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BirdsEye View

the mobile payments challenge

 The global non-cash transaction market continues to grow year over year. CEB TowerGroup research indicates that checks were down to 10% of total transactions in 2012, while debit cards grew to 35%, and direct debit to 20%. Overall, credit and debit cards account for 54% of global non-cash transactions, and transaction volumes are growing 5.9% and 9.6%, respectively. Electronic payments account for nearly 90% of all non-cash transactions globally.

 

The mobile scene also continues to evolve. In 2013, there were 6.8B mobile subscriptions and 7B people on the planet. Mobile subscriptions are expected to outrun people counts globally next year, and already have done so in the US (1.04 mobile phones per capita in 2013), US (1.23) and Hong Kong (1.88!).

 

Banks are investing in global payments, looking to create a competitive advantage, but most are in the process of deploying more recent mobile solutions and upgrading what they have. The pace of change in this space is dizzying. Part of the quandary is that no one knows which technology solution will prevail. We're back to the Betamax-VHS question. There are also different audiences for mobile payments. Consumers are most active and diverse in their use of mobile payments, while corporations' use of mobile payments technology is limited and expected to remain so in the future. Emerging technologies are broad and varied. Market-ready applications include location-based payments and actionable bill-pay alerts. Mobile wallets are also here, but their profitability is still unclear. Business-to-business payments and multiple supplier payments are two interesting applications for corporations that are still on the drawing board, and mobile bill pay via photo, a coveted consumer app, is on its way as well.

 

Most banks have limited resources in this space, and are looking for help from vendors and consultants to figure out which technologies and apps will win. Many are also held hostage by their own vendors who are far behind the curve in this space. They are not sure where to invest scarce dollars and how to create a compelling, or even competitive, value proposition to their customers.

 

Two banks that have done a good job in this space are Chase and M&T. Chase continues to lead the pack with new features and functionality, and was the first to offer the major feature of person-to-person payments. M&T was guided by the small business customer preferences and custom-built a set of alerts that added value to their offering. Both were clear who is the target customer and what is the specific enhancement offered.

 

The first key to success in achieving mobile adoption is removing barriers to usage. Most successful mobile apps are easier and faster to use than online banking. Consider CASH vs. a single statement offering. CASH, the supremely easy p-to-p payments mechanism offered by Square, wins on every level, from speed and convenience to inclusion and alerts. The United Airlines phone app is also faster and better than its online offering, and offers all that you need on the front page, with much more content one touch away. The value is being created through ease of use, speed, fewer clicks and skipping additional steps (e.g. delivering offers and incentives directly to the mobile device). Last, revenue comes in through increasing usage of revenue-generating payments types like cards (the first paragraph of this article clearly demonstrates there is still lots of revenue to be created from the cards) and from converging corporate relationships and revenues by featuring clients in mobile advertisements.

The barriers to entry are still numerous and significant. Security concerns and clunkiness are at the top of the list. The mobile app must be better, easier, faster than other payments alternatives. Even if the offering is available and easy to use, low impact/fast follower strategies will not create the competitive advantage or customer retention we're looking for. This puts a crimp in most banks' mobile payments strategy, which is often "wait-and-see".

 

Meanwhile, others are reaping the benefits of a robust offering. CitiDirect BE, for example has 400,000 users who pass $384 million daily through the mobile payments channel (TowerGroup research). HSBC's offering, which is more consumer-focused, has the same number of users but the volume is much lower ($114 million a day).

 

Barclays Bank is the dark horse in this race. Barclays has entered the card private label space successfully and is now also pushing the mobile payments arena with its Pingit application, which works for both consumers and businesses. It was initially created as a P2P solution and launched in February 2012. The bank continued to add functionality frequently and incrementally, applying a very short learning cycle. It nimbly kept building on past successes and learning from failures. Within 18 months the bank added its B2B and cross- border capabilities, and just recently added a feature allowing users to initiate purchase items from shop windows and have them delivered directly to their homes. Such capability incentivizes customers to aggregate on the bank's phone app, which is the ultimate goal.

 

As banks consider their mobile offerings, a few reminders are in order:

  • No need to reinvent the wheel. Mobile balance transfer, lost wallet services and order ahead capabilities are almost old hat and have been used in other financial services (e.g. cards) and elsewhere for years. These capabilities can be used in the mobile payments arena to create value, attract and retain customers.

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  • Play games. Gamification is fun and engages customers. Elements such as highlighting merchant location and displaying it on a map (Square Wallet); identifying benefits (discounts; sale items); competitors (other shoppers who compete for the benefits and the rank); challenges (what do you have to do to win; converting the McDonalds' monopoly scratch pad to the phone); and ranking (who won); are all too familiar to mobile users and keep them engaged. Use "Words with friends" as a guide.

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  • Piggyback on others. Banks can offer mobile payments without creating a mobile wallet. Banks can use their online or mobile capabilities to load their payment cards into multiple mobile wallets, including those offered by other cards.

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  • Engage your customers. First in mobile will be the owner of the relationship. Getting there is your goal. Thinking of monetizing first will get in your way.