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Payment Analysts Discuss Bank Tech M&A, Interchange, and Mobile Pay's Future

Below is an edited transcript of a May 12 roundtable discussion about payments and banking technology. The participants were American Banker editors and reporters; Brett Huff, research analyst with Stephens Inc.; Andrew W. Jeffrey, managing director for equity research with SunTrust Robinson Humphrey; Thomas C. McCrohan, managing director for business services with Janney Montgomery Scott; Darren Peller, vice president and senior analyst for IT consulting and computer services with Barclays Capital; and Greg Smith, managing director for financial technology equity research at Duncan-Williams Inc.

American Banker: What do you think is the most interesting payments technology that we're hearing about these days?
THOMAS C. McCROHAN: I think the coolest technology right now is delivering financial services to the poor. It could be mobile payments, it could be smart cards. I think it just is an area of tremendous growth.

ANDREW JEFFREY: In my mind, the coolest new technology is probably mobile. Having the ability to reach around 5 million merchants who have never been able to accept credit cards with some type of PDA-based swipe device is probably the mobile technology that's got the most legs. The question becomes who wins, because it's a relatively low-barrier-to-entry technology, so whoever's got the best distribution will probably do well.

BRETT HUFF: I agree with the mobile comment, primarily driven by the increasing number of services that we'll be using. I think that online payments, and accessing services via mobile will be a key driver, but it's so nascent it's hard to really put numbers around it. I think distribution will be the name of the game.

GREG SMITH: I guess just to be different, I'll say prepaid. Prepaid's kind of the fastest-growing area of payments today and has many, many applications, whether it's on the payroll card side for rebates, for teens, for being able to pay for things in online gaming, virtual goods, things like that. It has so many applications, and I think prepaid will be one of the things that really continues to eat away at cash, and for somebody who maybe can't get a traditional credit or debit card, it brings them into the world of electronic payments.

There's a lot happening with mobile phones. Is acceptance the most important initiative now?
JEFFREY: I think so. But I want to clarify my comments. I'm not a believer in mobile payments. I believe that there's a tremendous amount of smoke and absolutely no fire with regard to mobile payments. I think that you will see companies like Visa and MasterCard create mobile payment technology around card-based infrastructure in their networks, and I think that's a logical extension of the network infrastructure.

But when I start to read about global mobile money transfers and mobile commerce that's software-based, I'm a huge skeptic. Look at M-PESA in Kenya, for example, or Obopay. In certain limited quarters it has a place and has growth potential. But I think when you get into the regulatory and the technology nitty-gritty of thousands of global corridors, it's a nonstarter. That's why I'm such a big bull on Western Union, because I think that all the talk of disintermediation is somewhat overblown.

I think mobile probably goes the way of Internet banking: it's a good way to facilitate online access to accounts, and for banks serving card-to-cash or card-to-card payments, probably will get some traction. But as far as truly expanding the ability of the unbanked to access money transfer or access funds, I'm a skeptic.

SMITH: You still need cash at the end of the day. Just because you can receive a money transfer somehow on a mobile phone, it doesn't come full circle until you can feed the cash in there easily and use it to make purchases. But I do think it'll happen. So I guess I'm not quite as skeptical as Andrew, but I do think it'll take a long time.

When you say it will happen, what is "it"?
SMITH: That you will be able to completely facilitate commerce on a mobile phone, whether it's money transfer or purchasing something at the point of sale without a card or cash, having the mobile phone completely displace cash, checks and cards.

People want choice. There are times you want to use cash at the point of sale. Or you may want to use a credit card or debit card, and it may not be easy with one device to select all those different types of purchases. That's an important issue.

But I do think mobile payments are going to pick up steam. We're already seeing it internationally. For example, the ability to purchase something online via mobile phone with a text-based payment system and have that show up on your cell phone bill as opposed to your credit card bill. There are lots of companies targeting that area, and I think that's going to be a big area of growth.

JEFFREY: That's really is an outgrowth of current technology.