Author Archives: Karen Doyle


Debit or Credit? Shifting Payment Methods Represent Opportunity for Banks

New data is pointing to a changing attitude toward credit these days, especially among the Generation Y. Also known as “Millennials” with birth dates between the early 1980s and the early 2000s, this group has a different attitude toward payment methods — and successful financial institutions are taking notice of the shift.

Namely, the Generation Y population is far less likely to take on debt, especially revolving debt such as credit cards and lines of credit. Whenever possible, they would much rather pay outright for what they need. They carry credit cards strictly for convenience, not as a way to extend their buying power — a big shift from recent history, when Americans saw nothing wrong with accumulating serious levels of debt.

Debit versus credit

Credit availability has significantly eased up since the financial crash of several years ago, but consumers aren’t taking nearly as much advantage of the credit available to them, preferring instead to pay in-the-moment. Debit cards and secured cards as preferred payment methods are overtaking the use of traditional credit cards. In many cases, younger consumers are still living with parents and still may be sharing a credit card account with them. This trend, in turn, can make it difficult to risk-score for younger consumers as they tend to have limited credit use compared to their parents.

Rewards over rates

Since this new paradigm of credit card use diminishes the importance of the interest rate, consumers are selecting cards based on the rewards they offer. Discounts, coupons and rewards points are a critical way to promote bank cards and affinity cards (i.e., store cards such as Macy’s or Home Depot).

Consumer loyalty has given way to comparison-shopping — consumers are on the lookout for the card that offers the best perks. With consumers more willing to switch cards to get a better deal, banks need to be savvier about the rewards they offer, and the way they promote those rewards.

The trend away from credit offers an opening for banks to design new products that will appeal more to the Generation Y population, creating an opportunity for increased fee income as well as a “stickier” banking relationship that will lead to more transactions and lending opportunities as this generation matures. Small and medium banks, in particular, will have to be innovative in order to compete with larger banks and offer more robust rewards in order to attract the most profitable customers.


The Future of Banking: The Death of Banker’s Hours

To understand the future of banking, take a look at the past. Remember “banker’s hours”? A generation or two ago, this term was a euphemism for a shortened workday, since the local financial institution was typically open from 9 a.m. to 4 p.m., Monday through Friday. Saturday banking hours were a novelty. Woe to the business owner who had to make a deposit after hours — his only option was the night depository vault outside the bank. Most people had to rush to the bank during their lunch hour on Friday to cash their paycheck, and applying for a loan meant taking at least half a day off from work. Those days, however, are long gone.

Welcome to the future of banking: Today banks are open with teller service for far longer hours, many of them seven days a week and on certain holidays. The ubiquitous ATM means customers are used to being able to deposit and withdraw money 24 hours a day. And mobile banking allows customers not only to bank whenever they want but wherever they want, as well. Transferring money in the supermarket checkout line or remotely capturing a deposit at the customer’s retail store is commonplace. Consumers conduct banking business at the ATM, on the computer and on smartphones. The majority of banking transactions can be carried out when the customer is nowhere near a physical bank building.

With convenience being paramount, those banks that can develop and deploy new technologies to help customers access their money and manage their accounts will gain market share. Considering the customer holistically will help banks design and promote new products and services that work for their customers. Understanding how, when and where customers want to conduct their financial transactions, and providing the technology and tools they need to do so, will allow banks of any size to succeed in this changing market. Those banks that are able to embrace the future of banking will enjoy more customer loyalty and a greater wallet share.


There’s a New Financial Institution in Town, and It’s … Google?

The role of the financial institution is constantly changing, as banks grow, merge and reinvent themselves. While financial institutions have been trying to become bigger and more nimble by buying each other, new players in the payment space have been taking their share, as well. These newcomers are not banks at all; they are customer-centric companies such as Google, Apple and — companies that just happen to know all about gathering and analyzing customer data.

These nontraditional players are not about to start offering checking accounts and car loans any time soon, but they are threatening to take a share of fee income from what has traditionally been the domain of the financial institution. These companies have a significant investment in IT infrastructure already. They are processing millions of payments through credit and debit cards. And they are not constrained by Dodd-Frank and other regulations to which banks are subject.

The mobile payments business is particularly susceptible to these organizations. While banks are trying to understand the potential of this market and exploring how to create the necessary infrastructure, technology companies are analyzing the customer data they have mined already and planning how to use it to increase wallet share. Add to this the consumer perceptions that banks are all about fees and tech companies are all about convenience and customer service, and the threat is clear.

Banks will need to invest in new payment technologies to compete with these nontraditional players — no small task when interest rates are so low and regulatory and compliance costs are so high. And given that the existing IT infrastructure in most banks is not geared toward creating new products, true innovation will require a significant shift in resources. Banks that can overcome these hurdles, however, will have a major competitive advantage for many years to come.