Switzerland's Migros is the country's largest retailer and employer, as well as the owner of a prominent local bank, giving the company an unconventional perspective on the costs and benefits of mobile payments.
Migros Bank this week starting offering non-bank-customers the ability to perform free person-to-person payments, echoing a move by other European banks such as Barclays. These European banks see mobile P2P as a way to encourage non-customers to open accounts, thus making P2P more of a marketing tool than a financial service.
P2P "will not be something big, but you want to be present in that market," said Stephan Wick, the banking unit's chief operating officer. "P2P is important but it will not be a dominant payment method."
Migros Bank is a unit of the $28 billion Migros, a company that handles about 40% of all Swiss retail purchases.
Although P2P is free to non-clients of Migros Bank, it's not at all free to the bank; the bank must pay an interchange fee for accepting funds from a non-client's payment card that is about one percent more than the bank's costs when accepting funds from customer's bank account. Swiss regulations prohibit Migros from doing a direct debit from the account of someone who is not a customer.
"For this first phase, we pay that in our books," Wick said. But whether free P2P will be an ongoing effort for Migros is unclear, with Wick saying that the bank has set an internal figure for how much Migros is willing to spend on free P2P.
"We set the figure and after the figure is reached, then we'll decide if we continue. We will also need to see what the competitors are doing," Wick said, though he declined to divulge the exact figure. "We want to have a lot of appearances in newspapers, blogs. We want to have visibility."
To limit the bank's financial exposure, Migros caps non-client P2P transactions to 100 Swiss francs. To put that into context, Wick said, the average P2P transaction of its existing customers is 63 to 64 Swiss francs and the median transaction for customers (who do not have this cap) is about 100 Swiss francs.
That limit is not solely to contain financial exposure. It is also meant to deter the use of Migros' P2P service for money laundering, Wick said.
Given the competitiveness for everyone to support free P2P transactions, one might think it was a supremely popular feature, but Wick said the current numbers say otherwise. Even though Migros has offered P2P payments to its customers for years, "not that many" have used it, Wick said. "We see people who adopt it, but we did not push it on the marketing side."
Marketing the service can be a challenge, especially in a country such as Switzerland where privacy is strictly protected.
Opt-in rules are critically important, but Migros already gets consent from anyone downloading its app, which allows Migros to do almost anything that it wants to as long as it does not provide the data to a third-party, Wick said.
Active marketing "is a very delicate topic here," Wick said. "We will collect lots of data, some e-mail addresses, some bank numbers, some mobile phone numbers."
Of much greater interest to Wick are retail mobile payments, especially given the primary business of its parent company. More than 70% of Swiss consumers have smartphones and, unlike many countries outside the U.S., Apple's iOS devices have a stronger market share than Google's Android.
"IPhones today have a more than 50% to 60% market share" in Switzerland, he said. "Everyone is waiting for Apple Pay."
Everyone, that is, except the retailers, who do not want to pay Apple's fees. Swiss rules require merchants that can accept Near Field Communication-based payments (such as Apple Pay) do so, and almost all Swiss payment terminals support NFC.
Some Swiss retailersincluding potentially his parent companywill aim to deter Apple Pay purchases through their loyalty and rewards programs, Wick said. Similar to how Gyft gave consumers more reward points for buying its digital gift cards with PayPal and Bitcoin instead of credit cards, Wick expects Swiss retailers to use loyalty points to drive consumer behavior. "They can say 'If you use Apple Pay, you get no points,'" he said.