SunTrust Introduces “Really Free” Credit Monitoring

Suntrust_home_idtheft_1SunTrust launched a new checking account acquisition strategy built around free credit-report monitoring (see personal homepage right). And this is not a low-budget identity-theft "insurance" policy (see PNC Bank, NetBanker Feb. 3 and Washington Mutual, NetBanker, Nov. 7, 2005), but full-blown Equifax Credit Watch Silver costing $6.95/mo or $50/year at the Equifax website.

Credit Watch Silver includes:

  • Weekly credit-report inquiry and balance-change alerts
  • One initial Equifax credit report.
  • $2500 in identity fraud insurance with $250 deductible

How it works
SunTrust is offering the free monitoring on most of its checking accounts, including its standard $9/mo account that is fee-free with a $1500 minimum balance. The free offer is not available to "free checking" or "senior checking" customers. However, they can buy it for a discounted rate of $3.45/mo or $35/year, a substantial discount from the regular price of $6.95/mo.

Of course, customers will have to wade through relatively gentle up-sell pitches for Equifax Credit Watch Gold, which will cost customers $6.95/mo or $70/yr, about one-third less than the list price of $11.95/mo or $100/yr; or Gold with 3-in-1 Monitoring for another $30/yr. Also, customers that want to extend the Equifax Silver coverage to both members of a joint account will have to pony up an additional $35/yr.

Credit Watch Gold includes:

  • Daily credit-report inquiry and balance-change alerts
  • Unlimited Equifax credit reports
  • $20,000 in identity-fraud coverage with zero deductible

Suntrust_checking_withfreeidprotectChecking account customers must enroll for the free service at a co-branded Equifax website. It's a jury-rigged sign-up process that requires the use of an offer code that includes the customer's 13-digit SunTrust checking account number.

New customers must first open a checking account, then enroll at Equifax at least two days later. SunTrust offers online account opening, but there is no link to an online option from the credit monitoring landing page (click on inset for a closeup).

Analysis
This is an excellent value for SunTrust checking customers and could potentially have little out-of-pocket cost for the bank. The bank's costs depend on four factors:

  1. 1. How many checking customers take time to enroll for the free service
  2. How many of the enrollees elect to accept credit-monitoring upgrades
  3. How many enrollees opt to buy additional credit-report viewing during the course of the year
  4. How often a fraud situation involving a SunTrust account is thwarted due to the service

The only real problem with the program is that it is not integrated with online banking. The separate enrollment and sign-on make it a hassle to use (of course, this holds down the bank's costs). We expect other banks to offer similar programs during the next 12 to 18 months.

JB

E-Payments Exploding Worldwide but United States May Lag Competitors

Worldwide electronic payments are set to double over the next four years and will outpace the growth of the global economy, according to a Global Insight study sponsored by ACI Worldwide Inc.

Also in the study: The United States writes ten times the number of checks (35.25 billion) as France (3.7 billion), which writes the second-largest number of checks. And while the United State currently has the largest global share of electronic payments measured by percentage—31.5 percent, compared with the second-place United Kingdom’s 8.8 percent—the U.S. compound annual growth of electronic payments trails nine countries, including Poland, Mexico, and Russia, and is only about equal to worldwide transaction growth. 0Charts can be seen by following this link, courtesy of ACI Worldwide: http://www.aciworldwide.com/pdfs/2006_Payments_Market_Study.pdf

Much of that growth will take place in the world’s emerging economies, especially China, India, and Eastern Europe. This is partly because those economies are still largely cash-based, and any measured growth in electronic payments reflects expansion from a small statistical base. But it’s also because as emerging economies grow, increasing numbers of payments are made electronically, while much of the paper that needs to be wrung out of the global payments system originates in the United States.

While Europe, Canada, and the United States continue operating what are, at best, enhanced legacy systems, developing regions are installing the latest payments technologies. Trends taking shape today suggest that going forward, the world’s emerging economies will enjoy the benefits of advanced-payments technology, allowing stronger and very competitive financial institutions with greater liquidity to develop and grow, while the world’s established economies, constrained by slower payments processing, will experience some erosion of their current dominance.

