2008

Several of the largest commercial banks in the US are involved in mergers that stand to have a significant impact on the payments industry. The recent merger activity & consumer payment trends are driven by an economy in recession. All of the major key indicators are pointing to a steep recession just in its beginning stages, providing a dramatic backdrop for the mergers. Within the payments space, observers have noticed a movement toward debit payments & away from credit. This shift coupled with the tightening credit environment will accelerate consumers’ increasing adoption of prepaid & debit payment instruments, including cards & checks, & cash payments will likely see a resurgence. Financially stressed consumers are trying to gain greater control over their budgets & protect themselves from overdraft & other retail banking fees. Households are focusing on aggressive spend management & account balance monitoring. The movement back to cash-based payments could create more transaction volume for EFT networks. The flight to the relative safety of debit & prepaid will include even larger ticket items that would previously have been charged to credit cards. Tightening credit coupled with rising unemployment may not bode well for overall consumer spending. As consumers’ finances are squeezed, personal consumption may fall to the point where all payment categories feel the sting of a recessionary economy, even debit. Though the trend in the payments space has been toward a general electronification of consumer & business payments of all kinds (credit, debit, & prepaid), decreased spending could impact electronic payments growth, not just the trend line for credit cards. Regardless of the danger of declining volume growth or even shrinking volume, it is Mercator’s firm belief that payments will continue to provide no small measure of insulation against market & economic volatility, for the new mega-banks & the smaller financial institutions deeply involved in the payments industry. The Payment Industry Landscape is ever-changing, but the recent bank mergers have accelerated that change. Payments still provide no small measure of insulation against market & economic volatility. A different economy influences the ways in which payments products are brought to market. Competition between big banks has achieved a nation-wide geographical scope. A new landscape provides significant opportunities for more innovative use of payments initiatives. Elizabeth Rowe, Mercator, comments, ‘With BofA & Wells Fargo now truly national banks & the top 4 banks holding $7.5 trillion of the banking industry’s $13.7 trillion in assets (or 55%), there are opposing needs informing the emerging trends in bank marketing. For the largest banks, pummeled by billions in loan losses, there is a need to gather more core deposits & to reenter the retail lending market. For smaller banks, there is a need to protect market share against large banks with their enormous branch & ATM networks. Many of the largest banks are entering new geographical markets with their acquisitions. These banks need to introduce themselves to the millions of households that find themselves customers of a brand new, previously unfamiliar bank brand while the banks themselves struggle to return to profitability.’