Abstract
"Processors are out ahead of their customers in at least two areas that
impact cost and revenue: fraud management and debit-backed rewards
programs," comments George Peabody, Research Manager of Mercator Advisory
Group' s Debit Advisory Service. "While debit-based rewards programs have
enjoyed uneven uptake by bank customers, the numbers plainly show that these
efforts are worthwhile both in terms of accountholder retention and
profitability. They are not just a revenue-neutral exercise."
Introduction
This report examines what small and medium sized banks are buying from their
ATM and debit processors and what these processors are, in turn, selling to
their FI customers across five different functional areas:
- Debit card processing
- ATM services
- Security and Fraud Management
- Data Mining and Reporting
- Rewards Programs
The report discusses these five areas and the relative usage of each of these
capabilities by small and medium FIs. Not surprisingly, the two principle
functions acquired by these FIs are debit card processing and ATM services,
services offerings that are coupled by banks in some 50% of engagements.
The report is based on reviews of the processing offerings from the following
companies: Fifth Third Processing Solutions, eFunds, First Data, Fiserv,
Metavante and US Bank. While each of these firms offers far more than the
services discussed here, within the debit-related channel of bank operations
they compete within a fairly narrow range of capabilities and, of course,
broadly on price.
The report is a review of the competitive context of both buyers and sellers,
FIs and processors. The report does not compare and contrast individual
processor offerings or go-to-market approaches. That part of the selection
task is up to each FI and is based on the specific needs of each institution.
The report will prove helpful in assessing and assigning priority to various
outsourced services.
Highlights of this report include:
- A review of what vendors of debit and ATM processing are selling with
particular emphasis on the small and medium sized bank market, with comments
on how processors view the market based on what these banks are really buying.
- An examination of the differences between signature and PIN debit pricing
and the implications of these differences in building debit volume.
- A look at the surprisingly narrow range of competitive differentiators
employed by processors to distinguish themselves in a business where the
customer is focused very tightly on transaction cost.
- Processors are out ahead of their customers with at least two
underutilized offerings that impact cost and revenue, security and fraud
management coupled with debit-backed rewards programs.
- Debit-based rewards programs have enjoyed uneven uptake by bank customers
but the numbers show plainly that these efforts are worthwhile both in terms
of accountholder retention and profitability. They are not a revenue-neutral
exercise.
- The report contains a discussion on the role of the ATM in bank operations
and the prospects for deployment of advanced ATM functions.
- The range of card processing pricing and components is reviewed showing
the remarkable range of transaction costs charged to small FI organizations.
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