Durbin will pull something on the order of $7billion from the debit business of financial institutions. Whilenot the $14 billion feared at first, that’s real money. Andfinancial institutions are already making good on their threat toraise deposit account fees (no more free bill pay) and many areeliminating their debit rewards programs. The problem for FIs isthat this cost shifting is guaranteed to irritate account holderswho will, at least, review their options. Given the many hundredsof dollars it costs to acquire a new account, any increased levelof churn is undesirable. FIs are going to have to be very cautiousas they locate the line between irrevocable customer irritation andrevenue optimization.
While this balance is struck, what other revenue generatingopportunities are there for financial institutions to explore? Froma technology perspective, a couple of ideas come to mind.
Merchant Funded Discount Networks. Card issuers possess no littledata about where, if not what, we buy using our cards. Wells Fargo,Citi, and a few others are offering this data to drive “deal of theday” and other incentives for retailers to use. Partnered withintermediaries like Carlytics, the offer to the consumer comes fromthe FI and no personally identifiable information is shared withthe retailer. Opt-out rates appear to be very low. While themerchant funded discount network notion has both been around and isstill in its early days, narrower margins and a desire to delivermore value to account holders should accelerate this approach andthe associated revenues to the FI.
Identity and Authentication Services. Online identity has been aweak link in the online transaction security chain. Financialinstitutions, having had to comply with Know Your Customerrequirements, do indeed know their customers and are in a positionto vouch for customer identity in an online transaction. Perhapsthe position is not as strong as they would like today, but withthe addition of a directory of payments addresses at the center ofthe network to protect account data and secure hardware at the edgeof the network (NFC and secure elements) to strengthen deviceauthentication, FIs could sell a security service for higher valuepayments. An FI-based identity service would put them up againstthe likes of Google, Facebook, and PayPal, all of whom have aninterest in being online identity brokers. It could also put FIs upagainst mobile network operators (MNO) who will likely subsume thetrusted service manager (TSM) role in mobile payments, provisioningaccount credentials onto the secure element controlled by theMNO.
There are plenty of arguments why FIs would want to stay away fromthis. Security is not easy. But being an identity provider offers astrong measure of account control, some fee revenue, andcapitalizes on the trust relationship consumers enjoy with theirfinancial institutions.
In this tight economy and under the Durbin price control regime,FIs cannot simply cost shift their way to prior revenue levels.Services that benefit consumers and merchants have value. Out ofthe box thinking to deliver value should be high on the prioritylist.
