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In June, the US Supreme Court agreed to hear appeals from Visa, MasterCard, and major banks in a case accusing these parties of preventing ATM fee competition.
Those hearings, scheduled for early December, were canceled when the Supreme Court dismissed the case last week as a response to involved parties shifting their arguments, according to SCOTUSBlog. That dismissal could open the door to class-action suits, according to Fortune.
The case’s plaintiffs believe that Visa, Mastercard, and major banks worked together to prevent ATM operators from lowering fees.
- ATM operators pay fees based on networks through which transactions are routed, which are then passed onto out-of-network consumers. Some of those networks, like those operated by major card networks and banks, might be more expensive than others. The plaintiffs assert that the major players colluded to prevent ATM operators from passing on cost savings from using the cheaper networks in the form of lower fees to consumers until 2006-08, according to The Wall Street Journal.
- ATM fees are becoming less important. Average out-of-network ATM fees declined for the first time in years in 2016. At the same time, 61% of consumers don’t pay for any banking services, including ATMs, according to Money, and BI Intelligence found that just 33% of millennials use out-of-network ATMs. That means that the case’s tangible impact on ATMs might be negligible.
But the case’s resemblance to other anti-card network sentiments could bring about broader change.
- Card networks have been under recent scrutiny for anticompetitive practices and fee structures. In the US, major retailers, including Walmart and Kroger, have sued Visa over the firm’s practices that make it challenging for merchants to route EMV debit transactions over less expensive networks that compete with Visa. Those policies, which were recently condemned by multiple merchant associations in an open letter, might soon be under scrutiny from regulatory bodies. Mastercard is facing similar issues, and a major class-action suit, in the UK for cross-border fee structures deemed anticompetitive by the EU.
- If these sentiments continue, and networks continue to face scrutiny and retribution for anticompetitive practices, we could begin to see lower fees or changes in the way these market leaders relate to their merchant and vendor partners.
More millennials are moving toward digital banking, and as a result, they're walking into their banks' traditional brick-and-mortar branches less often than ever before.
This generation accounts for the greatest share of the U.S. population at 26% and the employed population at 34%, so it's easy to see why their behaviors and preferences will have a profound effect on the future of the banking industry, particularly with regard to the way banks interact with their customers.
Third parties are expanding their role in providing services that consumers use to manage their money. And the more that role grows, the more it will disrupt the relationship between banks and their customers.
To paint a clearer picture of the future of the banking industry, John Heggestuen, managing research analyst at BI Intelligence, Business Insider's premium research service, surveyed 1,500 banked millennials (ages 18-34) on their banking behaviors and preferences — from their preferred banking devices, to what banking actions they perform on those devices, to how often they perform them.
All of that rigorous research led to an essential report entitled The Digital Disruption of Retail Banking that dives deep into the industry and details what its future will look like.
Here are some of the key takeaways from the report:
- The bank branch will become obsolete. It will be some time before the final death rattle, but improving online channels, declining branch visits, and the rising cost per transaction at branches are collectively leading to branch closures.
- Banks that don't act fast are going to lose relationships with customers. Consumers are increasingly opting for digital banking services provided by third-party tech firms. This is disrupting the relationships between banks and their customers, and banks are losing out on branding and cross-selling opportunities. For many banks, this will require further commoditization of their products and services.
- The ATM will go the way of the phone booth. Relatively low operational costs compared to bank branches, paired with customers' preference for in-network ATMs, makes the ATM an attractive substitute for bank tellers. But as cash and check transactions decline, the ATM will become nonessential, ultimately facing the same fate as the physical branch.
- The smartphone will become the foundational banking channel. As the primary computing device, the smartphone has the potential to know much more about banks' customers than human advisors do. The smartphone goes everywhere its user goes, has the ability to collect user data, and is already used for making purchases. Therefore, the banks that will endure will be those that offer banking services optimized for the smartphone.
In full, the report:
- Analyzes how millennials use bank branches and why - even though there are a large share of millennials who still use branches, making significant investments in these channels isn’t a good move for banks.
- Explains how mobile payments and mobile point-of-sale adoption by small retailers will make the ATM obsolete.
- Describes how digital channels, particularly the smartphone, will become the foundation of the bank-customer relationship.
The Digital Disruption of Retail Banking is how you get the full story on the future of banking.
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The choice is yours. But however you decide to acquire this report, you’ve given yourself a powerful advantage in your understanding of how the digital age will disrupt retail banking.
