Live from BAI Retail Delivery : New Payment Technologies: Worth a 2nd Look

With the payments world undergoing a rapid transition to electronic transactions, banks need to reexamine the benefits and risks of innovative options that they had once dismissed as too “leading-edge,” speakers said in Wednesday’s panel discussion entitled “A Payments Wake Up Call.”

“It is clear that innovative payment tools will be important in the near future and banks need to reckon with them as we try to differentiate ourselves and stand out from the crowd,” said Wayne N. Malone, senior vice president of transaction innovation for New York City-based Citibank.

The panelists’ list of innovative technologies worth watching included:

1. cross-border remittance cards

2. contactless payment cards

3. micropayments

4. health care cards

5. bank loyalty programs that use databases to store points that customers accumulate when they make certain transactions or purchase new bank products

6. payroll cards

Steve Mott, principal of Stamford, Conn.-based BetterBuyDesign, said consumers and business customers will soon demand many of these new payments options. “It’s all about transacting now, friction-free, whenever the customer wants to. Those financial institutions that haven’t figured out how to master this transition will find their best customers — whether they be consumers or corporations – moving to new providers,” Mott said.

Andrew Dresner, vice president of New York City-based First Manhattan Consulting Group, said banks need to examine the risks and expenses associated with each new technology to determine which offers the most potential for their organizations. He said some options may be too costly to implement due to insufficient value of the transactions for which the payment options are intended.

Yet such is the magnitude of the potential in electronic payment options that banks are well advised to at least give them a second look, the panelists agreed. Jay Norman, managing director for North America for Chicago-based DiamondCluster pointed to studies showing that payment-related revenue accounts for 30% to 40% of all the revenue received by the top U.S. banks, worth about $70 billion annually.

Norman also noted that electronic payments transactions are growing rapidly, with the number expected to rise from 112 billion in 2000 to more than 150 billion by 2010. “Not every bank can be a market leader across the payment value chain, so banks must make strategic choices,” Norman said.