Most banks are now aware of the potential risks and benefits that mobile technologies pose to their payment activities, but they continue to face challenges about how to roll out new payment services in a cost-effective and timely way. Even where new payment technologies can be rolled out by an individual player, a wider mobile ecosystem network will still be required to enable those tools to fully function. Third-party payment services can help banks to meet these challenges, particularly when technologies are launched using banks’ existing online and mobile banking channels.
Mobile payments are a natural extension of existing online and mobile banking services. Third-party services such as Fiserv’s P2P service Popmoney can allow banks to launch new payment services more rapidly and tap into new payment networks more cost-effectively compared with going it alone. The use of these sorts of services through existing online and mobile banking channels can be extended to nearly any form of mobile payment, including the mobile wallet, and can provide banks with a powerful means to avoid disintermediation from emerging payment services.
Going the distance
The payments world is increasingly awash with negative prognostications for traditional financial institutions, about the fear, uncertainty, and doubt they face as players that may cause their disintermediation vie to enter the market. However, although new players are now entering the payments sphere, in most instances they do not hold the same level of consumer trust as established banks, and gaining consumer acceptance and driving use of these payment tools is often problematic due to issues of trust, security, and lack of awareness.
Banks, on the other hand, do not face these same hurdles. They hold a natural advantage as they are already the trusted provider of payment services in consumers’ daily lives, and for most consumers and merchants it is not a major leap to perceive them as the natural providers of mobile payment services.
However, for many banks this poses a problem. They need to remain innovative in payments, and to achieve this they need both platforms that can provide them with flexibility in the types of payments they can offer, and effective payment networks between merchants, consumers, and banks. For most banks, achieving this on their own is not a cost-effective proposition, and even where it is possible, it will not help to overcome the need to form networks to make the technology work, and work quickly. For banks to go it alone, they will need to spend a significant amount of time and money on a specific strategy, well in advance of any rollout.
Mobile banking a natural springboard
Third-party services and technologies integrated into a banks’ wider mobile banking offering can, however, provide both a means of gaining consumer trust and driving usage, and the flexibility needed for rapid innovation in a changing market. Consumers are already using mobile banking in growing numbers, and extending these services into payments through third-party providers is a relatively easy step.
Popmoney from Fiserv illustrates the potential of this approach well. It is a P2P money transfer system available under license to consumers through their existing online or mobile banking platforms. Popmoney services are highlighted under the Popmoney brand within the online or mobile banking channel, so the bank retains its branding and primary relationship with the consumer while Popmoney provides an interoperable P2P network between bank providers. As Popmoney grows over time, as both a service and a consumer-facing brand, the interoperable nature of the service will become more visible.
For banks, launching a service like Popmoney can be cost effective compared to producing an in-house system, which would likely lack interoperability with other P2P platforms. It can also help reduce the time to market, critical for initiatives such as these. The fact that Popmoney is currently being used by major US players, such as Citibank, as well as smaller regional players, such as Hawaii National Bank, highlights how scalable an approach like this can be.
Disintermediating the disintermediators
The Popmoney approach of offering a third-party payment tool through a branded mobile or online banking service can easily be extended into other areas of payments, including e-commerce, proximity payments, and even mobile wallets. Acting as a front-end interface to other payment services, banks can, in effect turn the tables on potential disintermediators.
Fiserv, for instance has also been working on a “wallet of wallets” through its Mobiliti Master Wallet service, which is due to launch in late 2013. Under this program, consumers can connect cards and activate mobile wallet platforms, such as V.me, Google Wallet, and Paypal, through their standard online or mobile banking platform. Consumers can then manage all of their associated wallets and the cards they link to these accounts from their trusted mobile or online banking platform.
For banks, using technologies that can be directly implemented in existing mobile or online banking channels can not only help to drive consumer uptake and lower security concerns, but also provide them with the flexibility they need to innovate with new payment tools and types. By creating new services in an already existing mobile banking channel, banks can reduce the difficulty of gaining consumer uptake of these new payment tools and help reduce the risk of disintermediation by competing payment providers.
Gilles Ubaghs is a Senior Analyst in Ovum's financial services technology team.