Editor's Letter: Finding Transformative Opportunity
Retail banks long have been dominant players in handling customer payments and related accounts, typically handling more than 80% of the transaction volume and payments value for core customers. Yet they usually claim less than 45% of the associated revenue streams, mainly because they are under-represented in unsecured consumer credit.
This imbalance has been known for years, but was far less of an issue before the banking payments domain was rocked by fee-crunching regulations, sagging product economics, and customer online migration away from the branch. Now, credit cross-sell could be pivotal in reviving the business — but a change in management orientation will be needed.
As detailed in our cover story, “From Payments to Cash Management: The Next Big Idea?” a redefined payments business will synthesize products to address the larger cash management needs of consumers and small businesses. Consumer credit will play a larger role in a framework that includes transaction accounts and new types of fee-based services.
One specific opportunity is the unsecured line of credit, or ULOC. As discussed in “Consumer Credit: New Frontiers for Growth,” Canadian banks have achieved double-digit growth with this product, which offers a near-substitute for the home equity loan.
Such innovations herald an era of structural change in retail banking. With product and distribution economics in upheaval, banks will need to re-think fee revenue strategy, strengthen ties with the virtual customer, and economize delivery as never before. Meanwhile the sales outreach must be re-engineered for greater productivity. Recession-driven responses, though necessary, will not be enough to meet the various challenges of a permanently changed market. But as this issue shows, there are clear opportunities for banks that can bring off the innovative projects — such as with unsecured lending — needed to transform the business.Steve Klinkerman