Friday, October 31, 2008
Iacobuzio examined emerging issues, as well as the effects of the credit crisis on the industry. Additionally, he provided insight on solutions for problems facing financial services. "We found over the years that this is a terrific way for us to organize our thoughts around what's going on in the banking business, of which everyone is well aware," Iacobuzio said.
The first trend affecting payments, he said, is the business environment: the technologies and the integration efforts that enable banks to navigate their way through the payment system. "Things outside the control of individual institutions, like market fluctuations and consumer spending, determine the shape of the competitive landscape. But the credit crisis is the main driver of the issues we currently face," he said.
Iacobuzio believes some of the effects of the credit crisis could include increases in technology spending or significant staff reductions. "I saw a news item that American Express is cutting 7,000 jobs here in the states and 10,000 globally, so there is no aspect of the payments business where the tentacles of this credit monster are not touching."
For banks to combat this, more emphasis needs to go into customer information and risk management, as well as creating new models that thwart fraud and money laundering. With the rise in unemployment and a drop in consumer confidence, Iacobuzio sees deterioration in credit card lending.
"The conventional wisdom on Wall Street is that payment processors are in the catbird seat and invulnerable to downturns because they process transactions without credit risk," Iacobuzio said. "That may be true in an up economy, but in the photographic negative world we live in right now, values are changing almost daily. And with those changes, conventional wisdom becomes irrelevant."
Iacobuzio argued that when transaction levels and receivables go down, debit cards – which have always been seen as having immunity to credit risk – can be affected.
"Even if debit cards hold their own, banks need to keep a careful eye on that because many of those debit transactions will take money away from what would normally be revolving lines of credit," Iacobuzio said. He warns there could be a credit risk with debit accounts, since the asset backed securities for credit cards have been pummeled with card delinquencies and chargebacks.
"There is very little in terms of consumer credit and consumer payments that this does not touch," Iacobuzio said. "However – and there is a silver lining here – if you relieve the world of revolving credit, a definite different picture emerges.
"Banks will start seeing expansion in their commercial loan portfolios and a bigger footprint in global transaction services, which could add significant revenues to financial institutions over the next fiscal year." Additionally, Iacobuzio said online bill pay will get a lot of attention over the next year and should expand significantly as consumers continue to struggle with late payments and delinquencies.
"The ability to pay a late or nearly late bill in an expedited fashion for a fee is certainly better than seeing your credit score take a dive," he said. "And the kind of new products we're going to see will accommodate the needs of all parties – consumers and financial institutions alike – in a down environment."
"So what does this mean for banks and the payments industry?" Iacobuzio asked. "Financial institutions have to diversify and stay ahead of the curve if they want to capitalize on this and turn it into a revenue stream. And new technologies coming into place will definitely have an effect on bottom lines in terms of increasing revenue by creating value added services at the highest level."
Iacobuzio believes banks, merchant acquirers and ISOs that respond creatively to that kind of environmental pressure are going to be in good shape. It will also take courage and vision, he said, on every chief executive officer's part as well. "If the CEO sees the importance of investment – even in this climate – financial institutions will move to the next level," he added.
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