Solutions for Banking

Banks may dominate each segment in which they compete, such as consumer credit, mortgages, and electronic payments, but they are feeling the effect of Internet commerce.

Every month, new payment processing announcements are made by major Internet commerce organizations and non-bank competitors. CHART At the same time, online financial services, mortgage companies, and payment services like CheckFree, Quicken, and PayPal have cherry-picked bank profit centers.

Banks Are Feeling Pressure

While these non-bank entities capture payment fees, they don’t always provide an increase in payment efficiency. Despite the banking industry’s potential to be the most efficient payment processor, it remains largely unresponsive to threats to its payments charter.

Banks are ceding to these nonbanking enterprises their pre-existing access to multiple payment networks, relegating themselves to the role of back-office processor at pennies per transaction — and leaving the far more lucrative revenue streams to savvy companies.

Banks are also shut out of other opportunities. With as much as 90% of credit card transactions handled by the top card-issuing banks, most banks are shut out of the credit card business.

Not so with debit cards. Even small banks issue them and can service them profitably.

Yet recent regulatory changes are threatening debit card income. Banks large and small are looking for new sources of noninterest income.

And the news is not all bad for banks:

  • While Internet security concerns have slowed sales for online merchants, banks continue to see strong growth for their consumer and business banking Web portals.
  • Consumers and businesses trust their banks to provide secure online transactions and are rewarding them with continued strong sign-up growth rates.
  • Plus, only a bank can open a Demand Deposit Account that is insured by the Federal Deposit Insurance Corporation (FDIC)!

Payment Pathways’ aim is to help banks regain their franchise leadership by monetizing their position of trust among consumers through new identity services and revenue streams.

One example of the profit potential that can be realized is in International P2P & International Remittance Payments.  The premiums for currency exchange rates that are charged by Western Union for the three largest payment corridors are HERE.

Banks, and financial institutions more generally, are the sponsors of the Greenlist because they are best positioned to provide the safety and trust that consumers want and the regulatory compliance the government requires.

Financial institutions know that personal identification is the key to successful transactions. The banking system can leverage that unique position through Payment Pathways’ system. The Greenlist enrollment task operates at financial institutions because banking laws require financial institutions to know their customers, face-to-face, and are already expert at identifying their customers.

Underperforming assets like Know-Your-Customer (KYC) and network connectivity are ripe to blossom as ever more powerful devices, ubiquitous connectivity and the millennial generation’s expectation of faster, simpler and safer ways to pay electronically become mainstream.

NACHA rules already permit native credit push payments, UPIC account masking, debit filtering for ACH addresses, and mobile Web and Tel initiated payments.  EFT rules already permit non-repudiable credit push payments and realtime transaction messaging.  In fact, NACHA and the Clearinghouse already offer a production registry of payment addresses for bill presentment. Optimal design is very close at hand.  A registry binding next day networks and realtime networks with unique identifiers of account owners is needed. Public, open systems access to this information is possible because the addresses can never be automatically debited. When applications require instant good-funds transfers for amounts less than $1,000, multiple addresses provide multiple classes of service in support of the widest range of application requirements.

For example, when applications require instant ‘good-funds’ transfers for amounts up to $1,000, now there is a solution that does not require draining liquidity from the banking system.

Compelling Advantages for Banks

Payment Pathways provides the switch and software infrastructure that links payment systems through its directory system, the Greenlist, which keeps track of all public payment addresses. Querying it, a bank can minimize its risk bearer’s exposure to Reg. E related fraud losses because the registry returns addresses that are insured to be vouched accurate.

With Greenlist, payment transfers can arrive as fungible cash because the payor’s bank has confidence that a.) the payment is properly authorized and b.) the destination is accurate. This means that the credit transfer can be made without repudiation due to lack of sender authorization. The payee’s bank can confidently post ‘good funds’ instantly, ahead of settlement.  (and be paid a fee-share for doing so!)

In addition, the system’s directory can be used to speed credit payment transfers, notifications and electronic billing information to their destinations. Because of this, retailers can drive expansion of loyalty programs… …again, being able to select speeds at which money transfers creates may opportunities to delight shoppers. Immediate fulfillment for rebate payments informs consumers which merchant, which manufacturer is rewarding loyalty.  This sticks in consumers minds more than summary ‘cashback’ rewards or points on a bill.

This increases margins by increasing spend, increasing store visits, and dropping costs.  Banks that offer these options will grow their acquiring business portfolio.  Banks that wish to earn more transactional volume and value from their existing merchant customers, win too.

Importantly, the ACH and EFT network payment rules do not need any modification for Payment Pathways’ system to be acceptable and deployed by banks.

Adopting banks will find Payment Pathways deliverers compelling competitive advantages, including:

  • The ability to offer substantive, secure payment processing options to customers that drop costs and lower customer churn rates.
  • The means of generating recurring registration fees and usage fees earned in all transactions.
  • The product to leverage their existing administrative and security systems to create an advantage PPI believes is widely attractive to consumers.

For details, contact Payment Pathways at 312-346-9400.