With all the hubbub in recent weeks about the introduction of GoBank by Wal-Mart and the banking industry’s embracing Apple Pay, you have to wonder what’s going on with the competitive landscape in banking? Is all the hype really valid? Are these new bank-like competitors really going to have an impact on banks and credit unions?
According to a recent article posted by CUNA, credit unions have nothing to fear from Wal-Mart’s GoBank:
“Called GoBank, the product allows consumers to make purchases with a debit card or with a smartphone. There are no overdraft fees or minimum balance restrictions because, if the consumer doesn't have the cash, the card doesn't let them make the purchase.
But unless customers make monthly direct deposits of $500, the account costs its users $8.95 per month.
Credit unions nationwide can beat that.”
The assumption here is that fees are all that matter and that consumers will logically go for the most cost-effective banking option to meet their needs.
What the article in CUNA overlooks is the convenience factor. Consumers will adopt GoBank because of the convenience it offers, not the fees. Wal-Mart is a non-bank but with “branches” in retail outlets across the nation, so accessing money is easy. The Atlanta Constitution reports that GoBank will likely cost consumers $107 annually in fees, including transaction fees for out-of-network ATMs and monthly service fees. Many consumers aren’t going to worry about those fees if they have the convenience of doing their shopping and their banking at the same time in the same location – the convenience factor will overshadow the fees.
Apply Pay and Google Wallet are also looking to lure consumers to their services with new services and incentives.
This week Apple Pay announced that it plans to launch a loyalty program sooner than expected next year. Industry watchers predict that Apple Pay loyalty payments will be tied to iBeacon, Apple’s in-store wireless strategy to tie promotions to shoppers’ location within the store. For example, Apple Pay users would get offers for free Pepsi when they walk by the soda display; all they have to do is use Apple Pay at checkout. The iBeacon platform is sure to give Apple Pay an advantage with retailers, and users looking for more places to use rom Apple Pay.
Not to be left behind, Google Wallet has added Enterprise Rent-a-Car as its latest loyalty rewards partner. Google now has 15 loyalty partners including Avis, Alaska Airlines, and Walgreens. As noted in the article by BankInnovation, Google is struggling to achieve critical mass with Google Wallet and, even without a technology like iBeacon, they are banking on retailers to drive consumer adoption.
These are the kinds of incentives that are exciting and enticing consumers to at least try some of these emerging payment platforms. If the incentives work, both with shoppers and merchants, then ATM and prepaid card use may decline and e-wallets may take over.
Recognizing that attracting consumers isn’t all about fees, a number of financial institutions called out their digital and mobile banking strategies in earnings calls this month:
Richard Fairbank, founder and CEO of Capital One, pointed to Capital One’s expanding digital strategy, noting “today there are branches and tomorrow there is a branch in people’s pocket.” He noted that he is looking forward to the opportunities presented by combining Capital One’s direct marketing machine with the digital bank built by ING DIrect, which is now owned by Capital One.
PBC Bank and Key Bank both references mobile banking in their earnings calls.
William Demchak, Chairman, President and CEO of PNC Bank, noted that the bank was disclosing all its digital activity in the call. He noted that 47 percent of customers are now non-branched clients, and 36 percent of deposits are made either via ATM or mobile phone.
Key Bank has reported that is has 997 branches and has closed 50 branches in the last year. The bank also eliminated 60 ATMs so they now have 1,290 cash machines, but they are seeking “explosive growth” thanks to mobile users.
More financial institutions are banking that technology and convenience are going to outweigh fees in the long run, and that consumers are willing to pay for convenience. Offering free checking or the lowest fees is no longer a differentiator, but if you can make customers’ lives easier, then you have services that consumers are likely to find more compelling.
NOTE: If you are curious about what kinds of products banks and credit unions are introducing to compete in their markets, please check out our ProductBuilder database of new product innovations, and feel free to sign up for our weekly ProductBuilder Alert.