With the mobile payments landscape rapidly evolving, banks face a vexing challenge: what should their go-forward strategy be?
The stakes are high, with consumers increasingly turning to mobile payments for the security and convenience of paying with their mobile devices. Indeed, the U.S. mobile payments market will hit $142 billion by 2019, up from $52 billion in 2014, according to Forrester Research Inc.
There is no easy answer, as new technologies emerge and established companies take steps to strengthen their position in the market to avoid getting left behind. Indeed, sorting through the proliferation of mobile payment offerings, and those expected to be released, can be bewildering.
Introduced last year, Apple Pay, which partners with the largest U.S. card issuers and is backed by more than 2,500 banks, is redefining the customer experience for in-store payments. Google’s Android Pay is a framework for others to build their own payments services on top of, rather than a stand-alone payments application. Samsung Pay, expected in the fall, will allow for NFC contactless transactions via magnetic stripe transmission technology, potentially allowing it to work at the majority of retailers’ point-of-sale systems. Other players include PayPal and Merchant Customer Exchange, a U.S. merchant-led mobile payment and loyalty solution that will be launched across more than 110,000 merchant locations.
Figuring out a path forward is critical for banks because, to date, their significant investments in building mobile payment solutions haven’t yielded widespread consumer adoption.
Determining a mobile payments strategy requires addressing three key questions:
What role should banks play? Banks must decide whether to create their own proprietary mobile wallet, partner with a third party such as Apple Pay, or combine their own solution with a third party’s offering. While a proprietary solution can allow the bank to maintain control over the user experience and customer data, all costs must be covered by the bank and consumer adoption may be limited to existing customers. Partnering with a third-party can potentially lower costs and extend the bank’s market reach, but at the cost of giving up some customer control. Combining the bank’s offering with one or more third-party solutions may present the best of both worlds
How can it go beyond payments? Regardless of which solution is selected, banks must determine how to go “beyond payments” to drive broader mobile adoption. In other words, consumers need a compelling reason to switch from paying with plastic cards and cash as they do today. This can be achieved by leveraging opportunities across the entire purchase lifecycle. For example, by using features and functionalities such as geo-targeting campaigns, and post purchase, providing coupons in the pre-purchase stage, and loyalty points, social media integration and instant surveys.
Consumers are receptive to such enticements. Accenture’s 2014 North America Consumer Payments Survey found that 79% of people currently using their smartphones to make payments would increase usage if they were offered discount pricing or coupons based on past purchase behavior.
Who should banks partner with? To succeed in mobile payments, banks need to determine which alliances will help them differentiate and make their solutions more relevant. Banks may consider partnering with one another, particularly on a common open back-end platform, in order to reduce their overall development and operating costs, as well as enhance their market relevance with a broader consumer base.
Banks should also consider engaging with merchants who, after all, heavily influence how consumers will pay at the point of sale. Merchants themselves will seek out partners who can help them attract new customers, maximize existing customers’ value and cut operating costs. A compelling mobile offering may help them to achieve these objectives.
Payments have reached an inflexion point. Amid the swirl of hyper competition, new technologies and entrants, rising merchant power and changing consumer preferences, banks must quickly determine where they fit. Otherwise, they risk losing relevancy and market share.
Jonathan Magder is an executive in Accenture Strategy specializing in payments and mobility.