This result will obtain because modern payments processing is more efficient and less expensive than payments processing on legacy systems. In turn, this creates larger operating margins and greater profits for institutions not wrestling with cobbled-together legacy systems.

Institutions free of the relative operational constraints of such legacy systems also have access to better and more timely portfolio information, which in turn creates more balance-sheet liquidity and more effective risk management.

As a result, such institutions will qualify for the lower-risk capital requirements permitted under the Basle II accords, giving these institutions—and their customers—more money to invest or lend. Resources like that will enable both the institutions and their customers to be more competitive on the global stage, probably at the expense of U.S., Canadian, and European institutions and businesses.

“There’s certainly a need for some reinvention and recapitalization on our part in order to bring things up to a more competitive level,” says Mark Lauritano, Global Insight’s managing director of the lending and payments practice. “The margins are shrinking, which makes it more difficult (for the legacy system-based institutions), and it’s a big challenge, I think, for players in that industry.”

Going forward, and even though the operational risks and costs implicit in meeting the challenge posed by more modern payments systems are large, Western institutions have little choice but to make these investments, because India and China will be able to be quite aggressive on the world stage.

An institution with the modern risk management systems made possible by advanced payments and reporting mechanisms can, for instance, bid more aggressively for large loans, because they can more finely granulate any portfolio risks. That allows them to accept tighter margins, and thereby edge out less well-supported competitors.

The danger to Western economies posed by such modern systems in the hands of our competitors—but not in ours—is even more fundamental than mere business lost, thinks Lauritano, if Western institutions continue to outsource their operations to the lowest-cost provider.

“It’s definitely a competitive threat down the road, but you also have to wonder about the (national) security questions about having all your processing done in China or India,” he says. ”There are certain factors that will prevent a wholesale movement of transactions away from this country, but that having been said, there’s a certain class of transaction that will just go to the lowest-cost provider. I think it’s definitely something people in the industry are paying close attention to, and need to, to position themselves down the road.”

One horrible example: If India and Pakistan go to war again, India could easily choose to punish us—if we tilted towards Pakistan because of the war on terror—by curtailing, or merely slowing down, our access to our own payments transactions. Similar calculations based on perceived national interest could affect other nations, should we begin diversifying our outsourced operations from India.

As a result, thinks Lauritano, Western institutions need to start making the large but necessary investments implicitly called for in the study.

“One of the takeways of the study is that despite the relative growth patterns that are emerging by region, it in no way suggests that the level of investment should follow the same relative patterns,” he says. “There is a need to continue to invest and upgrade, because many of the emerging markets are getting the latest technology, and that will put them good position on a global competitive basis.” (Contact: Global Insight, Mark Lauritano, 781-301-9123)

Citi Markets e-Savings in Amazon Packages

 

 

Amazon_box_1The new headphones for my son’s eleventh birthday arrived last week with the usual advertising fliers dropped into the Amazon.com box. One of the three products caught my eye, a 4×6 glossy sheet advertising Citibank’s 4.5% e-Savings account. Citi_esavings_amazonofferIt looked much like their online ads with a blue-and-white theme emphasizing the APY (see right).

9

 

 

 

On the back, four benefits were highlighted:

 

  • Free Online Bill Pay
  • Online Fraud Protection
  • Free Wireless Alerts
  • Online Statements and Check Images

Notice how the 13 words of benefits included “free” twice, “online” twice, along with the positive buzzwords “wireless,” “fraud protection,” and “check images.”
9
Citi_offersiteThe bank used an easy-to-remember URL <offer.Citibank.com> with offer code CSA2 (click on inset to see the Citibank offer site prior to inputting the offer code).
The fine print contained the usual requirement that it was not available in Citi branches. Interestingly, the bank elected to forego the usual toll-free number option.

 

 

JB

 

 

 

Marketing Database –

If you'd like to learn more about past interactive financial marketing campaigns, check out the Interactive Financial Marketing Database from our sister publication, the Online Banking Report.

