Commercial Banks' Survival Demands New Business Model
Aimed At Repetitive Billers' Needs
PALO ALTO, Calif. (BUSINESS WIRE) - Wholesale banking revenues will be substantially impacted by their major repetitive billing customers' change to electronic delivery and payment.
According to a just-released study by Killen & Associates (http://killen.com), up to 50% of banks' repetitive billing revenues will be lost due to efficiencies and greater economies of scale in processing that results from electronic bill presentment and payment (EBPP).
For banks to survive -- and prosper -- in the new era of EBPP, banks must lower their basic cost structure and up-sell and cross-sell products to add revenue streams. These products will include upgraded cash management services; many will take advantage of revenue opportunities in electronic commerce.
"The change to EBPP will happen a great deal faster than most people think or expect," stated Michael Killen, president of the research firm. "Unlike other electronic activities, the underlying transaction basis of EBPP already exists. It is just a matter of electrifying established procedures. Success will depend on managing the transition to electronic presentment on the wholesale side of the bank, while managing the profitability of the business build-up on the retail side."
"Currently, providing repetitive billing and payment services to utilities, petroleum companies, and similar major product and service providers is the most important fee-based product for many major banks," Killen continued. "But this cash cow may be all but dead. Their repetitive billing customers see the banks simply as payment conduits. In this highly comoditized Internet marketplace, the banks' value-added for billers is very marginal and banks primarily charge on a cost-plus-margin basis. Only those banks that embrace electronic delivery services for billing and presentment, as embodied by the Internet, will retain major accounts, though at reduced revenue levels for the basic services provided."
"Wholesale banks will have to develop additional services revenues -- both financial and non-financial -- if they want to maintain profitability and remain in business. Those that don't embrace electronic delivery will find their wholesale customers moving to other lower cost service providers. EBPP challenges the top banks to show just how good they are. It forces all banks to think along new lines. Some, such as Mellon, Wachovia, Citibank, Wells, and BofA (Nations Bank) will pass muster. Other, slower-moving financial institutions will not survive in their current form."
Killen & Associates' study, Consumer and Wholesale Banks: Electronic Bill Presentment and Payment Opportunities and Threats, is the second in a set of three focused on the EBPP marketplace. This volume provides insights into wholesale and retail bank opportunities to leverage this major change in the business model. It provides insights to financial institutions, IT providers, and billers on the strategies of major players including American Express, Banc One, GTE, First Union, and Wells Fargo.
Detailed, worldwide, regional forecasts of the marketplace for EBPP service revenues are included as well as insights contained in personal interviews with industry executives including Dudley Nigg (formerly with Wells Fargo), Anthony Lipp of Price Waterhouse Coopers, CheckFree's Ravi Ganesan, and others.
For additional information, visit Killen & Associates' Web site, killen.com . Press contact: Bob Goodwin, bgood@killen.com, tel: 650/617-6137, fax: 650/617-6140. Client contact: Jules Street, jules@killen.com , or Karl Duffy, karl@killen.com , tel: 650/617-6130, fax: 650/617-6140.
Killen & Associates is a leading market research and consulting firm whose studies, seminars, and television programming enable clients in the banking/financial services, telecommunications, and information technology industries to identify business opportunities created by technology advances, public policy changes, and market forces.
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