It may not take long for a mobile phone carrier to start looking and acting like a bank for consumers seeking to use their phones to make payments or borrow money.
In fact, mobile money transfer provider M-Pesa is well on its way to serving the African nation of Kenya as a bank after establishing a popular method of transferring money via mobile phones in the same manner as one would add or transfer phone minutes, says Brian Scott, vice president of The Members Group, a Des Moines, Iowa-based card processor and payments consultant for credit unions and small banks.
“Pretty soon, M-Pesa could start giving loans [cash points on a phone] to people, and it would be the most secure type of loan there is,” Scott says. “If you don’t pay it back, they take away your phone.”
Scott points to Kenya as the mobile payment model for the rest of the world because of the popularity of mobile phones and the lack of traditional banks in that country.
Similarly, it may not be too long before U.S. consumers embrace any number of mobile payment options being developed by “competitors that financial institutions may not even be seeing right now,” Scott said during the “Payments: The Road Ahead” webinar hosted by The Members Group for credit unions and community banks.
The underlying message for financial institutions is “beware of new entrants in payments and know who is playing in this space,” Scott says.
Mostly, the introduction of numerous disruptors in the payments technology world threatens the financial institution’s potential gold mine of consumer transaction data and correlating buying behavior information, Scott says.
“There is more [consumer] information attached to payments than in any other field, except maybe the medical industry,” he adds.
Target has established a “Guest ID” database for every shopper who comes into the company’s stores, Scott says. Target analyzes the shopper’s tendencies and behaviors to establish a promotion message for that shopper.
Credit unions and banks can take a similar approach by noting where their cardholders are spending money and which cards they use, Scott says. Financial institutions can share data with merchants and form partnerships to encourage more use of their issued cards at specific stores.
“Where are your members using cards, and which cards are they using?” Scott asks. “All of the data and information surrounding payments can impact a financial institution’s entire portfolio.”
Mobile payment has taken on many faces already when considering the various mobile wallet models, mobile card-reader devices for merchants, and transaction methods, Scott says.
In addition, many companies are following the lead of the airlines industry, which started “gamification of payments” by offering miles as a reward for using a certain type of payment card, Scott says.
Still others, like Payment One, tout billing transactions to a mobile phone bill, while Venmo emphasizes mobile pay in a social media format, Dwolla pushes what it terms “proximity” payments, and SCVNGR focuses on consumers hunting for deals or obtaining digital coupons in stores, Scott explains.
“Those [financial institutions] who can protect their payments services and data while adapting to regulations will win in the end,” Scott says.