Letter to the Editor: Don't Partner on Payments

To the Editor:

Banks and alternative payment rivals should not be pals [Banks and Alt-Pay Rivals Are Now Pals, Jan. 4]. They should not be pals because they are distractions from the two major initiatives that every bank with a payments business needs to be working on: maintaining the core payments business and facilitating transactions via mobile devices.

Any initiative that is not about protecting the core business or facilitating credit, debit, prepaid, decoupled debit transactions, microloans and remittance payments via a mobile device is a waste of scarce investment dollars and limited management resources.

This year is ushering in the decade of the mobile device as the universal communication, information and transactional device. There are already some 4 billion mobile devices in use worldwide. In the US, we are quickly becoming a society where every person over the age of 16 years old; US citizen and illegal alien; rich, middle class and poor alike, has and consistently uses a mobile device.

Near Field Communication or NFC, the short range high frequency wireless communication technology that enables the exchange of data between devices, has been piloted for payment transactions and is commercially viable. NFC integrated into phones and the corresponding POS terminals are available today. The power of payment capability within such a versatile and pervasive device as the mobile phone is as unlimited as the creativity of mobile application developers. Better yet, NFC integrated into a phone will be the catalyst for a social revolution in the payments industry.

My firm estimates that more than 35 million people in the US alone will participate in "mainstream" financial services as a result of NFC integrated into phones and that it will eliminate an estimated $2.5 to $4.0 billion in fees to non-banks that serve the poor, the working class, students and immigrants today. The mobile device has the potential to render the magnetic stripe obsolete in only a few years and significantly reduce cash and paper check transactions. The challenge is for banks to demonstrate serious leadership and commitment in terms of moving this mobile payments revolution forward.

Now more than ever before, the innovation teams, product leaders and strategic planners need to hunker down and stay focused. Maintain the core business and develop transactional capabilities for mobile devices. Our advice to issuing bank clients is not to waste any time or resources on any activity that deviates from those two objectives. The only "pals" that a bank needs to have are those who aid in executing against those two objectives; such as the card networks, retailers, processors, handset and mobile device manufacturers and POS manufacturers.

Philip J. Philliou
Partner, Philliou Selwanes Partners
New York