Last week's blog, Mobile Payments and the Erosion of Interchange Fees, discussed a risk to financial institutions as Mobile Payments matures. This week's blog explores another risk resulting from non-bank competitors' participation in traditionally bank-controlled transactions.
The data associated with Mobile Payments represent tremendous opportunity and risk to all stakeholders. American Express, among others, envisions the possibility that purchase transaction data will be more valuable than fee and service revenue.
Merchants are eager to learn more about their customers' spending habits, as well as those of their competitors. Consider what price Wal-Mart would be willing to pay for Target transaction data and vice-versa. We all have numerous loyalty tags on our key chains that allow merchants to know when we shop, where we shop, and what we buy. Currently, these programs – with a few exceptions – are independent. With the compilation of multiple merchant's data, the value of that data increases exponentially.
The sharing of credit card data is limited by federal regulations. While Congress may someday limit sharing Mobile Payments data, there is currently an opportunity to produce tremendous revenue selling consumer behavior data to retailers. While the competition is just beginning, PayPal and Google Payments are clearly leading in the race for data ownership, partially due to limited regulatory restrictions. Cellular providers also have greater capacity to leverage data for revenue production.
Financial institutions must count on bank-centric solutions, such as ISIS and Clear Xchange, to become market leaders. This will provide the opportunity to share in the revenue stream, while limiting other players' ability to sell account holder data to direct and indirect competitors. The competition to own and to take advantage of the data will be among the most intriguing challenges as the mobile payments field continues to mature.
Return to CapTech Blogs in the coming weeks for exploration of Mobile Payments impact on customer relationships and the Mobile Payments regulatory environment.