Time is Indeed Money

The industry knows that many consumers continue to use paper checks because of the assured float time between remittance and clearing. However, banks have an interest, while not publicly acknowledged, in relying on paper check presentment to maintain the float. Current regulations allow a "reasonable period" before releasing the hold on checks, particularly out-of-town checks. The Fed proposal to reduce the maximum period from 5 to 4 days was declined. At any time, there are roughly $140 billion of U.S. checks in transit that preserve for banks about $20 million in daily interest, as estimated by the Tower Group. So, hold time means money for banks. Therefore, paper checks should survive, at least until legislated out of existence. Their raisons d'etre persist: Banks have their hold time, and American checkwriters have their float time. That seems to be too much time and too much money to give up, without something in return.

Customer Data Warehouses

Major bank hardware vendors are each trying to deliver a winning capability to mine data for cross-selling and new fees. Everyone does transactional histories. The challenge banks want to tackle is alignment as key portals for b2b and consumer e-commerce. As a bank offers the full family of products to high net worth customers, they are extremely adept at selecting the cheapest alternative. For example, banks are building "electronic-wallets" to become a vital portal, even to products of competitors. This strategy is not inferior, but profitability rests on a referral fee. Advertising revenue and virtual goodwill cannot sustain this long term. The wild card is trading up for customer data in the deal.

New Currency Denominations

Banks have control on most payment processing. Still, it is merchants and consumers who choose the payment medium and denomination. Restaurants don't accept checks, ice cream shops won't take 50s, and the Internet can't transmit bills. Treasury tried EBTs into checkless accounts but recipients wouldn't go for them.

Studies of the Check Payments Systems Association show 89% of all U.S. households have a checking account; 74%, a credit card; and 36%, a debit card. E-bill pay is amassing volume. Futurists want e-bill pay to serve as the large denomination and micropayments as the small one. For merchants, small credit card sales are costly, while check fraud costs $15 billion a year (less $2 billion banks must bear). True, but credit cards cover big-ticket items interest-free and limit liability if lost. Checks allow stop payments. Caution is due when steering the consumer.

The CEO Footnote . . .

One-stop financial centers are now soon to be officially sanctioned under banking law. Certain banks are quite secure. Others less secure will begin overtures toward non-banking firms. Middle-market and community banks can now play the 1-to-1 and privacy cards even more aggressively. The real effect of the overhaul already seems factored into the equity markets. The bottom line net is still based on the transaction value of a financial product purchase - achievable by an outright acquisition or a contractual arrangement with the supplier. The consumer looks at the same Website and the bank's deals are invisible. The product is the same. As earnings streams and databases merge, customer data will more freely flow between industries. With resales barred, static data even when aggregated carries nominal scrap value. Few will go one step further -- blending customer data with imported ideas -- to create an alloy that ultimately resists corrosion in the cross-industry market.

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