Time to Build a Healthcare Payments Infrastructure

Some people think they’re the bridge to the future; some think they’re a fraud. But whatever your opinion, healthcare savings accounts (HSA) and flexible spending accounts (FSA), and the payments streams they entail, will be a reality in the U.S. healthcare system for the foreseeable future. And since many employers and providers are accepting various cards as payment vehicles, the system needs an integrated information network that includes authorized payments, says Cynthia E. Burghard, a senior analyst at Gartner Inc.

The technological challenges alone to creating such a system are daunting. A workable system would need to, at a minimum:

  • Verify the patient’s eligibility
  • Identify and complete the transaction for deductibles and co-payments
  • Substantiate the payment for permitted goods and services
  • Verify the availability of payment, including any line of credit the patient may have (not to mention transmit the payment information to the insurer, HSA/FSA trustee, or lender, and make the necessary adjustments
  • Integrate the information arising from the medical encounter to all the patient’s health accounts

Such a system doesn’t exist now, and building it won’t be easy, she says. Full, national integration is years away. But by 2008, she thinks, the company that creates a workable model, at least for a single health care system, will have a significant edge over its competitors as the two sorts of accounts gain traction in the healthcare marketplace.

“It’s about interoperability of existing systems and connecting the parts together,” she says. “We need standard (computer) language, so that when you’re trying to determine the eligibility of an individual, and determine how much is in an HSA account, there’s a common definition of what that request and answer is going to look like anywhere you go.”

A comprehensive, card-based HSA/FSA payments system will be a unique beast, explains Burghard, because it’s not just about the payment: Included in any message will have to be the patient’s medical history, as well as the ability to operate in real time, rather than next-day—the current model.

“The challenges that exist today are that the health care industry is not a real-time industry in terms of payments,” she says. “The bulk of the physician-office market is small offices with less than five physicians (where) the ability to manage real-time transactions doesn’t exist, and the willingness to invest in technology that accepts (real-time treansactions) doesn’t exist.”

This is a handicap, to say the least, since today a patient standing in front of a health care worker is treated first, while the paperwork follows. There’s no way to tell if the patient has the money in their HSA/FSA account to pay for treatment, or is even authorized by their insurance provider to receive certain treatments. As a result, the practice has no way to know if it will receive the insurance and co-pay amounts due it.

And, as things now stand, finding out can take a week to process—all after the expense has been incurred; if there’s no money to pay, the doctor eats the loss. The way to avoid that outcome, thinks Burghard, has to be a real-time system, even if it would be pricey; the alternative will be to persist in the sort of waste—in time, effort, and treasure—that threatens to drive the United States into bankruptcy as the population ages.

This is especially true because about 95 percent of healthcare expenses are incurred in the last 5 years of life, at which point the bills become very large. As a result, an account could be quickly drained, even if the patient has good medical insurance and is merely using their HSA/FSA account for their co-pay deductible. That would limit, to say the least, the ability of the hospital, physician, or pharmacy to actually provide the necessary services. An intelligently constructed, card-based system could avoid these dilemmas, posits Burghard.

“There’s the technology barrier on the physician side, and there’s the complexity of the insurance systems, which are very different from company to company,” she concedes. “In a typical financial transaction, you take your card anywhere and it’ll work, but there’s no similarly simple system in the medical industry, so that the information from the insurance company is readily available” to the provider when the patient is awaiting treatment.

This is a long way from debiting a retail transaction at the point of sale, but health care providers—including the vast insurance infrastructure—need to solve the technical challenges. According to Burghard, medical practitioners have few alternatives to creating such capabilities at the medical point of sale; if they do nothing, the system will continue to careen out of financial control—taking the nation with it.

For all its benefits, choosing to build such a system in this country would create a very large and expensive edifice, financial and otherwise. But such a system is necessary to avoid choices and results that would be even worse.

