ABA Banking Journal - July 2007 - (Page 18)
briefing ABA Chairman’s Position ABA Resources Continued from page 17 EARL D. McVICKER CEO, Central Bank & Trust Co. firstname.lastname@example.org From Wal-Mart to Prosper: where do banks fit in? WE ALL KNOW THAT WAL-MART’S withdrawal of its bank application was not the end of the ILC issue. Nor was it the end of Wal-Mart’s ambitions to offer banking services. In fact, Wal-Mart could be just as effective and competitive without a bank charter as with one. Consider this. In mid June, the superstore chain began the rollout of its prepaid Visa debit card. The Wal-Mart MoneyCard joins WalMart’s other financial services that include lowcost check-cashing and money-transfer services. If a customer can cash checks, purchase a prepaid card that will be accepted virtually anywhere, and transfer money at Wal-Mart, how will our industry persuade customers to work with banks? With Wal-Mart’s reputation as a low-cost provider, customers may assume they are getting a better deal there. Wal-Mart is not the only one picking off the most profitable pieces of the payments business. Prosper.com is an online marketplace for loans, started by one of the same guys who founded e-Loan. It’s people lending to people—sometimes because, frankly, the would-be borrowers would have trouble qualifying for a loan. But I suspect companies like Prosper also attract customers who want to steer clear of the government-mandated red tape that comes with banking transactions. Regardless of the reason, Prosper is prospering, with more than $65 million in loans since its launch in February 2006. Such growth in person-to-person payments and retailers’ use of prepaid cards is taking a bigger piece of the payments pie away from banks. Our agility in the payments marketplace is also being compromised by scores of rules that turn banks into law enforcers. Add to these trends banks’ never-ending need to address evolving data security threats, and the now public ownership of MasterCard, which was once governed exclusively by banks. (Visa plans to go public later this year.) These trends leave banks in the unenviable position of trying to keep up with less-regulated, nonbank competitors while also maintaining a much more expensive infrastructure. These influences also are slowly shifting the traditional hub-and-spoke design of the U.S. payments system into an image more closely resembling a complex chemical diagram. And banks, which have been so central to ensuring the system’s security, efficiency, and reliability, are at risk for being squeezed out of the middle. ABA’s board of directors raised some of these issues with Federal Reserve Chairman Ben Bernanke and the Fed governors in a meeting earlier this year. We also are exploring these issues further with the help of a working group I’ve appointed. Under the leadership of Dave Hickman, chairman of United Bank & Trust, Tecumseh, Mich., the group will analyze trends and probe payments system policy. They will explore policies that might hinder bank innovation and consider whether new rules are needed to uphold the integrity of the payments system. I believe in the free market. Companies and individuals have the right to pursue new ways to do business, including payments processing. But when these businesses are not bound by the same regulatory concerns as banks, we have reason to pause. Either the rules are essential to the system’s security and should be applied to all players, or they are ineffective and costly burdens that should be lifted from banks. Through the working group, ABA hopes to identify which is which and to secure banks’ role in the payments system of the future. BJ time, and from any location. No installation is required at the user level, so changes and upgrades are quickly accomplished. The iCom solution is part of Carreker’s end-to-end suite of integrated, web-based solutions designed to improve efficiency, reduce expenses, and manage risk in vault, ATM, and branch operations. To learn more, visit the Corporation for American Banking section of ABA’s website at www.aba.com/CAB, or e-mail ABA’s Lisa Gold Schier at email@example.com or call 1-800-BANKERS. ABA’s benchmarking and survey research If you are seeking information about banking industry performance, and how your institution compares, you need to look into ABA’s Benchmarking and Survey Research. ABA provides comprehensive industry survey reports designed to help you determine how your bank compares to its peers measured by asset size, location, portfolio composition, and more. And for information-sharing with other bankers, few opportunities surpass ABA’s peer group programs, which are specially designed to facilitate the exchange of information and sharing of best practices among ABA member banks. To learn more, go to www.aba.com/Surveys+and+Sta tistics, or e-mail ABA’s Jane Yao at firstname.lastname@example.org or call 1-800-BANKERS. 18 JULY 2007/ABA BANKING JOURNAL www.ababj.com/subscribe.html
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