|
Financial Populism: Is It Likely to Shape The Regulatory Environment of The Financial Services Industry In Years to Come?
Occupy Wall Street did not go away so fast. Before you know it, the movement had spread to cities and locales, big and small, from Virginia Beach to Saginaw and California and beyond. From the video clips being blasted throughout media channels – both old and new- the scenes looked like the streets of Chicago during the ’68 Democratic Convention. This time it wasn’t the Vietnam War, but a war at home – one that ultimately affects pocketbooks; a war between the purported haves and the have-nots. So what does all this have to do with the card processing industry?
What could be developing is a growing sentiment of populism against financial fees and policies that legislators just can’t ignore. The progressive movement is taking foot in parks and public squares and its members share a common threat with tea-party populism. They are likely to get the attention of financial managers as well as the locally elected, as they file into General Assemblies and the halls of Congress to make decisions in the interest of the common good.
Remember the Bank of America’s $5 Debit Card Fee? When faced with wide-spread public outcry, Bank of America changed course as imposing such a fee wasn’t good for the image it needed to carry forward. Subsequently they removed the fee.
“I think that it is an broader rejection of certain fee increases that the public rejects for not bringing any additional value to the consumer,” says Steven Camp, an attorney and partner in the Dallas office of Gardere Wynne Sewell LLP. “By way of example, Netflix raised its rates and there was significant backlash against those fees. I think that fees are becoming a hot button for many people, such as fees for checked baggage and fees to board a plane early.”
This and some of the Occupy movement, Camp feels, has captured the attention of Congress and the general public- namely the public sentiment with respect to monthly debit card fees. “ I think that Congress may be more aware of the law of unintended consequences,” he says. “Certain banking reforms had the effect of shrinking the base of income for banks, such as overdraft fees.
So banks went looking for new sources of revenue.”
New revenue source or not, it does say that someone is paying attention to the undercurrent. Many banks are developing other ways to make up some lost revenue as a result of recent reforms. For example, while Bank of America may have repealed its unpopular $5 debit card fee, it has imposed a new $5 fee to replace a lost card and a $20 rush charge if the customer can’t wait – though these fees aren’t nearly as publicized as the original fee was.
Whether the original user fee imposed by Bank of America was a reasonable fee or not, the bank repealed it, as the perception behind its imposition was disruptive and burdensome to the consumer. This presents a dilemma that will likely affect other parties who use payment cards in one way or another in the months and years to come. For now, there’s just a bad taste in the mouths of consumers over fees charged by banks.
“The peeling back of the fee is an indicator of the importance of consumer perception in relation to retail services, and banking is very much a retail service,” says Diana Schuetz, Director, at ARRYVE. “Debit card transactions are a cornerstone of retail services, and the marketplace has a very well-established baseline of customer expectations in terms of availability, experience and price. Netflix is a good example of how a change in any of these core retail service attributes – no matter how small – will backfire if the company hasn’t spent time to understand and plan for how their customers will receive the change. Bank of America failed to pave the way for this change with a value proposition that was attractive enough to their customers to offset the negative reaction to the fee.”
Speaking of consumers – today’s consumers often find life difficult without their mobile devices. In fact, when generators that had provided electricity to the New York City park where the Occupy Wall Street protesters camped were removed, the protesters took to stationery bikes which charged a marine deep cycle battery that allowed them to charge their cell phones and mobile devices.
Today’s technology indicates that we are truly a mobile nation. This may mean we are a “tablet nation” also, or even more aptly, a “tablet world.”
Big bank resistance also coincides with the emergence of mobile devices as a conduit of commerce and transactions. Technology developments like Google Wallet and other products designed to turn mobile devices into vehicles to conduct financial transactions, can ultimately cut out certain financial services and more specifically affect the financial transaction industry.
“The obvious answer to this question comes in discussing the additional risks associated with mobile transactions and the costs associated with securing the ever-changing network landscape,” says Brion Newell, Director with ARRYVE. “While that’s an interesting discussion, it misses a bigger point. Companies that focus their IT dollars on specific devices or apps for financial transactions will be adversely affected and will not maximize the return on their IT spend. In order to take advantage of these ongoing and inevitable shifts to mobile devices and apps, companies should focus their strategy and corresponding IT budgets on building extensible platforms. Steve Jobs once said “I’ve always wanted to own and control the primary technology in everything we do.” Think about the best apps, devices and customer experiences today, what do they have in common? From delivery of consumer packaged goods by Amazon, to the app stores of Android and Apple, to hardware devices made by Apple, to Netflix’s dominance in content delivery - the one thing they have in common is a strong platform on which the apps and devices are built. The service, the apps and the devices may get all the press, but none of them are possible without the underlying platform. Facebook doesn’t create apps, they created the platform for which other companies build apps. Ebay doesn’t auction anything, but they provide the platform for others. Google doesn’t create the majority of Android apps, they created the platform. And the list goes on.”
With so many different issues rocking the apple cart nowadays, one must contemplate any issues that lie lurking in the shadow of transaction processing. Could there be hidden issues or land mines that just haven’t come to the surface yet?
“The hidden land mine is that compliance is not security,” says Dan Glennon, Senior Vice President, Marketing and Strategy, Cybera, Inc. “Nowhere is this more acute for the industry than with smaller merchants. Those classified as Level 4 in the PCI guidelines self-report their compliance status and, in theory, this represents what security technology they’ve implemented to secure card payment data. However, talk to many of these merchants and you’ll quickly find they simply cannot afford or even understand the technology and products they’re asked to implement. Recent statistics demonstrate that most breaches occur at the smallest businesses who are inherently the most vulnerable. This is a growing concern for large franchised organizations where the parent brand can only influence (but often not control) the technology implemented at the individual franchised store level. So, while the small business owner of a single or handful of stores is reporting their compliance, the overall concept is subject to the risk of a breach adversely impacting business at all branded locations regardless of their individual security posture.”
Glennon may be on to something in speaking of compliance, because as this nation enters into a Presidential election cycle, one topic that is entering the political debate is that of data breaches – most specifically from China. Incidents of fraud and identity theft, as well as theft of intellectual property, are on the minds of candidates and incumbents.
“While no consumer wants to be the victim of identity theft or fraudulent charges, in today’s environment the risks of poor network security are much more of a concern for the merchant,” says Glennon. “With PCI compliance regulations, audits and the escalating costs of securing the retail environment, the concern is as much about the cost and complexity of security as it is about a potential breach. Many smaller merchants cannot afford or manage the myriad of security technologies but yet the fines and restitution of a single breach can be disastrous and lead to potential bankruptcy. Larger branded merchants are often faced with multi-million dollar compliance programs but stand to lose customers and revenue across their entire footprint if a breach of security is publicized through traditional or social media channels. The merchant’s challenge to balance their investment in security with the risks of a potential compromise is daunting at best.”
All said, the psychographics as well as demographics of the masses ought to be listened to. Who they are and how they lead their daily lives is part of the Occupy populism that banks must heed.
“The post-election Presidential administration appointments will be key to this. In general, the Occupy movement has highlighted that Washington - The Federal Reserve and Treasury specifically - maybe too ‘chummy’ with Wall Street,” says Kevin Lee, President and CEO of CRE Secure. “True or not, this populist perception may force the post-election administration to prove they can stand up to the big banks and push through price controls on consumer and merchant banking as a way to demonstrate that Washington is now siding with ‘the 99%.’ ” 
|
