Profits from e-pay
In my first blog on the topic of peak cash, – the idea that card and electronic payments will soon replace cash – i focused on the potential for financial services companies to benefit from the merchant service charges that are levied on retailers who accept electronic payments.
This second blog on peak cash explores the issue of who benefits from the data generated by electronic payments.
One potential advantage from the large amounts of data collected through electronic payments is the potential for recognising and minimising fraud. Banks, credit card companies and others can use algorithms to track and identify unusual patterns and cut back on criminal activity. With Financial Fraud Action UK reporting that “Financial fraud losses across payment cards, remote banking and cheques totalled £768.8 million in 2016”, this is potentially a substantial saving for financial services firms.
Such savings, of course, mean greater income for banks and other companies. Another source of increased income is to sell more financial products. In connection with this a 2017 McKinsey report on the use of analytics in banking, describes how banks use the knowledge generated by analysing electronic data payments to cross sell financial products. In one instance an Asian consumer bank saw such action generate a threefold increase in the chances of customers buying another financial product.
Profits can also be increased by selling customer data to third parties. As reported in a Telegraph article “When consumers use their debit or credit cards the issuing bank logs a code that identifies the nature of the business where the transaction took place.” When combined with detailed knowledge of the exact geographical location where the purchase are made this provides marketing and advertising opportunities for third party retailers and other service providers. These businesses, in turn, might well be using loyalty cards to further track and guide buying behavior.
This means that peak cash and the resulting increase in electronic payments is likely to lead to financial services companies exploiting customer data to increase sales, market share and profits.
In my next blog I will look at the potential benefits for customers, or should that be consumers…