The solutions carry with them very large political and ideological elements, which tend to shut out reality in favor of arguing for an ideal model for the future, or resurrecting an idealized past. But for payment providers, these political issues are secondary; even if the country shifts to a government-sponsored, single-payer model—perhaps based on the Veterans Health Administration—the same information would need to be provided to a healthcare provider to create maximum efficiency and to minimize the fiscal impact of an aging population.

For Burghard, the interoperability issue is the biggest challenge. And by interoperability, she doesn’t mean one overarching system that subsumes the Kaiser Permanentes and Humanas of the world into a wholistic universe.

“That’s in a perfect world,” she says. “Let’s get it within the Kaiser system or the Humana system first.” “Meanwhile,” she adds, “it would be very nice, in the next 18-to-24 months, to use the third stripe on a mag card in some sort of efficient way to improve eligibility verification and real-time claims.” A payments company that can offer a medical practice something like that, thinks Burghard, will have a green field sales opportunity. (Contact: Gartner Inc., Cynthia Burghard, 975-323-6048)

Who’s Who

Who's moving where.

MasterCard named the people who will serve on its post-IPO board. They will be:
* Manoel Amorim, managing director, Telefonica International S.A.
* David R. Carlucci, chairman and chief executive, IMS Health Inc.
* Richard Haythornthwaite, managing partner, Star Capital Partners
* Marc Olivie, president and chief executive, Agfa-Gevaert Group
* Mark Schwartz, former president and chief executive, Soros Fund Management LLC
* Edward Suning Tian, vice chairman and chief executive, China Netcom Group Co. Ltd. (Contact: MasterCard Inc., 914/249-5632)

Metavante Corp. promoted Michael D. Hayford to chief operating officer from senior executive vice president and chief financial officer. Hayford, CFO since 2001, remains on the Metavante board. The company is searching for a new CFO, and Hayford will meanwhile keep his old job. (Contact: Metavante Corp., 678-533-4861)

Viewpointe hired Diane Scott as chief sales, marketing, and product officer, and Rustin Carpenter as chief strategy and business development officer. Both will be based in New York. (Contact: Viewpointe, 704-602-6659)

M&A Corner

Who's buying whom.

Ceridian Corp.’s Comdata Corp. unit is buying SASH Mgt. LLC for an unstated price. SASH does business as Gift Card Solutions. (Contact: Comdata Corp., 615-376-6986)

Coinstar Inc. is buying Travelex Money Transfer Ltd. for $27 million in cash. The privately held British firm TMT has a network of 17,000 agent locations in 138 countries; its revenues were about $5.8 million for the trailing twelve months ended December 31, 2005, with a negative EBITDA of approximately $10.4 million. Coinstar sells prepaid long-distance and wireless airtime; also, gift cards and prepaid debit cards. (Contact: Coinstar Inc., 425-943-8277)

HIMC Corp. signed a letter of intent to buy United States Financial Services Corp. through a stock swap. HIMC is mainly in Internet services; USFS owns Western Clearing Corp. LLC and ACH Processing Co. (Contact: HIMC Corp., 253-284-0320)

Online Resources Corp. is buying Princeton eCom Corp. for $180 million in cash, plus an “earnout” of up to $10 million, depending on future performance. Princeton eCom, which specializes in electronic bill payment and presentment, is privately owned, mainly by venture capitalist firms. Princeton chief executive Ronald W. Averett will head the company’s e-commerce business, including its card, credit, and real-time payments services. The deal includes financing from Tennenbaum Capital Partners LLC of $75 million in preferred stock convertible to common at a 25 percent premium to market, and $85 million in senior secured notes, giving Tennenbaum the equivalent of 4.6 million shares, or 14 percent of the company. Tennenbaum also gets a seat on the board. (Contact: Online Resources Corp., 703-653-2248)

