Bankers frequently ask us how mobile payments will generate revenues and profits. But an even more burning question may be: How much do banks stand to lose by not providing a robust mobile payments offering?
Some consumers maintain a combination of a checking and savings account and perhaps a brokerage account or mortgage with their bank. Consider the risk to that bank if a national retailer with a financial services franchise including thousands of branch outlets, or a new entrant such as PayPal, inserts itself into that customer relationship by offering a mobile wallet with enticing discounts and loyalty rewards.
In this worst-case scenario, the bank loses that valued credit card relationship along with the deposit base as the customer redirects his cash flow. The potential threat is significant: the six largest credit card issuers in the U.S. earned a combined $92 billion in revenue during fiscal year 2012 from their credit card businesses.
Now consider the possibility of these alternative players moving beyond payments by offering checking or bill payment services. Once they have convinced consumers to jettison their bank-issued plastic, they may begin to peel consumers away from their banks by providing products similar to traditional banking products, but with more attractive features at less cost.
Deploying a mobile offering is not solely a defensive strategy of course. For those banks seeking to grow, mobility offers a way to not only attract new customers, but to further engage existing customers and extend share of wallet. Mobility can help banks become more enticing to customers by enabling them to receive offers when and where they want.
We believe that mobile payment technologies such as cloud wallets, QR codes and near-field communication (NFC) payments will be the next big thing because of their rich feature functionality, so banks should be investing accordingly. Certainly, major payments players are already pursuing a similar strategy, including Google, Isis (the joint venture among AT&T, T-Mobile and Verizon) and Visa. While NFC has not taken off as quickly as initially predicted, Gartner estimates that by 2015, approximately half of smartphones globally will have an integrated NFC capability.