Title: Payments System under Siege: Customers Want Information along with Monetary Transfers; Nonbanks Are Providing It
Abstract: Customers want information along with monetary transfers; nonbanks are providing it The pace of change in the payments systems is quickening. The banking industry's dominant role is threatened. Individual banks and the industry as a whole must begin now to make strategic resource allocation decisions if the industry is not to lose its preeminent position. A few banks have made the decision. Most have not. Improvements in technology have enabled banks to control costs and improve service in the traditional function of the payments system--final monetary value transfer. Indeed, the Federal Reserve and the U.S. banking industry offer customers a superb payments mechanism, one that is the envy of the rest of the world. But a study of the payments system conducted by Furash & Co. this spring for The Bankers Roundtable showed dramatically that improvements in technology also have permitted the development of alternative payments systems. Competition for transaction volume is turning monetary value transfer into a commodity. Consequently, payments systems users today take monetary value transfer for granted, don't want to pay for it and expect it to be part of a convenient, low-cost package that includes information-based products and services to make managing finances simpler. Delivering timeliness, convenience, information and other value-added elements has become the only way a supplier can distinguish itself and increasingly earn a return in today's payments system. Piggybacking on banks Whether the customer is a consumer using telephone banking, a company using electronic data interchange (EDI) to get remittance information along with a payment transfer, the IRS using electronic filing, or the Department of Health and Human Services distributing benefits electronically, all expert more than monetary value transfer. Nonbanks have taken the lead in providing these value-added elements by piggybacking on the bank-owned payments system infrastructure. Today nonbanks offer a wide array of retail and wholesale payments system products and services. They offer, on the retail side, credit cards, home banking, and automated teller machines. They also offer nonbank lending and deposit products which provide payments system functionality such as money-market mutual funds and cash management accounts with checking and payment-card features. GEISCO, AT&T take the lead Wholesale services offered by nonbank companies include origination and processing using the electronic alternative to paper-based payments, the bank-managed Automated Clearing House. They also provide check sorting and processing, lockbox services, and electronic data interchange. In fact, EDI is the fastest-growing segment of the ACH system with financial EDI volume increasing 40% in the past two years. Nevertheless, the majority of these transactions travel on private value-added networks, not on bank-owned systems such as the ACH, and no fees are collected by the banking industry. The reason is because nonbank companies such as GEISCO and AT&T are the leading providers of EDI services. Only about 30 banks in the country offer EDI in formats compatible with most corporate customers. Other bank-like services offered by nonbank competitors include Merrill Lynch's working capital management account into which overnight balances are swept and against which customers can borrow. It has more than 300,000 small business customers. Since nonbanks are not allowed direct access to the payments system, they are developing their own clearing services. An example is General Electric's bilateral netting scheme for the petrochemical industry. Nonbanks have developed technologies that enable corporations and correspondent banks to reduce the number of external transactions. This ultimately means fewer bank transfers and reduced fee income to the banking industry. …
Publication Year: 1994
Publication Date: 1994-06-01
Language: en
Type: article
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Cited By Count: 8
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