S1 Corp. retained Friedman, Billings, Ramsey Group as its financial advisor to assist the board of directors in actively exploring the usual “strategic alternatives to maximize shareholder value.” S1 also hired law firm Hogan & Hartson LLP for further advice in the matter. The move follows settlement of some outstanding disputes with a shareholder group led by Ramius Capital Group, LLC, which gains a seat on the board. S1 insists “No assurance can be given that any transaction will be entered into or consummated as a result of this review.” (Contact: S1 Corp., 404-923-3500)

Citibank’s Forecast for Online Savings

Google_onlinesavingsaccount In an effort to boost awareness of its 4.5% e-savings account (see NetBanker March 29), Citibank made the unusual decision to reveal its 5-year forecast for industry-wide sales of online savings accounts. In today's New York Times, Citibank.com director Catherine Palmieri made the following market size estimates:

$250 billion in 2006
$600 billion in 2010

To put the numbers in perspective, the 2006 estimate is approximately four times the total deposits of the two biggest direct banks, ING Direct and E*Trade. And it's about 4% of the total U.S. deposit market of $6 trillion.

Assuming Citibank is right and the online savings market grows at a compounded rate of 25% per year, it will represent 10% of today's total deposits or 8.5% of the total $7 trillion in total deposits 2010, assuming a 3% annual growth rate.

The article also said that HSBC Direct is on track to have 250,000 accounts by the end of this year.

Googling "online savings accounts" from a Seattle IP address today found Citibank in the number seven position. Here were the top advertisers (see inset above for closeup):

1. HSBC Direct
2. Emigrant Direct
3. Capital One
4. American Express
5. E*Trade
6. Alaska USA Credit Union (Seattle local ad)
7. Citibank Direct

JB

Bank Branch Website Pages

Firstnorthern_thatsmybankIt's no secret that a vast population researches online and buys offline, as much as 50% of your customer base according to recent research by Yahoo Search Marketing (NetBanker April 24). Whether the practice has evolved from habit, security reasons, or a need for face-to-face interaction, it's an important dynamic for financial institutions that have billions invested in retail branch networks.

Until consumers are ready to give up the branch experience, an important function of financial institution websites is to funnel prospects into the branch. Most banks now have prominent branch/ATM search functions.

These tools, often outsourced, usually provide good utilitarian results: name, location, hours, phone, and directions. This is enough information for current customers just looking for the closest place to pick up $100 with no ATM fee or deposit the rebate check from Procter & Gamble.

But as a sales tool for prospects considering a major purchase such as a new checking account or mortgage, the typical "branch finder" leaves a lot to be desired.

Analysis
Considering how inexpensive it is to post content online, why is it that banks do so little to help their branches create a unique presence online? After all, bank "stores" are usually multi-million dollar operations with aggressive sales and profitability goals. Even our tiny US Bank branch, staffed with two or three employees, plus a security guard, is surrounded by $500,000+ homes where the largely middle-class owners often have equity of $300,000 or more.

Why doesn't my branch use every tool in the book to tap into this market? Just one or two additional home equity loans per year would pay for a killer website. 

We know the reasons banks keep branches from attempting their own creative marketing efforts: low-budget fliers may not align with company graphic standards; complicated disclosure rules must be followed; branch efforts might conflict with larger "branding efforts," and so on.

Those arguments don't hold as much weight online. Banks could employ a content-management system that allowed branches to customize their personal webpage for use in neighborhood marketing efforts, and that would be more likely to pull a website visitor into their branch.

While we've reported on several of these efforts over the years, it's still difficult to find a comprehensive "bricks-and-clicks" effort. We recently came across Thatsmybank.com from Sacramento-based First Northern Bank (click on screenshot upper left). While the bank does better than most with a branch page that includes a picture of the branch and branch manager along with the names of lending officers, it is still very basic. It doesn't even include the email address of the branch or any of the key contacts.

Huntington_mtg_loanofficerpagesMortgage banks have done a better job. Wells Fargo Home Loans has had individual Web pages for its lending offices for several years. Huntington Bank also provides each mortgage loan officer their own Web page (click on inset for closeup). The page is tightly controlled. The mortgage officer uploads a picture, fills in basic contact info, then adds a paragraph about themselves and their lending specialty.

