If the promise of digital payments comes true, most issuers won't be able to appropriately handle the volume of transactions.
Banks aren't ready for mobile wallets. They can't handle prepaid cards. And they won't be able to market and offer rewards based on those purchases once the floodgates open, contends Brian Riley, a research director in the retail banking and cards practice at CEB TowerGroup, who spoke in an interview with American Banker ahead of the consultancy's annual conference in Boston. Banks simply don't have the infrastructure to store and manage all the data needed for these purchases.
"The engine that is running now is a machine that was built in the 70s," says Riley. "Sooner or later, if you start thinking about transactions with cards as you would with cash, that really brings in these onsy and twosy transactions that didn't exist before. It's not just a matter of splitting the file. It's a matter of creating techniques within the data that go beyond the processing. The gaps that we have today are first, just dealing with the transaction data as a one-time event, and second, failing to link it to other channels to use the data that can create analytics." Banks should be looking at the infrastructure not just as a card processing platform, but as a way to go deeper, he says.
"The way a payment gets posted today, we go in and we authorize a transaction at CVS, but we do nothing with that data," says Riley. "Think of the power you could start building." He says that rather than just passing a transaction through the system, banks need to accurately cross-sell and market new financial products or other purchases to that user.
The bottom line: banks need to start investing in infrastructure, rather than just the new mobile wallets, or flashy devices.
Last spring, Citigroup (C) signed on with search engine giant Google's (GOOG) Google Wallet. Google is in talks with multiple other issuers, as well.
"No timeframe, but we can say we're in discussions w/ Visa issuing banks & others. Will share updates as we make progress!" the company tweeted using the recently launched handle, @GoogleWallet, on May 21.
Prepaid cards have also begun to gain traction with traditional banks.
This month JPMorgan Chase (JPM) began marketing its Liquid prepaid card as an alternative to a bank account.
In March, Regions Financial (RF) rolled out a prepaid card as a part of its Now Banking suite of alternative financial services.
Riley will be talking later today during a session entitled: No Card, No Problem: No Infrastructure, Big Problem.
You can follow me on twitter, @SeanSposito, or follow the hashtag, #CEBTG12, for more news coming out of the TowerGroup Conference.