Watch this webinar to learn why an enterprise approach to payments can help address many of the challenges facing the financial services industry today.
Now, there are three main topics that I will be talking to you about before I hand over to Craig. The first is the challenges that are facing the financial services industry today. The second is why an enterprise approach to payments can help address many of these challenges. And, of course, how you can create revenue via an enterprise payment strategy.
So let’s talk about market pressures and how this impacts a bank’s ability to make money. The first pressure is on loan demands. The top chart is a study of C&I loan demand in the U.S. over the last decade, while the bottom is the percentage of financial institutions reporting an increase in the spreads they can charge on these loans. Now, as you can see, the curves moved towards each other most sharply during the last financial crisis, and since then loan demand has been sporadic, peaking and dipping on an annual basis in concert with election cycles, as uncertainty over tax, employment, and healthcare policies remain.
Now, the challenge that this presents for banks specifically is that this pattern is really too new to be a long-term trend, so being able to rely upon revenues, being able to forecast these revenues from the loan portfolio, are becoming increasingly difficult, and we’ll be, of course, monitoring these results to see if we see a similar dip as we approach the upcoming election cycle in November of this year.
Now, from there, we look at the impact that regulation and competition are having on expenses. Now, expenses are outpacing bank revenues, given the challenges over interest income and a steep drop off in fee revenues, as well, so the dark blue line that you see at the bottom of the slide and dipping most sharply, or falling to its lowest level around Q4 2010, is related to prohibitions on overdraft fees and the overall push to limit interchange. Now, as you can see, this is placing financial institutions in an increasingly dire situation, given that the impact that fee revenue has and the ability for it to help offset operating expenses.
Now, let’s talk to the next set of pressures, and that is, of course, regulatory pressure. This slide reflects the results of CEB TowerGroup surveys of financial institutions around the world on the topic of regulation and the impact that regulation will have on their businesses. Based on these surveys, we see that nearly 40 percent of financial institutions believe that regulation will have a negative impact on their business, and the reason for that is very much reflective over the infrastructures they are working with, in that they’re simply not built to provide the information that’s being requested. A prime example is FATCA, which came into effect recently, where banks are wrestling with how to provide the required information and is one of the reasons why over 60 percent of banks believe that compliance spend is going to increase.
Now, I mentioned that system limitations are the prime reason, but you also see that data integrity, resource limitation, and even data availability are main challenges, as well, as we have siloed systems fragmenting infrastructure that simply wasn’t meant to share information across lines of business or across the organization. And, of course, as you have multiple systems that you may have acquired over time, there’s always a challenge in terms of data integrity, whether the data is being ported over from a system that is being terminated, or if you have multiple customers that have accounts at the various institutions that were acquired. So, for example, in some account systems I could be A. Schmidt, others I could be Andy Schmidt, others Andrew Schmidt, and the challenge for institutions is being able to reconcile those various identities and be able to create that one view of the customer.
Now, since we’ve gone over the pressures facing the market, let’s look at some of the opportunities that payments, and specifically enterprise payments, can provide. Non-cash payment volumes in the form of check, card, and ACH are growing, and are becoming more electronic as buyers and sellers seek out faster, more efficient, more data-rich payment times…
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Enterprise Payments: How to Thrive in a Fragmented Payments Market