The Deposit Account is Key to the FutureNitin Sumangali |
The news June 16 that Capital One Financial was buying ING Direct USA was big, and bigger the more you dug into it. When completed, Capital One will vault from the ninth biggest U.S. bank by deposits to fifth. More than the ranking, however, is the recognition implicit in the move that the deposit account is central to the future of the payments business.
For $9 billion Capital One is getting its hands on a very strong online deposit base–$82 billion from seven million customers. This acquisition spells good news for Capital One’s cards business. Rather than funding credit card portfolios through bundles of asset backed securities (ABS), Capital One will be able to tap into a large, stable source of money for the future of its credit card businesses. It also allows Capital One a chance to bolster its reserves for what looks to be a long recovery: if you’re looking to store food for a long winter, $82 billion is a lot of food.
But this isn’t simply a credit card issue. The retail banking and payments businesses are not separate, but two handles on the same relationship. For the bank’s payments business to thrive, it needs customers who are linking their primary checking account with their payments products because payments functionality fuels levels of deposits. For those ING customers who are now part of Capital One, they can gain payments products that better serve their specific needs: a fuller relationship offers more opportunities for the bank to get customers what they need.
The emergence of new payments vehicles, including but not limited to prepaid, just underlines the importance of deposits, with or without debit cards as access devices.