Mobile commerce is here and isnt going away. We can all agree on that. And I think we can all agree that its the banking industrys opportunity to lose, but to date, most banks remain very slow to take action.
If youre a banker, what are you waiting for? This is a once-in-a-generation opportunity and there are significant risks if you continue to sit on the sidelines and delay or decline to take advantage. These include:
Brand Disintermediation. Whether its Apple Pay, Google Wallet, Pay Pal, or merchant-branded mobile wallets, banks run the real risk of being disintermediated if they continue to sit and watch. While most industry research indicates consumers would prefer to get mobile commerce solutions from their primary bank, it also shows that consumers will seek out mobile commerce services from other sources that promise to increase their convenience, improve their purchasing power and reward them for their loyalty.
Retailers become Issuers. See above. The ability for retailers to blend payments, offers and loyalty into their mobile user experiences will inevitably shift payment transactions from bank-issued debit and credit cards to payment instruments that advantage the retailer. The success of private label credit cards and reloadable debit cards are all the proof retailers need and many are moving on this opportunity already. Banks can and should incorporate these same types of services into their mobile banking app.
Issuers can Steer Transactions from Other Issuers. When banks integrate mobile commerce services like those mentioned above with their mobile banking apps, they can allow their customers to add debit and credit cards issued by other banks (off us) into their own mobile banking app. As banks capture more off-us payment instruments in their apps, they can see their customers purchases before they select a payment instrument. This first to know advantage enables banks to incentivize high-value purchases away from off-us to their own payment instruments. Conversely, these same banks can steer low value transactions to off-us payment instruments.
Time-Value of Adoption. Consumer adoption of mobile commerce services is 5-10x faster than adoption of online banking. Starbucks, despite relying on a pre-paid payment instrument, has converted nearly 16% of its in-store purchases from cash, debit and credit cards to mobile - in a fraction of the time it took banks to get the same percentage of their customers banking online. Apple Pay is only accelerating adoption of mobile commerce. Banks should find this particularly instructive because as retailers and other banks issue mobile commerce services to their customers, the banks that dont will find their payment instruments in third-party apps. As a result, these banks will have to spend more marketing dollars winning their customers back versus applying that capital toward the business of acquiring customers and generating incremental revenue.
Mobile commerce services offer a clear and unprecedented path forward for banks to replace interchange with value exchange, strengthening customer relationships and improving profitability. Banks are in the most advantageous position as the preferred provider of these services, but that window of opportunity is shorter than most realize. Banks need to act now.
Frank Liddy is vice president and general manager at Paydiant.