Last week's blog, Will your Financial Institution Win or Lose in Mobile Payments?, provided a high-level view of some of the mobile payment technologies and asserted that banks were at a disadvantage when compared to players with greater technology expertise and with ownership of the infrastructure. One method to diminish the impact of these technological disadvantages is to form strong partnerships with the organizations that control the infrastructure. No one institution, merchant, cellular provider, or vendor is going to win this competition alone. The interests of financial institutions align closely with those of the card associations. Financial institutions and card associations should work closely together to leverage the existing card infrastructure. This will enable both groups to minimize erosion of interchange fee income and win the inevitable battle for data ownership.
The best opportunity for financial institutions to become winners in the mobile payments space is to offer broad, multi-channel solutions convenient to consumers at a vast majority of merchants. These solutions must provide merchants and consumers a high degree of confidence in data security and fraud protection. In terms of convenience and security, ISIS appears to be an early market leader. ISIS is among the few solutions offering both credit/debit card and stored value capabilities. However, one disadvantage is Isis' reliance on Near-Field Communications (NFC), which requires many merchants to invest in new Point-of-Sale terminals.
Another intriguing technology is the FIS Mobile solution which has been piloted at two institutions. FIS, in partnership with Paydient, is providing its core platform customers the ability to enter the mobile payments market regardless of institution size. This and similar solutions, assuming they eventually operate on existing infrastructure, may allow small banks and credit unions to beat larger institutions to market. If they are not already doing so, smaller institutions should be learning of and influencing the strategies of their core system providers and other key technology partners in order to utilize competitive advantages that may arise.
Financial institutions and other mobile payments players must be open to compromise. In addition to satisfying the convenience and security needs of merchants and consumers, the winning solutions will generate benefits – revenue – for financial institutions, card associations, cellular providers and technology enablers. The greedy players, those that attempt to control the market and refuse to share revenue, will be left behind.
Return to the CapTech Blogs site next week for a discussion about interchange fee income.