ABA Banking Journal - November 2009 - (Page 22)
COVER STORY: RETAIL BANKING REPORT spoken of almost until it is a cliché, really will mean something in this space. “To the extent that large banks make credit cards less appealing, that opens the door to options,” says Washington-based consultant Bert Ely. Exploiting local knowledge will be a boon. Indeed, “there’s great value in the local touch. There’s great value to knowing the people that you are dealing with, as opposed to working through computerized models,” says David Evans, vicechairman of LECG Europe. No monopoly in relationships Indeed, the idea that consumer lending will increasingly be driven by relationship banking, rather than one-off productbased relationships, won’t just be a game for community banks. “The last 15 years of the credit card industry has been about specialization and consolidation,” says Robert Hunt, assistant vice-president, and director of the Payment Cards Center at the Philadelphia Federal Reserve Bank. “There were evidently economies of scale which tended to favor the largest issuers (and acquirers). The technology has not changed and so perhaps that intuition is still correct.” (He speaks for himself, and not the FRB of Philadelphia nor the Federal Reserve System.) However, Hunt adds, with fewer options to reprice consumers, and possibly with a change in consumers’ views about debt, “the credit card could become more of a relationship product than it has been in a very long time.” His point, from the perspective of larger banks, goes beyond cross-selling. In order to make a profit on cards, large institutions may seek broader and stickier relationships with consumers, to keep them in the fold, and to know more about their overall finances. Indeed, m.rae’s president, Michelle Gula, says that Wells Fargo is contacting its card base in an effort to get them to consolidate their financial relationships with the megabank. CFPA: Spoiler, savior, sinker? A yellow light hanging over this discussion is the proposed Consumer Financial Protection Agency. The Obama concept remained in committee wrangling at this writing, on the House side, and much debate remained in the Senate. Much hinges on who the main target of CFPA finally turns out to be, if it becomes reality. Protiviti’s Randy Marshall and Mike Brauneis see some potential advantages, under some scenarios, for community banks. For example, where large players might be forced into very standardized products to be able to handle compliance and large-scale operation, a smaller player could offer more innovative and customized options, especially if they only have to worry about one jurisdiction’s legal requirements. Likewise, Don Musso—while stressing he’s no friend to CFPA as a concept— sees at least a leveling of the playing field for banks of all sizes if CFPA becomes more a regulator of nonbanks previously not overseen, or overseen seriously. But if they escape, and Washington targets banks alone, “it will kill the banks.” A carve-out for community banks has been entertained, and if that became law, and if it’s truly a carve-out in more than words only, some say they could use that to their advantage, on the cost side. But LECG’s David Evans fears that the concept is going to put community banks at a disadvantage to larger players of all stripes, and may cut them off from consumer credit. The old enemy keeps on going Finally, there are credit unions, bane of banks for years in consumer credit, and more recently in business lending. To turn back to consumer credit, banks will be fighting credit unions on their traditional turf, with all the advantages, most notably their tax status, that ABA and others have worked against for years. “Credit unions have a unique opportunity to pick up market share on the consumer side,” say Protiviti’s Brauneis. Consultant Cathy Ghiglieri agrees that banks facing strong credit unions will have to bring their best game. “Credit unions are still going to be particularly competitive,” she warns, “because they have never really lost focus on the consumer.” What’s worse, the pricing advantage can upset many competitive balances. Ghiglieri helped start a website, RateGenius, for a client. The site helps consumers find car loans. She says tax-advantaged credit unions nearly always beat banks attempting to compete on that site. BJ 22 NOVEMBER 2009/ABA BANKING JOURNAL Subscribe at www.ababj.com
If you would like to try to load the digital publication without using Flash Player detection, please click here.