Payments Exchange

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Building a Payments Roadmap

After systematically tracking payments data, how can your community bank effectively use that information?

By Karen Epper Hoffman

As they say, knowing is half the battle. However, once community bank executives know where their strengths and weaknesses lie in their payments programs by systematically measuring and monitoring those programs, where do they go from there?

According to experts at Cornerstone Advisors Inc., the next logical step is developing a payments roadmap, with the payments information and data they track and measure, to aid in making better decisions about how to improve on their overall offerings and potentially improve revenues associated with payments. There are significant product pricing opportunities once a community bank starts tracking its payments, for example, says Bob Roth, managing director for the payments solutions group at Cornerstone Advisors Inc., a technology and management consulting firm in Phoenix, Ariz.

“Once you start measuring against your peers, you can see where [your pricing] may be low or high,” says Roth. “Some of this requires external knowledge.”

By comparing their own payments portfolio statistics to those of their peers available from Visa and MasterCard, for example, community banks can see whether their activation rates are lower than national averages, he points out. Another example: Reviewing their comparative standing may illuminate for payments executives whether offering rewards for debit card usage provides any benefit, Roth says. “It gets to the heart of resource allocation. [Community banks] may not be putting an emphasis on the types of investments that help them the most,” he says.

Community banks should use their information to build a roadmap that helps them “sufficiently allocate their resources to take care of opportunities and keep costs down so they can reinvest in new areas like mobile payments,” Roth adds.

Building a roadmap around payments can help build greater efficiency, Roth says, because it encourages community bankers to “start a conversation about vendors.” Indeed, as much as 40 percent of banks’ major third-party vendor revenue is coming from payments now, which speaks to the underlying importance of payments revenue in the banking system. (Typically, payments accounts for 20 percent to 30 percent of a community bank’s revenue, says Sam Kilmer, senior director at Cornerstone.)

“When we start a conversation about vendors we see how [bankers] start caring about what they are paying their third-party vendors,” says Roth. Once they know what is lacking, community banks can do a better job of building incentives into their contracts with their vendors.

As part of developing a payments roadmap, community banks can also find new ways of standardizing, simplifying and bundling payments offerings to their advantage. “Consumers can typically remember only a few options,” says Kilmer. “Getting payments-based offerings down to a few presented options makes them easier to stay top-of-mind and top-of-wallet for consumers and easier to sell and market for employees.”  

“Banks may not be doing enough to make sure their credit card is top-of-wallet for customers who have a deposit relationship with them.”
—Bob Roth, Cornerstone Advisors Inc.

Meanwhile, bundling allows for “better value and win-win outcomes for the bank and the customer through relationship pricing, which is on the rise in community banking,” Kilmer adds. Bundling allows community bankers to build more profitable customer profiles.

Indeed, Kilmer and Roth say, cross-sell opportunities are significant. Case in point: This is the main reason why merchants have also gravitated toward applications that gather payments data. Payments activity is often associated with where a customer believes his or her “primary” financial institution to be, says Kilmer. And, while he adds that most consumers have shown their willingness to have their relationships across several financial institutions, “the payments account is a great centerpiece or ‘bundling point’ for building out a banking relationship.”  

“The underlying payments data speaks to spending patterns and loan payments to other financial institutions,” Kilmer adds. Sending customers alerts based on their spending, balance fluctuations and suspected fraud, for example, has been shown to be extremely valuable to customers and can be the launching point for financial counseling or budgeting. 

At the same time, payments data can tell a bank where else its customers are making loan payments, which could in turn lead the community bank to pitching the customer on saving money through refinancing, Kilmer says. Payments data may reveal dominant local merchant relationships, with which a bank could strike up relationships or develop merchant-funded rewards, he says. 

“Banks may not be doing enough to make sure their credit card is top-of-wallet for customers who have a deposit relationship with them,” says Roth. “Bankers should be saying, ‘If you’re using my debit card, why can’t we have a conversation about credit cards?”

Ultimately, Cornerstone Advisors counsels, community banks should start collecting payments data and building a roadmap—or lose their potential lead. “Even though all the revenues are up around payments doesn’t mean you shouldn’t look at this now,” Roth says. “It doesn’t mean you are taking advantage of all that you should.”


Karen Epper Hoffman is a financial writer working in Europe.