LAS VEGAS —The panel title was dry – “The Future of DDA Revenue and Relationships in a Payments Network World” – but the closing general session on Wednesday at BAI Payments Connect 2012 featured plenty of fireworks.
Such as: “Today the tail is wagging the dog,” said Bob Giltner, chief DDA strategist at Velocity Solutions. He elaborated: “We see so many others stealing revenues and relationships from us. A staggering shift is occurring, away from financial institutions. PayPal is an elegant illustration of this.”
“We have the head start, but these unregulated businesses – PayPal, Google Wallet – are doing a better job asking the consumer what he or she wants and they are winning the business,” said Jeff Kline, CEO of the Members Development Company, a credit union-owned product and service developer.
“They” – added Giltner, by which he meant PayPal, Google, etc. – “are leveraging the network effect and we aren’t.” That is, central to the PayPal business model is not collection of incidental fees per se but the collection of increasing numbers of users who eventually will produce profits. That approach is key to the network effect, said Giltner.
Giltner added a zinger however: “Who knew when we built online banking that we would become portals where others access the data we built up at great expense, for free?” His point is that access to real-time financial info of individuals is key to how many non-banks operate – they win the consumer approval to access the data – but the financial institutions are paying the way for this information exchange.
The one bright spot for traditional financial institutions was the comment from David Mills, a senior Federal Reserve Bank executive, that the day may come when Congress chooses not to regulate companies but instead to regulate activities. Were that to happen, at least some of what nonbanks do would likely fall under regulatory oversight.
When might that day come? Mills offered no prediction – and panel attendees were left with a picture of ever more revenues being siphoned away by nonbanks who, as Kline stressed, “work harder to understand their customers and their needs.”