Keeping Up with Non-Banks

AUSTIN, Texas — Though ever-increasing regulation is giving banks across the nation where-is-my-revenue-coming-from whiplash, it could also serve as the industry’s saving grace. Why? Because of the heavy restrictions and complicated compliance labyrinth, financial regulations have the potential to scare some non-banking players away from historically financial institution’s turf.

This notion came up in a conversation I had with Steve Shaw, director of strategic marketing of electronic banking services at Fiserv, while at NACHA’s 2011 Payments conference. But even if non-banks shy away from sectors of the industry’s revenue, Shaw stresses that FIs need to assume “they are coming,” and arm themselves with capabilities to stay competitive, particularly in regards to mobile banking. We agree.

Mobile banking has been making the Page 6 of financial news almost every day, which illustrates just how many players want in on mobile banking revenue action. And though reports imply that Google’s interest in payments, for example, relates more to marketing dollars than swipe fees, it’s still important to keep up with what the non-bankers are doing as they are potential threats. In a Forrester Consulting survey, commissioned by Fiserv and released today, the results showed that 15 decision makers from top tier U.S. banks and credit unions lack mobile payment strategies, which could hurt them most acutely.

“The loss of payment volume to third parties outside of the financial industry could have a significant detrimental impact on financial institution revenue over the long term,” reads the white paper.

As evidence of one venture taking over a niche, Shaw pointed to Apple, which now owns the music world through iTunes, though it did not even know that industry a handful of years ago. In other words, if Apple does something, it goes all in and has millions of accounts to take advantage of. Facebook Credits, for another, poses a threat to FIs. Perhaps one day consumers could do P2P payments through Facebook friends, Shaw suggests.

The short of the conversation was the more complicated the payment scene gets with new and non-traditional entrants, the more banks have to step up their wait-and-see approaches to actually implement change themselves. This point also surfaced in a payment convergence session I sat in while at the trade show.

“Competition used to be the bank across the street,” said Elizabeth Cronenweth, financial services product line manager at Sterling Commerce, during a panel. “It has moved beyond bank competition to non-bank companies. If you are not moving fast enough, someone will roll it out.”

Traditionally, electronic payments offered tremendous margins to banks, while now, those margins are chipping away because of “disruptive forces,” she said.

So what does this all mean? Simply, that even if regulations scare some non-banks away from the market, it is time for a bank to move faster than a glacier.