Kash Latest Reason FIs Losing Revenue in New Payments Ecosystem

Two stories last week demonstrate exactly while financial institution checking revenues are not growing.  First, Kash  announced it will begin offering at any retailer the same phone payment process many consumers love at Starbucks or Dunkin' Donuts. 

Kash Phone Payments Linked to Bank Account

Starbucks reports one-third of its sales occur with its Starbucks card, which can work by consumers loading money from their checking accounts.  FIs thus lose both transaction revenues and balances.  The new Kash service will present a generic debit card on the phone screen and have consumers link the app to their bank account using account aggregation, just as Mint.com does.  This allows the service to know the checking balance to approve the payment, and settle as a debit ACH with virtually no revenue to the FI, just as PayPal transactions settle.  Who knew as FIs invested so heavily in online banking that they would be providing for free all information at the consumer’s choice to third parties to resell?  FIs keep the customer account and all the compliance costs, but lose revenue, relationships and payment relevance to firms like PayPal and Kash.

This specifically relates to the article by Glen Fossella, an insightful payments thought leader, called, “Why Banks Will Win the Payments War.”  He rightly makes the point that FIs have the customers and distribution systems.  As payment technologies mature, FIs in his opinion will win the payments war because they will retain the accounts and others will face barriers such as compliance costs.  We disagree because as Kash and PayPal examples show, payments providers can in fact steal revenue from FIs simply by sitting on top of FI accounts while leaving all the compliance costs with the FI. 

In summary, the new mobile payments system is changing the very nature of transactions services by linking online information (location, banking information, purchase history, speed, retail offers and simplicity) that previously could not be linked.  This means payments providers and retailers can provide payment services with very different economics using linked information, whether access to account information or retailer discounts.  FIs, as shown by the chart below, get sorted to the bottom of the payments pack, and see those upstream steal their revenue.

FIs Bottom of Settlement Pack In New Payments Ecosystem

FIs can respond successfully if they recognize the importance of marketing “transaction experiences” as so well outlined in another article by Mr. Fossella.  What experiences should they market today?  The keys to get to the top of the payments pack are:  1)  Payments branding,  2) No overdraft fees ever,  3) Online and in-store shopping security and 4) Automated liquidity like PayPal’s BillMeLater (now called PayPal Credit.).  These are the exact features offered by our turn-key PaySound^® program.