The changing demands of consumers who are increasingly mobile, and the emergence of disruptive technology, are changing the payment model for financial institutions.
However, in order for financial institutions to take advantage, mobile payments need to align effectively with their business and digital strategy.
That is a key takeaway from an executive panel of payments experts, “Mobile Payments, Wallets & Wearables - What does the Future Hold for the Debit & Prepaid Markets?” at the PayThink 2015 conference in Las Vegas.
I moderated the executive panel that included Jeremy Bornstein, head of payments innovation, Royal Bank of Canada; Adrian Martinez, senior vice president and head of transaction products and services, Royal Bank of Canada (USA); Vince Hruska, senior vice president, City National Bank, and Dan Armstrong, chief digital officer, BankMobile.
The panel examined the impact of the millennial consumer, the adoption curves of mobile payments, digital wallets and wearables, how consumer behavior will continue to shape market structure and the competitive landscape, the best way organizations can position themselves for the future without over committing capital/resources; and the long-term monetization potential of mobile payments, digital payments and wearables.
The discussion moved to a number of specific payment issues such as how a large number of U.S. banks have provisioned their cards within Apple Pay. Issuers are in also in the process of provisioning cards within two other payment wallets Android Pay and Samsung Pay. In Canada, RBC has its own proprietary mobile payments solution, RBC Wallet.
Even though they are providing these payment solutions, issuers are seeing very light usage. The panel saw several possible reasons for this. Customers view the smartphone as a new payment form factor that does not add significant value over a plastic card. In addition consumers are accustomed to using a card not a phone for payments. Other possible issues are limited merchant acceptance and a lack of marketing efforts to educate consumers.
The panel suggested that in order for consumers to adopt mobile payments the value proposition needs to expand beyond payments. The wallet needs integrated functionality related to discounts, loyalty, personalization, and other customer engaging activities.
Also, functionally rich mobile payments solutions (and mobile banking) can assist in acquiring, retaining, and building relationships with Millennials, mass affluent and wealthy segments.
Additionally, the panel discussed the case for a bank wallets versus a third-party wallet provider. While intuitively it makes sense from a loyalty perspective, there are not many examples of bank driven mobile payments wallets except RBC in Canada, Barclays in the UK and ING in Europe.
Issuing a virtual prepaid card or a debit card (without issuing a plastic card) could be a way to offer a truly mobile account and reduce bank costs, the panel noted. The account would instantly provide consumers a virtual debit or prepaid card and immediate payment capability.
Another key take away from the panel discussion is how competitive necessity is also prompting issuers to participate in all mobile payments, offer the broadest consumer choice and cater to all phone segments.
While the short-term business case for mobile payments is uncertain – there may be some growth in ticket size, lift in transaction volume – the price of not participating in mobile payments is high and even riskier.
What is virtually certain is that current phone based mobile payments, form factors, functionalities, and authentication will evolve. The panel concluded that mobile payments are now at the early stage of a long and transformative journey but overall the panel was very bullish on the future of payments.