Solutions for Banking

Banks dominate each segment in which they compete.

• Consumer credit, once a function merchants provided to sell their goods, has morphed to one of the more important business segments at the nation’s largest banks.
• While American Express invented their “travel and entertainment card” in 1958, banks quickly noticed and added a lending function and have come to dominate the credit card market.
• Consumer mortgages, once the stolid business of the thrift industry, have been made much more vibrant by banks, and they now enjoy a very large share of that market.

But banks have felt the effect of Internet commerce.

• Every month, new payment processing announcements are made by major Internet commerce organizations and non-bank competitors.
• Recent examples include Pay-by-Touch, Yahoo and PayPal’s strategic partnership, and Google’s Checkout entrant.
• 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 this threat to its payments charter. Banks are ceding to these non-banking enterprises their Fed-given lowest-cost payment network access, relegating themselves to the role of back-office processor at pennies per transaction — and leaving the far more lucrative revenue streams to Internet commerce-savvy search companies.

Banks are also shut out of other opportunities. With as much as 90% of credit card transactions handled by the top five card-issuing banks, most banks are shut out of the credit card business. They simply cannot attain those economies of scale. (Not so with debit cards; because they do not require the infrastructure of credit cards, even small banks issue them and can service them profitably.)

But 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.

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.

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.

Compelling Advantages For Banks

Payment Pathways provides the switch and software infrastructure that links payment systems through its directory system, the Greenlist, that keeps track of all public payment addresses. Using its systems, banks can reduce check-handling costs and fraud losses because the payment engine returns “good funds” faster than debit cards or other stored value devices. In addition, the system’s directory function speeds both credit ACH payment transfers and electronic billing information to their destinations. This puts private-label payment cards and ACH payment products in the hands of retailers to increase funding of loyalty programs, increase margins by dropping costs.

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

Payment Pathways’ goal is to have successful peer-to-peer payment systems be interoperable and to have Greenlist become an agent of ubiquity. Its ultimate function in the payment ecosystem is to provide an overarching platform for other payment systems to inter-operate with each other.

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 Greenlist generates recurring registration fees and usage fees earned in all transactions.
• By adopting the Greenlist and thereby demonstrating better safety and compliance, banks can use their lobbying strength to substantially increase the regulatory burden on all payment systems without incurring increased costs of themselves; doing so will help them reclaim and retain more market share.
• By adopting the Greenlist, banks can leverage their existing administrative and security systems to create an advantage PPI believes is widely attractive to consumers.