I recently introduced the MasterCard Mobile Payments Readiness Index (see story) to a group of c-level bankers, and told them that one of our top-level findings is that it's the early days for mobile payments.
There was a nearly audible sigh of relief. That was the troubling part.
What I quickly attempted to hammer home is that "early days" only means that the time to line up strategy, technology and partnerships is now.
The partnerships piece is the most important. The mobile payments train is about to leave the station—and there is a real danger that banks could be left behind.
Don’t believe me? In Canada, Rogers Communications has applied for a license under the Bank Act. No bricks and mortar. Just mobile.
That's one of the reasons why Canada came out slightly ahead of the United States on the MPRI, which rank orders 34 global economies in terms of their readiness for mobile. A comparative lack of integration among the players needed to launch mobile payments depressed the U.S. score. That would be integration among telcos, device makers, the regulator, merchants — and banks.
What each of these entities needs to understand and internalize very quickly is that no one, indeed, no two or even three of these players can get mobile payments off the ground by itself — unless it wants to morph at least partially into one or more of the others, a là Rogers.
This is an old story and one that has been bouncing around for at least 20 years — when then Microsoft chairman Bill Gates informed the world that banks were "dinosaurs." Back then, went the buzz, banks needed to step aside for technology companies on account of this new thing called the Internet.
Maybe Gates was just 20 years too early in his prediction of extinction. If he was, it's partly because of the generation that's rising. While their grandparents and even their mothers and fathers may have been leery of giving their money to anybody but a bank, Gen Y'ers don't seem to harbor these inhibitions.
According to a recent CFSI study (see study), 21% of 18- to 24-year-olds and 40% of 25- to 34-year-olds once owned a checking account, but no longer do. Forty-five percent of 18- to 24-year-olds and 46 percent of 25- to 34-year-olds said they would prefer a prepaid debit card to a checking account if the costs were comparable. Not better — comparable.
And what if that prepaid account were in a mobile wallet supplied by anybody but a bank?
This is to say no more than that the time to start formulating mobile strategy is now. Every member of the mobile payments ecosystem needs every other member — which is the reason MasterCard put so much emphasis on the mobile commerce cluster component of the Mobile Payments Readiness Index.
That index is MasterCard's contribution towards providing some empirical and quantifiable guidance as to the development of mobile payments.
The six components going into the algorithm that produces the index are: environment, infrastructure, financial services, regulation, consumer readiness, and mobile commerce clusters — the measure of integration among all the players needed to execute a mobile payment.
The consumer readiness component is of great interest as well. One of the great differentiators of the MPRI is that we asked a pretty robust sample (1,000 per market) their level of familiarity with, willingness to use, and actual use of mobile payments.
The answer to all three questions is, not so much, unless you're a young man with money, not the biggest demographic in the world. Still, it’s a starting point.
The challenge is, of course, that a young man with money is precisely that millennial with just as much propensity to park his money with a telco or a device maker as with a bank.
Make no mistake. Mobile payments — the most significant change in form factor globally since the introduction 30 years ago of end-to-end electronic authorization, clearing, and settlement — are here to stay. And it could be banks' game to lose unless they demonstrate they're willing to play nicely. All the other players need the banks as much as the banks need them. For now.
Theodore Iacobuzio is a vice president at MasterCard Worldwide, where he leads the global insights group.
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