makers customer acquisition tools.  They can also help you modernize the brand and broaden its appeal.

The message here is simple: don't dismiss these opportunities due to your size and resource limitations.  We are not in the railroads business; we are in the transportation business.  Accept it, and make sure you're not left behind.