Between record low net interest margins on credit card portfolios, continued downward pressure on debit card interchange rates, industrial-grade fraudsters, and anemic consumer spending, the ability for banks to profit from their payments businesses has never been more challenging.
When you combine these factors with threats from new and established actors in the payment ecosystem, such as Google Wallet, PayPal, Isis, and likely Appleand an internal bias within the payment industry to perpetuate the plastic payment card modelmany banks are finding it difficult to define a clear path towards sustainable growth.
For more than 40 years, card issuers have been rewarded for assuming the majority of the risk for payment transactions by being the last to know when their customers complete transactions. By the time a card issuer receives a payment authorization request, their customer has already completed their purchase with a merchant and redeemed any relevant offers or coupons.
The reality is, when youre the last to know about a purchase, youre least able to influence the outcome in order to benefit both you (the issuer) and your customer.
Mobile payments offer banks an incredible opportunity to change this last to know dynamic, and ironically, the payment piece is the least important part of it.
Google, PayPal and others are already actively recruiting and enrolling banks customers in their mobile wallet programs. By doing so, they are stepping between card-issuers and their customers, along with all of their customers valuable transaction data.
Banks are consumers most trusted financial partners, so it does not make much sense to allow intermediaries to benefit from all the data, relationship building, and branding opportunities that should belong to the banks. Instead, if banks take a more holistic approach to mobile payments, they can effectively defend against these third parties and gain huge advantages at the same time.
Be the First to Know." When consumers use their mobile banking app integrated with mobile payment and commerce services at merchant locations, banks can present their customers with any combination of payment instruments (e.g. debit, credit, pre-paid, ACH, etc.) and assign card-linked offers to those payment instruments that benefit the bank while improving the customers purchasing power.
Know More. When banks integrate mobile commerce services into their mobile banking platform, they have the option to allow customers to store both the banks instruments, as well as other institutions payment instruments. When banks enable customers to store other payment instruments in their mobile banking apps, they know when and where their customers are using those cards to complete purchases something they previously have not had visibility into. When armed with that information, banks can sharpen their offer and loyalty algorithms to steer purchases to their own payment cards.
Hedge Your Bets. There are several different payment methods and tokenization schemes still trying to gain footholds in the marketplace and its important to be future proofed. Banks should make sure their approach to mobile payments supports all the possible methods; e.g., QR Code (on POS, or device), NFC (HCE) and BLE. The approach should also enable interoperability with multiple tokenization schemes including, but not limited to those from the card networks like Visa and MasterCard. Banks benefit from this by not having to rely on a subset of acceptance methods and tokenization schemes (like some of the 3rd parties mentioned above) and staying focused on delivering great user experiences consistent with their existing go-to-market strategies.
The ability for banks to profit from and grow their payments businesses has never been more challenging. A more holistic approach to mobile payments can change all thatand put banks back in the payments drivers seat where they belong.
Frank Liddy is vice president and general manager at Paydiant.