There is lots of talk about mobile payments and where banks play, but the real opportunity has less to do with payments and more to do with “mobile commerce services," or all of those things banks (and merchants) can do via mobile to attract, engage, motivate and reinforce customer relationships to protect existing revenue streams and create new ones.   

For example: One of your bank customers, Susan, likes to shop at a particular shoe store down the street from where she works.

One afternoon, as she sits in an afternoon meeting, she gets a pop-up notification via your mobile banking app offering her loyalty rewards from your bank-issued credit card at the store. Susan has been thinking about some new shoes for autumn, so she makes a completely unexpected trip after work. Susan finds and tries on a pair that she loves and as the store attendant wraps them up, she opens up her mobile banking app and activates the offer.

The attendant quickly and easily checks her out with a tablet POS right there where she tried-on the shoes. The transaction is processed in the cloud using your bank-issued credit card stored in the mobile banking app. The store likes it because they can provide more personal service and because these cloud-based transactions are more secure than a traditional card swipe transaction. Susan likes it because your mobile banking app has made her life easier and more fun. She associates your brand with this positive experience.

As a consumer’s most trusted financial partner banks are in a great position to leverage mobile commerce services like these for strategic growth and competitive advantage.  Integrating these services into their existing mobile banking experience provides several top line revenue and cost reduction benefits incremental to their current business model:

Differentiation to acquire new customers.  Consistent with Alix Partners’ June 2014 report, mobile commerce services can play a differentiating and decisive role in influencing consumers to switch banks. Combined with mobile “online account opening,” banks can acquire more customers faster and at a lower cost per acquisition.

Higher interchange fee income.  The ability to steer customers to preferred payment instruments using value added services such as ads, card-linked offers and loyalty generates incremental fee income from both increased transaction frequency (e.g., One More Visit) and average ticket size (e.g., One More Item).

Incremental fee streams. Card-linked offers are typically funded by merchants and when placed in a bank’s mobile banking app they represent an incremental revenue stream to the bank’s business model.  In most cases, merchants will pay banks for these services – and the fees can be a multiple of what banks typically earn on interchange.

Greater Customer Loyalty. When mobile commerce services are integrated with mobile banking as part of a bank’s loyalty program, it increases customer convenience and ease of use while rewarding customers with greater purchasing power. The ultimate result is higher customer satisfaction, greater customer loyalty and reduced customer attrition—especially with your most valuable customers. 

Collectively, these benefits can eclipse what banks typically earn on interchange fee income and offer a clear path to sustainable growth.

The payments business no longer has to be a race to the bottom for banks. Mobile commerce services offer a clear path forward for banks, retailers and others in the payments ecosystem to replace “interchange” with “value exchange” for the benefit of their mutual customers and their respective stakeholders. 

Frank Liddy is Vice President and General Manager at Paydiant.