The template is completed with a list of local links provided. The only interactive element is the mail-to link that allows visitors to send an email to the loan officer via the user's email client.

Action Items
We believe branches should have a larger Web presence than just name, address, and phone number. Consider installing a content manager that allows branches to input custom localized content. It's a cost effective way to help branches and loan officers leverage their community connections and unique expertise.

JB

News and Products from American Express, Fiserv, MasterCard and more

News and products from American Express, Fiserv, MasterCard and more.

Alogent Corp. says that Financial Institutions Services Corp. is using Alogent’s Sierra Xpedite and Sierra Xpedite Remote Deposit branch and business corporate deposit products. (Contact: Alogent Corp., 770-752-6488)

American Express says it’s launched the American Express Benefits Plus Card, designed for healthcare flexible spending accounts, and that two spending account administrators, PayFlex and WageWorks, will be marketing them. (Contact: American Express, 212-640-1712)

Arby’s says it’s accepting contactless payments from American Express, MasterCard, and Visa. (Contact: Arby's Restaurant Group Inc. 678-514-4152)

Captovation says it’s upgraded its Captovation Check Capture imaging product. (Contact: Captovation, 952-835-1500)

Corillian Corp says that Yodlee Inc is using Corillian's multi-factor authentication product, Intelligent Authentication. (Contact: Corillian Corp., 503-629-3770)

Digital Check Corp. says it has three new TellerScan check scanners, one of which, the TS 230-100, can capture up to 100 items per minute. (Contact: Digital Check Corp.847-446-2285)

First Data Corp.’s Money Network unit says it has a deal with Wal-Mart Stores Inc. to offer no-fee paycard check cashing. Separately, First Data introduced a new product, called the Strategic Communications Solution, designed to help card issuers increase loyalty and usage among their cardholder database. The company also says it signed a multi-year deal with Microsoft Inc. to provide global merchant processing and risk management to Microsoft Corp. (Contact: First Data Corp., 402-222-6178)

Fiserv Inc.’s Interactive Technologies unit says that asset and trust manager CIBC Mellon is licensing its Advantage Fee System, which automates fee billing and revenue management. Separately, Fiserv says it’s enhanced the remote-deposit capabilities of its BANKLINK, Fiserv Item Processing, and Fiserv VISION products. (Contact: Fiserv Inc., 262-879-5667)

Fundtech Ltd. says it’s incorporating VASCO Data Security International’s Digipass authentication system into Fundtech's cash management and payments products. (Contact: Fundtech Ltd., Fundtech Ltd., 201-946-1100)

Global Payments Inc. says its Prague-based Global Payments Europe, a.s. unit, is providing the Slovakian subsidiary of European cell phone operator Orange with issuing services for its credit card program. (Contact: Global Payments Inc., 770 829 8245)

Ingenico says that MoneyGram Int’l will be buying more than $5 million of Ingenico’s eN-Touch 3100 terminals over the next three years. (Contact: Ingenico, 416-245-6700)

INSIDE Contactless, based in France, says it’s in full compliance with Visa's security, performance, and functionality requirements for Visa Contactless mini cards. (Contact: INSIDE Contactless, 33 4 42 39 63 00)

iPay Technologies says it has a new expedited bill payment product aimed at the community bank market. (Contact: iPay Technologies LLC, 678-781-7205)

MasterCard International says it has two new authentication solutions designed for online banking and e-commerce transactions: MasterCard All-in-One Authentication Device and MasterCard Mobile Authentication. (Contact: MasterCard Int’l, 914-249-4606)

Open Solutions Inc. says Golden, B.C..-based Columbia Valley Credit Union is the first Canadian firm to use its POSH ATM switch. (Contact: Open Solutions Inc., 860-652-3153)

Peppercoin says its products are being used in the United States' first contactless credit and debit card bus fare payment system, used by the Utah Transit Authority. (Contact: Peppercoin, 781-684-0770)

Wincor Nixdorf says that Benchmark Technology Group will market and resell Wincor Nixdorf's ATMs. (Contact: Wincor Nixdorf, 978-649-0689)

Juniper Bank, UBS Wealth Management Create a Clever Marketing Tool

UBS Wealth Management US last week launched a new payments-card package for its brokerage customers that among other things cleverly turns an ordinary American Express card into what amounts to a debit card. The program was created for UBS by Barclay’s PLC’s Juniper Bank unit.

