While the core bank account has long been a cornerstone of banks’ relationships with their customers, Celent asserts in a new report that the core bank account must evolve to maintain its relevance in the digital world.
The report poses a crucial question: In the not too distant future, will the “new bank account” need to have the following capabilities?
- Support for multiple value tokens, including virtual currencies, miles, coupons, and loyalty points.
- Full transactional capability for all types of payment use cases directly from a bank account.
- Highly contextual services making use of the ubiquitous mobile device that is always in the consumer’s hand to deliver highly personal, tailored, and contextual services.
In the past, bank account relationships, combined with payment cards, have enabled banks to be the dominant providers of transaction services to their customers. Today banks’ leadership position in providing card and payment transaction services is under threat, primarily from two sources: regulation and competition.
“Banks have to consider many issues before building these new capabilities, such as, how to manage tensions between new and old sources of value, and what would happen if mobile payments were to lead to fragmentation and re-emergence of the domestic payment solutions,” says Zilvinas Bareisis, senior analyst with Celent’s Banking Group and author of the report. “However, we strongly believe that the core bank account must evolve to maintain its relevance in the digital world.”
Other findings of the report include:
- Bank account relationships enable many payment transactions which generate not only transaction fees but also valuable insights into customer behavior. However, a bank account today is not fully transactional; for example, it is rarely used for retail payments. Instead, a wide range of bank-issued cards such as credit, debit, and prepaid under Visa, MasterCard, American Express, and many other schemes dominate payments in physical and online stores.
- Today banks' position in providing card and payment transaction services is under threat, primarily from two sources: regulation and competition. Combined with the inexorable rise of "all things digital," these two forces are challenging not just the cards business, but also the core bank account.
- Regulators are putting pressure on card revenue, particularly interchange, and other aspects of cards business. In the meantime, new players are building alternative payments propositions, threatening to further erode the card issuers' economics and to distance banks from their customers.
- Banks across developed markets are busy developing their strategic responses to the changing market environment. Some are more advanced than others and the range of responses is broad. In its report, Celent highlights four sets of actions:
1) Rethinking how a current account is sold (e.g., Barclays).
2) Taking mobile banking to the next level (e.g., Banco Sabadell, La Caixa, PostFinance).
3) Protecting card-based payments through value-added services (e.g., Bank of America, The Clearing House).
4) Enabling more payments directly from the bank account (e.g., IKO, Zapp).