Payments Data Could Be Key To Bank Prosperity.

As payments processing becomes a commodity, plenty of bankers are wondering if, given the non-bank competition, there's even a future for them in payments.

There's little doubt that non-banks are making inroads into the payments arena. And since payments-related operations are one of the last redoubts of banking, and comprise anywhere from 30 percent to 50 percent of a bank's revenues, the prospect of losing that sort of revenue is a gloomy one, at best.

But a bank willing to use the transactional data embedded in its payments operations, and reinvent itself along the lines of a private label credit card operation, can probably prosper, according to Vladimir Resnick and Carl Hugener of DiamondCluster International.

"We're not advocating that banks step away from the businesses that are the other 60 percent to 70 percent of their revenue, like lending or investment banking," says Hugener, a partner in the firm. "But some of those payments- related income streams are under pressure, like interchange on signature debit and credit cards. The question is how banks can defend their revenues, and look for new areas to grow to offset some of the other things that are happening."

Utilizing Customer Data

Finding new ways to exploit the enormous amounts of customer data that resides in the banks' payments-related systems may be a way forward for them, they think. And if the banks can reconfigure those systems to dig up, sort out, and analyze that data, they can use it to work with their business customers to design useful marketing and business strategies, and charge a consulting fee. This approach, they add, is permitted under the Gramm-Leach-Bliley Act.

Taking this road, they acknowledge, would mean transforming the bank-- especially operationally, since this idea means leveling the bank's IT architecture as well as its business and managerial models. But it's an avenue already being taken by some very large financial institutions--CitiBank and HSBC, for example--in their private label credit card operations.