The whole idea is to bind its customers to the U.S. brokerage unit of Zurich-based UBS by giving them a payments-card package that the firm hopes will be their primary spending vehicle, says Peter Stanton, executive director of the UBS unit’s Banking Strategy Group. It’s not an effort to enter the very tight U.S. credit card business

“It’s definitely not our intention to be another credit card provider,” he says. “This is a consolidation strategy; it’s all connected to our role as their primary wealth-management advisor, and ties them closer to us because of the services we provide.”

On the surface, the package is an ordinary Visa credit card and an ordinary American Express charge card, bundled with a very extravagant rewards program that offers cardholders enticements like jet fighter rides or a sleepover at FAO Schwartz. Rewards run from one point to 1.5 points per dollar spent, depending on whether the customer chooses the basic “Select” Visa card or one of the more elite Visa cards that carry annual membership fees of up to $1,500. UBS says it has about 15,000 such accounts.

By offering its brokerage customers such payment packages, UBS joins a widening club of brokerage companies trying to retain customers whose loyalty is mercurial at best. “With acquisition costs so high, and turnover very high also, the emphasis has been to keep the customers they already paid for, happy,” says Ariana-Michele Moore, a senior analyst with Celent Communications.

The Amex card allowed UBS and Juniper to create a vehicle that functions like a debit card from the user’s perspective—UBS calls the card a “delayed debit card,” though Amex insists that the cards are ordinary Amex cards—while earning the issuer the much higher American Express interchange fees.

It does this by an interesting sleight of hand that seems to be built around the fact that none of the parties to the deal care what the card is called, as long as they get what they want from it. Cardholders use the Amex card like an ordinary debit card, including being able to use it to withdraw surcharge-free cash at ATMs that accept Amex cards. At the end of the month, their central brokerage account, or RMA (resource management account), is automatically debited, and no bill is sent to the customer. Purchases are limited to the funds available.

This way, UBS gets what amounts to a debit card for its customers, while Amex and Juniper get full price for an Amex card. And as an added bonus, Juniper gets a piece of the debit card market, which is quickly overtaking credit cards as the payment vehicle of choice in the United States.

How the parties came up with this deal is unknown. UBS’ Stanton says his shop approached Juniper around August of 2004 as part of a typical RFP process, and went to contract last April. Juniper refused any comment on the matter, referring all questions to UBS.

“It has in-between functionality,” says Stanton. “It functions as a debit in the sense that it accesses your available funds; it functions as a charge card because the charges accrue, and instead of having to make some sort of payment, the payment is automatic.” The idea, he adds, was to allow purchases to be made without interfering with a client’s trading accounts.

All in all, it’s a smart deal, says Celent's Moore—among other things, because people with brokerage accounts are typically wealthier, and travel overseas, so that the package gives UBS clients a secure spending vehicle.

“It’s all about providing flexibility to their brokerage customers, but it could also be enticement for people considering opening a UBS account—it could be the thing that tips the scale,” she says. (Contact: UBS Wealth Management US, 212-882-5698; Celent Communications, Ariana-Michele Moore, 503-617-6112)

Contactless Payments Systems are the Future

Contactless payments systems in their various stripes are the future of retail point-of-sale systems, and banks still own the networks. But unless they stop trying to control the process, they could lose the system to merchants with their own private-label card programs, thinks Bruce Cundiff, a research analyst with Javelin Strategy and Research.

There’s really nothing to stop such merchants from outmaneuvering the banks, if they want to, he says. “The possibility exists among those merchants considering contactless, and really have a robust card issuance card network to begin with. They’re well-versed in credit, debit, and closed-loop card operations—and they see their private label brand as a lower cost channel.”

