Keeping the Bank Account at the Center of Payments

Changing consumer behavior in payments is something banks cannot ignore.

With an increasing number of startup and non-financial technology companies operating in the world of payments, making sure the bank account remains at the center of each payments is a main point of focus for the industry.

This impact of mobile payments, payments convergence and the rise of alternative financial providers and how this will affect banks was the topic of a panel discussion at NACHA Payments 2014 this week in Orlando.

Panelist Leo Lipis, of payments consultancy firm Lipis & Lipis, noted that the threat of disintermediation is not unique to payments, and affects the industry overall. "There's always talk about the giant meteor that's going to kill the banking dinosaur," he added.

Still, the threats of new entrants in payments and changing consumer habits is one banks need to be wary of. But continuing his earlier metaphor, Lipis noted that "some dinosaurs evolved and thrived" after the extinction event that killed much of their brethren. Just as some modern day birds and reptiles are proof of the adaptability of some animals from the dinosaur era, Lipis noted, so too can banks evolve to thrive in the new payments landscape.

Lipis said that banks are under no immediate threat, as "payments habits change slowly," and it is actually an advantage for the industry to wait and see what mobile wallet or mobile payments scheme becomes the dominant one. "Waiting to see which initiatives succeed and which fail may be the smart move for banks," he added.

He also said one reason for the success of some mobile payments networks, such as Africa's M-Pesa, is because they serve a need for the unbanked who can't or won't get a traditional account. For this reason, Lipis advised banks "to work a little harder at financial inclusion and lower barriers to opening an account, even in the U.S."

Casey Wilcox, SVP, head of payables & international product management at Capital One, said one major reason banks are so ripe for being disintermediated in the payments space is the aging infrastructure of the payments network in the U.S.

"We have a costly infrastructure," he said. "That gets passed on to the consumer or corporate customer, through a fee to make an ACH or wire payment."

The problem, said Wilcox, is that over the years the industry hasn't spent the money to entirely replace this infrastructure, but rather added layer upon layer of technology on top of it "while at the genesis of it all you still have old, perhaps mainframe, legacy systems. And the cost to replace these systems is astronomically high."

Further, Wilcox noted that the sometimes convoluted way that banks structure payments, especially B2B payments, could be made easier. "Why do we build products that are germane to just NACHA or to wire transfer?" he asked. "Corporates have had to arrange around our payment types. We make them structure it like we do our back room. They just want to make a payment. "

Ultimately, said Lipis, banks will only survive and thrive in payments in the future by working together.

"Banks will have to cooperate with each other to succeed in this space, and honestly you usually don’t like doing that," he said. "but collaboration is the key."

Bryan Yurcan is associate editor for Bank Systems and Technology. He has worked in various editorial capacities for newspapers and magazines for the past 8 years. After beginning his career as a municipal and courts reporter for daily newspapers in upstate New York, Bryan has ... View Full Bio