News & Views - Savantor

A changing outlook for issuing banks

Monday, 05 May 2008

Celent has published a new report titled ‘Disruption in the Payments World’ which echoes discussion at the recent Digital Money Forum saying that interchange rates will begin to decline, that a large payments company will launch an alternative network to MasterCard and Visa.

As far as interchange is concerned the pressure is mounting against the issuing business and there may be a move to re-evaluate their card portfolios to justify high-cost programs. It seems likely that we will see a return to a fee-based system which may mean loss of cardholders to alternative providers.

The expectation that an alternative network to rival MasterCard and Visa may be launched has been the subject of discussion for some time.  This may well happen in terms of debit under the SEPA banner, but given that it will require a new brand with all the attendant costs this will entail it may be that the time is not right at the moment.

As a result of these events, issuers will have many things to consider over the next five years. To hedge against these changing times, Celent recommends the following strategies:

  • Diversify the payments mix. Banks will have to view their payments package as a whole and formulate a long-term strategy that not only includes multiple payment products but is flexible to work with the changes that lie ahead.
  • Scrutinise rewards funding. The way issuers fund their rewards programs should be heavily scrutinised. They need to consider alternatives if they are funded largely by high interchange rates.
  • Rethink the debit card relationship. Those with weak debit card programs need to consider the tactics they can use to either make their debit card more attractive.

Banks are facing a future where there is likely to be:

  • increased legislation prompted by the credit crunch
  • a greater focus on cost reduction and removal of waste
  • more rapid innovation
  • more focus on what products and services are coming from non bank competitors
  • a need to be more design conscious
  • a need to remember survival is not compulsory.
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