Whatever you think about mobile payments, you are probably dead wrong.
Do you dismiss the technology as trendy, something that will never translate for your customer base? Or do you believe that it will be a smashing success, with your clients flocking to mobile banking and payments in large numbers? Maybe you are somewhere in between.
We maintain that the one thing you can be certain of is that you are going to be wrong. Why? Because in the whole history of mobile communications and financial services, few have accurately predicted the future. There are simply too many variables.
The best you can do is stay flexible and adopt a strategy that is robust over the largest number of possible outcomes. Here are a few of the most important variables you need to keep in mind:
Variable No. 1: Acceptance
Payments is unlike most markets, because its value depends strongly on the number of participants. Twice as many participants creates far more than twice the value. If you have actually tried to use a mobile payments service to send money to a friend, you know that more than half the battle is simply getting the friend to agree. In most cases, people would rather have cash, because they know that everyone accepts it. Once the first payment is made, the second becomes much easier; however, the overhead associated with the first payment is so high that most people will never get past it.
Now suppose that you use one mobile payment scheme and your friend uses another (there are literally dozens from which to choose). Who is going to switch? Think about this for a bit and you begin to see why, despite the advantages a mobile payment scheme may have on its own or in a pilot, garnering widespread acceptance in the real world is a decades-long proposition.
Variable No. 2: Security and Fraud
In most markets, when new technology becomes available, the best plan is to rush to market and capture as much share as possible. Fraud losses are an acceptable price to pay for expansion. However, in mobile banking, early fraud can have a lasting impact on the value of your brand. As a result, the developers of mobile banking platforms have taken great pains to ensure the same level of security for mobile transactions as for face-to-face transactions. However, the reality is that no one really knows how safe a system is until it is tested, and mobile banking and payments are not large enough to have attracted serious criminal attention. That will change in the near future, and when it does, banks had better be paying attention. Any large, well-publicized event could spook the public from adopting this technology further, thus slowing adaptation rates. Security is an arms race, with countermeasures and counter-countermeasures evolving together, as criminals find holes in the system and security professionals close those holes. Nonbanks that rush to market may look threatening, because they are growing extremely fast; however, this just means that they will be more badly damaged when the criminals catch up. At that point, we will see multiple mobile payment services collapse, unable to pay for the losses their insecure systems have enabled.
Variable No. 3: Competitive Environment
There are at least six major players in the mobile wallet space today: Isis, Visa, PayPal, Amazon, Google and Apple. While banks may worry about being disintermediated, all these competitors rely on bank payment systems to survive and will be spending the next two to three years tearing each other apart. Isis, PayPal and Google already have each gone through at least one large transformation of their business model, and there will be more to come. It is far too early to pick a favorite, and banks have no need to. Just wait until the field has produced a clear winner or two, and then do business with them.
Variable No. 4: Reliability
Consumers as a whole are fairly tolerant of having dropped cell phone coverage. Our day-to-day lives, while made more convenient by cell phones, have not evolved to the point where we require a signal at all times. Payments, however, do need to work all the time. Various technologies can be utilized to conduct mobile transactions. Some do require a connection back onto the mobile network; customized downloaded applications, SMS texts and browser-based services.
Other technologies, including near-field communication and Bluetooth, require only that the device pass close enough to the point of sale terminal to register. Even then, without a mobile connection, much of the advantage over legacy technologies is lost. In addition, the large adoption and continued expansion of end users on the mobile networks may become too much for the carriers to handle, possibly interfering with the success of mobile banking and payment. Finally, all mobile devices are dangerously reliant on batteries, and current battery life technology is not advancing as much as power consumption. Frustration levels will mount if consumers are unable to perform transactions because of a drained battery. All these factors make mobile services less reliable than financial services firms and their customers are used to.
These issues can and will be addressed by the industry and organizations with entrepreneurial spirit. However, the process will not be fast or predictable. Financial institutions should monitor the market and invest wisely in mobility, and avoid getting caught up in the hype.
