By: Jim Delbridge
Mobile banking, which has quickly evolved over the past few years from cutting-edge technology to a leading best practice, is changing the way customers interact with their financial institutions. With heightened customer expectations in an increasingly competitive environment, banks know they have no choice but to incorporate mobile banking offerings as part of their core services in order to remain relevant.
One exploding mobile market is mobile payments. Earlier this year, Forrester predicted mobile payments will generate $90 billion by 2017—a significant increase from the $12.8 billion recorded in 2012. Mobile payments offer banks a way to interact with their customers and provide value differently than they have done in the past. By offering mobile payments, banks are in a great position to deliver a unified customer experience and truly “put the customer first.”
The key is to act quickly
In order to take advantage of this opportunity, it will be necessary to act quickly. Non-banking entities already are beginning to leverage mobile payments successfully. Starbucks is using its mobile wallet app throughout its store network, and mobile payments currently account for 10 percent of all Starbucks revenues. In another example, mobile payments and ticketing allow for streamlined transit processes in many major cities around the globe. The key to success, it seems, is providing a solution with clear benefits to the customer, while making payments easy for the merchant to accept.
Challenges to entry, but they’re not insurmountable
There are several key challenges facing financial institutions that seek to enter the mobile payments market:
- Competing technologies – NFC vs. cloud
- NFC-based technologies involve a hardware-based chip and a specialized app; for example, Google Wallet
- Cloud-based technologies are app-based products that do not require hardware; for example, PayPal
- Massive competition – Not only are banks competing against other financial services companies; they also need to fight off companies like ISIS (AT&T, Verizon and T-Mobile joint venture), Google, and PayPal, which are looking for their share of the growing market
- Difficult business case – Most currently identified revenue opportunities tie to advertising revenues, and here banks are at a distinct disadvantage compared to non-financial service companies. Some may feel like they do not have sufficient expertise to support the business case
These challenges are not insurmountable. The massive competition alone shows that there are market opportunities for well-positioned banks. Some banks have already chosen to partner with emerging wallet providers such as Google Wallet and ISIS. This allows them to leverage the existing point-of-sale technology networks, but it does limit their ability to integrate and customize offerings. Others, like US Bank and its launch of the Go Mobile Payment Service earlier this year, have begun to pilot their own mobile payments app. These pioneers will have a branded, customizable solution, but they will bear the risk and cost of being early adopters of mobile payments. A third group is opting to invest in both avenues to gain a potential upside in whichever solution becomes the standard. Barclaycard US is a good example of an insititution taking this route, by taking a stake in ISIS and Google wallet while simultaneously piloting its own mobile wallet application.
Where to start?
With all the options and challenges in the space, it can be difficult determining which direction to steer your bank. Here are a few suggestions for moving forward:
- Have a mobile banking strategy that aligns with the values of your bank and develop a roadmap for achieving that strategy in a measurable way. Furthermore, make sure this strategy takes on a customer-first approach and serves the needs of both the customers and merchants.
- Think about integrating your mobile data and systems to allow seamless interaction between mobile banking and payments.
- Consider leveraging mobile payments to reach unbanked populations through integration with prepaid cards to strengthen the business case and expand your customer base.
Whether your strategy involves partnering with an emerging mobile payment service provider, developing/purchasing your own mobile payments app, or investing in both avenues, the key is to have a strategy and begin devising ways to implement it. The mobile banking landscape is evolving fast, and financial institutions need to think about mobile payments now or risk losing their credit card base and an opportunity for a valuable new customer touchpoint.
West Monroe Partners works with banks to develop and pursue mobile payment strategies and other mobile solutions. For more information, please contact Jim Delbridge.