Making money frictionless and moving it easily from point to point has become a key driver of the "new “online economy.” Banks are starting to see their profits erode from Internet upstarts like PayPal, Google, and Groupon, who are eroding their profits, and according to the Wall Street Journal, this week three of the big banks struck back:
“Banks are looking to hold onto their influence over consumers, who are increasingly shunning checks and cash, turning instead to new nonbank technologies to spend their money. The new service from Bank of America Corp., Wells Fargo & Co. and J.P. Morgan Chase & Co. takes aim at the popular PayPal offering. At stake are billions of dollars in credit-card, overdraft and checking fees each year.”
PayPal already has established itself as an alternative bank on the Web and now makes up one-third of eBay’s operating budget. Google announced this week a strategy to make retail payments by waving a Google-powered Android smartphone in front of a reader at the cash register. And apparently retailers such as Macy’s Eagle Outfitters, and Subway have already signed on as early adopters.
The new bank joint venture, which has been christened clearXchange, will allow customers of the three banks to use their smartphone or computer to access their online checking accounts, and move money to other checking accounts at another bank.
According to the Wall Street Journal article, new financial regulations are expected to slow revenue growth, although a move to electronic payments would reduce costs. Cash and checks are expensive to process, and while cash is low-tech, it’s still expensive to transport. What’s more, customers are looking for alternative payment systems, so adopting e-payments is a great way to retain customers.
Banks are testing the waters with free systems, and may ultimately charge consumers for these services, but it’s still up in the air. And these banks also are experimenting with ways to transfer money from one financial institution to another, although the system is complicated by the need for checking account numbers, bank routing numbers, and other details.
E-payments are another way that banks are working to build relationships with customers. If they can attract the new generation of customers who have become accustomed to services like PayPal, then they can offer other, more profitable services, such as credit cards and mortgages.