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The Green Sheet Online Edition

March 22, 2010 • Issue 10:03:02

Insider's report on payments
Are banks losing grip on payments?

By Patti Murphy
The Takoma Group

The banking industry is under attack. Troubled by what many perceive as massive Wall Street bailouts that never trickled down to Main Street, American consumers are mad, and increasingly they're walking away from the traditional banking system.

The timing couldn't be worse, as a whole new generation of potential banking customers emerges - a generation that has grown up on the Internet, social networking, mobile phones and texting, a generation that researchers believe wants banking and payments products that suit a 21st century lifestyle: online, real-time and mobile. "I've made a commitment to myself," my friend Patrick said recently. "I'm closing out my bank accounts and joining a credit union."

I wasn't surprised. Patrick had been complaining a lot over the past year or so about big bank bailouts and wanting to take his money someplace else. And he's not alone. A group of bloggers has been actively urging Americans to move their deposits from large banks that have been propped up by federal bailouts but are less forgiving of strapped homeowners and businesses.

The Move Your Money campaign, the brainchild of Arianna Huffington, co-founder and Editor in Chief of the The Huffington Post, a widely read news and opinion Web site, encourages Americans to take their deposits to community banks and credit unions.

The campaign Web site, http://moveyourmoney.info, runs a banner picturing Jimmy Stewart as George Bailey in It's a Wonderful Life, juxtaposed with one of a panel of bankers testifying before Congress.

Content includes videos and commentaries on why it's a good idea to boycott large banks, as well as detailed instructions on how folks can find alternative financial institutions and minimize the hassles of moving accounts to other banks and credit unions.

By all accounts, the movement is catching on. According to Dennis Santiago, spokesman for Move Your Money, the campaign's Web site had been used to search for banks in 28,000 out of a possible 42,000 ZIP codes nationwide in its first 60 days.

Santiago, whose full-time job is Managing Director and Chief Executive Officer of Institutional Risk Analytics in Torrance, Calif., attributes the success of Move Your Money to a "grass roots movement" around the country to buy and invest locally.

It's not just average consumers who are joining the movement. Santiago claims to have reports that folks are moving large sums from the largest banks - "in some cases seven-figure transfers," he said in a recent question-and-answer reported by Damien Hoffman, Editor and CEO of the Wall St. Cheat Sheet.

Recent press coverage points to quantifiable evidence. The Baltimore Sun, for example, in a recent report on how the campaign is playing in Maryland, noted that Hamilton Federal Bank in Baltimore saw deposits more than double during the first two months of the year - from average monthly increases of between $500,000 and $600,000 to $3.5 million in January and February combined.

In Maryland, the General Assembly is considering legislation that would give state-chartered financial institutions priority consideration when bidding on state contracts. New Mexico is considering a similar measure.

The city of Los Angeles approved a new ordinance in early March that would allow city officials to weigh banks' local lending records in decisions regarding city deposits.

The new "Responsible Banking" ordinance requires financial institutions with any portion of the city's pension fund and other deposits to file yearly reports detailing small business lending, community development investments, and efforts to help strapped homeowners avoid foreclosures, among other things. Those failing to comply could be barred from city business.

What does this mean for ISOs?

So, what does this mean for card acquiring? As representatives of merchant acquiring banks, ISOs and merchant level salespeople could feel direct repercussions from the public's souring mood toward banks.

Indirect repercussions are also possible from disgruntled consumers who don't want anything to do with bankcards. People like Patrick. He stopped using credit and debit cards last year, he said, after several well-publicized breaches of card data.

Javelin Strategy & Research surveyed consumers in late 2008 and found that those who like their banks tend to use their bank-issued payment cards more often.

"The financial institutions that will make it are the ones that generate trust by proving they are out to help people manage their finances and navigate these hard times," said Bruce Cundiff, Javelin's Director of Payments Research and Consulting, in reporting results of the survey.

Overall, 11 percent of consumers surveyed by Javelin said they had more trust in their financial institutions at the time of the survey than a year earlier; 43 percent said they trusted their banks less.

Twenty-eight percent of consumers polled in February by CBS News and The New York Times reported their credit card usage had declined over the past few months; only 12 percent reported increased credit card usage.

Forrester Research reported recently that the trust people had in their own financial institutions was inching up. However, it said positive sentiment was spotty, with customers of the largest banks less likely to be feeling good about where they bank.

The bottom seven spots in customer rankings went to the country's largest banks.

Bill Doyle, Vice President and Principal Analyst at Forrester, and author of the report Customer Advocacy 2010: How Customers Rank U.S. Banks, Investment Firms and Insurers, sees a clear link between dissatisfaction and bank loyalty. "Customers who rate their firms low on customer advocacy are most likely to say they intend to switch firms in the next year," he said.

And as data from the Federal Deposit Insurance Corp. indicate, there's a large swath of Americans for whom that switch may not be to a bank. Why should they bother, when there's a nearby Wal-Mart Stores Inc. MoneyCenter that looks and acts a lot like a bank, only it's cheaper?

Clearly, consumers don't mind conducting banking business outside traditional financial institutions. For years, retail establishments have dabbled in financial services, notably in urban areas and especially in immigrant and ethnic neighborhoods.

Perhaps it's time for folks on the front lines of merchant acquiring to start thinking of ways they can duplicate this model with some of their retail clients. There are many services available today that can help - prepaid cards, check cashing, and electronic bill payment services among them.

Talk about customer stickiness. end of article

Patti Murphy is Senior Editor of The Green Sheet and President of The Takoma Group. E-mail her at patti@greensheet.com.

The Green Sheet Inc. is now a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals. Click here for more information.

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