Payments Exchange

ICBA’s Community Bank Payments Survey results

By Cary Whaley

Do things change much over two years?

ICBA’s 2013 Community Bank Payments Survey shows that community banks are continually changing method and manner of how they offer payments to their customers. Some of the most striking changes include mobile payments and payments net revenue, the survey shows. Mobile payments are increasingly becoming an integral part of the community bank payments landscape, with more than one-third of community banks offering this service. However, the growth of community banks’ payments costs is outpacing the growth of their payments revenue and is causing many community banks to rethink their approach to payments profitability.

First begun in 2007, this year’s biennial nationwide survey of community bank payment trends and activities was sent in June to more than 7,000 community banks, of which 821 responded. The survey finds that mobile payments are taking root in community banking, with the number of community banks offering mobile payments beginning to spike: 37 percent of community banks provide mobile payments options to their customers, a hike of 164 percent that were doing so in 2011. An additional 43 percent report they plan to offer mobile payments by 2015.

Among those community banks offering mobile payments, 95 percent use a mobile app, 85 percent use a mobile Web platform and 36 percent continue to use SMS/text. Among community banks that reported offering mobile payments, nearly all (97 percent) offer mobile bill payments. Nearly half of those offering mobile payments (46 percent) also offer mobile person-to-person payments. The survey tells me that the mobile payments being adopted now will continue to evolve from bill payment, as used in online banking, to increased functionality that allows retail purchases and person-to-person payments. Many industry pundits believe that mobile technology serves as a disruptor to traditional community banks’ retail payment services, with app-friendly payment methods that both consumers and businesses can choose over cash, checks and payment cards.

The survey also shows that payments revenues for community banks slightly bounced back from a 2011 lull; however, the recovery of their revenues was overtaken by rising payments costs. For consumer payments, 36 percent of community banks reported increased payments revenues, compared with 31 percent that reported increased revenues in 2011. Meanwhile, payment-related spending at community banks went up, with 55 percent of the banks increasing such spending this year, compared with 44 percent that did so in 2011.

Community banks still regard payments as an important source of revenues, but not as much as in 2011. As examples, 59 percent report that raising profitability is now a vital payments strategy, compared with 70 percent in 2011. Also, 46 percent consider payments as potential new revenue streams, down from 54 percent that did so in 2011.

In response to these changes in net revenue, many community banks appear to be rethinking their payments profitability models to emphasize customer relationships, rather than fee income. In keeping with this observation, 52 percent of community banks report that the goal of their payments programs is to improve customer service and 45 percent report that it’s to improve customer access channels. In this way, the survey shows community banks adopting payments technologies that draw little or no revenue in order to achieve their broader customer service goals.

Additional interesting findings in the survey include these:

  • The decline of gift cards is coinciding with the rise of general-purpose reloadable (GPR) prepaid cards. Gift cards at community banks are declining, with only 39 percent now offering them, which is a 40 percent drop over the last four years. Meanwhile, 15 percent of community banks feature GPR cards, up 4 percent from 2011.
  • Free checking continues as a mainstay with community banks, with 84 percent offering some form of it. However, 18 percent reported that they will reexamine this product during the next two years, while 9 percent once featured free checking but don’t anymore. With some traditional revenue streams, such as overdraft payments services and interchange becoming less able to recover the costs, community banks will continue to grapple with how, or if, they offer free checking in coming years.
  • Fraud continues to be an ongoing challenge for community banks, with 94 percent responding that they suffered losses because of debit card fraud.

Cary Whaley (cary.whaley@icba.org) is ICBA’s vice president of payments and technology policy.