The merchants have plenty of good reasons for moving away from bank-owned cards. Doing so would not just give merchants more money from each transaction, it would also reinforce customer loyalty—making for more repeat business—and enrich marketing programs by giving merchants better access to the customer data in the payments stream.

Merchants increasingly view private-label, contactless payments as their best bet for driving revenue. According to Cundiff’s research, 20 percent of merchants considering enhancements to point-of-sale payments consider the technique among the most productive choices they can make. Only signature debit (31 percent) and ACH payments (33 percent) scored higher among merchants as possible new payments options.

Even worse news for banks: Cundiff’s survey of 900 retailers included all sorts of merchants, from large chains to the iconic Mom-and-Pop store. “We reached out to all types of merchants, even to those with only one location,” he says.

The irony here is that banks started this phenomenon in the first place.

“Contactless payments are the wave of the future because issuers like (JPMorgan) Chase got into the game,” he says. It was Morgan Chase’s decision to jump into contactless payments with both feet that solved the chicken-and-egg question surrounding contactless payments, because it was a signal to cell phone manufacturers that there would be a market for RFID (radio frequency identification) chip-enabled cell phones that can facilitate payments. “Prior to that, merchants were saying ‘It’s not broke, and I’m not going to fix it. They didn’t think people were going to come in and ask ‘Where’s your contactless terminal?’”

But that historical fact is irrelevant to the future, because with the genie out of the bottle, the challenge for issuers is to do everything they can to enable the technology now, before merchants do it for them. And since, as Cundiff’s research indicates, those merchants are a substantial fraction of the overall universe, the prospect that banks could be disintermediated by these merchants is a very strong possibility.

The fact that banks will have laid the foundation for this turn of events by educating merchants about the benefits of the technology is merely one of life’s injustices; the most disturbing element in this scenario is that bank disintermediation is entirely avoidable, if institutions will just make it in the merchants’ interest to work with the banks—even if that won’t be so easy. “If I’m Macy’s, and I’ve invested millions of dollars in contactless, I’m going to make sure that as many transactions that flow over that system are going to be Macy’s cards,” says Cundiff.

That prospect will be made easier by the widespread availability of cell phones that can make payments, he adds. The logic is perfectly clear, if brutal: With so many people carrying payments-enabled cell phones, he says, it makes perfect sense for stores to offer to download their own card onto a customer’s cell phone at the point of sale. Then, unless the banks have already beaten the merchant to it, more and more payments volume will go to merchant cards—edging out the bank and cutting into the fastest-growing segment of payments-fee revenues.

How to avoid this? “They (banks) need to consider the fact that they need to work with the merchants in a more integrated fashion—especially a large merchant that has a high profile and has plenty of locations and payments volume,” he says. A promising tactic to make sure the banks are still involved is to approach the merchant and offer to issue a co-branded, contactless card.

But to do this, banks have to recognize that contactless payments are the key to the future at the point of sale, and that they either turn the lock, or don’t. And if they do, they either continue to insist that everything be done their way, or they can start working with their customers to integrate themselves into that next generation of payments.

Luckily, the best banks already get this, says Cundiff. When Morgan Chase went to market last year with their Blink contactless cards, for instance, “they were talking about how they had to approach merchants and not only build acceptance, but build affinity for the product with both cardholders and merchants—that meant co-marketing agreements and signage,” he says.

But what this also means is an apparent shift in the balance of power between issuers and merchants. While some will argue that issuers have always valued their customers and tried to accommodate them, that posture is undermined some by the ongoing interchange war: After all, if the issuers had always been so accommodating, the years of complaints from merchants that interchange was too high would have resulted in adjustments—not lawsuits.

At this point—as many observers have argued—the better part of valor for issuers may be collaboration with merchants instead of battle, lest contactless, private-label cards prove to be yet another army rising on the issuers’ flanks. (Contact: Javelin Strategy and Research, Bruce Cundiff, 925-225-9100)