Payments: Study Says Telcos Poised to Pounce

Thanks to multi-application smart card innovation, banks face a growing threat from telecom companies in electronic payments, according to a recent study from Killen & Associates. But critics argue that hundreds of years of pay-ment experience give banks a sizable competitive advantage, despite their "techno-lag."

The study suggests telcos can extend stored value phone cards to include other kinds of payments transactions and grab a bigger chunk of payments business, particularly automatic debit, or passive payments and purchases of under $10. Says Michael Killen, president of the Palo Alto- based research company. "If (telcos) bring out more functions on the card, they make money off the float and on the transaction." A telco may, for example, decide to team up with regional transportation companies and provide the card for bus, train and taxi fare. "They don't need to team up with any bank. Every bank that issues cards should be saying to themselves, 'the telcos are coming.'"

Those who disagree, like Octavio Marenzi, research director at Meridien Research, say that the move from stored value phone cards, a "closed payment" scheme, to multi-player payment applications is quite a leap. While telcos provide card issuers value- added network services-and rent out the pipeline through which payments are routed-they don't control the back end, the most significant and profitable side of the payments process. "They're actually at a big disadvantage," he says. It's far simpler to add an application for Web payments onto a traditional architecture than to build a new payments architecture, says Marenzi.

If banks have left open a window of opportunity for nonbank players, it's in electronic bill payment and presentment. And that's precisely where companies like Princeton TeleCom are hoping to cash in. The company offers integrated payment services in a biller-centric model that allows billers to choose where to place customers' statements, says CEO Donald Licciardello.

To protect their position in electronic payments, says Marenzi, banks have to make it much easier to do interbank electronic payment and be more aggressive about eliminating checks. "The whole electronic bill presentment space is brand new, so there is a lot of opportunity, but I still can't really say that telecom companies are better positioned than somebody like Microsoft, FDC or an Equifax or EDS."

-prince tfn.com

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