income opportunities

Question: How can commercial banks generate new income opportunities, especially during this global financial crisis?

Answer: As a result of the global economic crisis, financial institutions are under more pressure than ever to find successful new strategies to acquire more customers and keep existing ones. Innovation and product development are vital methods for commercial banks to respond to customer expectations and generate greater value from existing customers.

We have seen significant developments through Web technologies, delivery channels, and mobile communications. These innovations present an opportunity to generate new product alternatives and bundles for banks. Deposits, loans, money orders, and other products supported by these new technologies have great potential, but are still nascent. New killer financial products other than credit cards and derivatives need be introduced so banks are ready when the markets upturn. Customer centricty can be reached by integrating different sectors and products.

For companies interested in advancing their banking product and innovation strategies, the most logical opportunities exist with new types of cards, loyalty programs, and mobile applications. Here's how to bring those concepts into practice.

Next-generation cards and loyalty programs

Debit and credit cards have a multitude of product features and various market applications. Market readiness and regulation needs frequently lag behind innovative product features. The most popular features right now include payment installments, cash back, gift-based programs on the consumption percentage, no fees, airline miles, etc. These are fine, but more opportunities exist.

One is to create a back-end infrastructure that makes it easy to use credit or debit cards in conjunction with other systems. What if customers could use their bank card as a lottery ticket? The 16 digits on the card and PIN code provide security and almost endless combinations of ticket numbers for every lottery drawing. The program would also help reduce paper and costs by eliminating paper lottery tickets cards. And when a customer wins, the money can be automatically placed into the user's account. The same logic could be applied to use credit cards as airline, concert, or cinema tickets.

In addition, banks can also integrate into other payment processes like highway tolls and fuel charges at gas stations directly, instead of using a third-party processors like EZ Pass and PayPass. Yes, the technology exists today to make purchases in some countries, but the true innovation lies in the back-end integration.

Integrating the back-office systems of banks and cards with third parties such as the lottery or airlines and creating applications aligned with the both sides' needs will enable customers to have one plastic card in their pocket with exceptional use and flexibility. On the business side, the economies of scale created by integrating cross-sector products and services would help banks and related companies reduce their operational costs and generate more revenue. Such innovative offers would also undoubtedly improve customer satisfaction and customer experience.

Issuing prepaid credit or debit cards is another area that hasn't been used to its fullest potential. For example, gas and fuel cards can be hedged against oil prices; customers could choose post- or prepaid payment options to avoid price changes for a specific time period. Such innovations would help both customers and the service companies manage their liquidity. In addition, these prepaid cards would be sold through various intermediaries, such as post offices, gas stations, and banks. Integrated prepaid storage through mobile phones would also be a tremendous advantage.

In the long run card programs based on the customer experience and back-end efficiencies will create a new value chain that includes new sectors and companies. Card usage and consumption will increase, and customers will have the flexibility to earn bonuses that can be spent in participating loyalty scheme value chain locations.

Mobile phones as purchase points:

Perhaps the greatest gain for both financial services innovation and product development may lie with using mobile phones as payment instruments. The technology is ready with programs like Near Field Communication (NFC) or Radio Frequency Identifcation (RFID), but the standards are not fully set. However, we will see mobile operators in the near future acting as payment clearing houses or hubs, with a significant portion of their revenues being generated through financial services.

I envision it working similar to Mastercard's PayPass technology, where customers would receive a monthly bill from the servicing operator of all credit expenses. In such a scenario the operators and banks would reconcile transactions and provide seamless joint service.

These innovations essentially help financial institutions get back to the basics of the banking: buiding customer trust, managing risk and churn, and encouraging retention and loyalty. Adam Smith's free-market rules and John Maynard Keynes' government expenditures were questioned during the crisis, but it is certain that the new economic world will be about more than bail-out packages. As new market rules are set, bank executives need to be more creative and respond to customer expectations and needs swiftly.