With increasing regulation in financial services in recent years, many banks are feeling a tightening of the wallet when it comes to innovation in consumer products and services. Investment spend that in years past has gone toward mobile and online advancement is now being spent on regulatory projects or worse, fines. At least in the short term, we will likely see banks being more selective in their investment decisions. With this sobering reality, executives will be forced to make decisions about what’s “in” and what’s “out” for their roadmap. What does this mean for financial institutions in the mobile payment space?
Mobile Wallets: Leave It To The Big Boys
For banks that have yet to play in mobile proximity payments, there is a strong argument to be made for remaining on the sidelines. With hundreds of startup companies looking to win the mobile payment war, the competition is fierce. Venture capital investment was $1B in 2012 and tracking to surpass that in 2013 – reaching $780M as of July. VC deals aside, the major players are well positioned to squash the competition. Square, PayPal, Apple, ISIS, and Google are all (in theory) better positioned to beat the competition. With significant announcements made by many of these companies in the past weeks regarding mobile payment, banks may be better suited to let the dust settle and see where strategic partnerships can be formed to retain customers while not losing out on interchange revenue.
If Not a Wallet, What?
Keeping ROI top of mind, investment should be focused on services that attract an affluent customer base and those with a strong likelihood for cross sell. This demographic is typically comprised of young professions and ‘technophiles’ looking for a streamlined mobile/online offering. Aggressively targeting this consumer segment means taking a calculated risk in launching functionality that is newer to market while continuing to focus on services that consumers still think of as being core to banking.
Taking a queue from Barclay’s success with PingIt, a sensible investment is in person-to-person (P2P) payments. The key for banks will be ensuring their P2P offering is streamlined across channels (mobile, online, cash points). Consumers still consider money transfer and bill payment to be primary services at financial institutions. This is critical as banks can leverage P2P to promote a “sticky” product – one that makes customers more loyal to their banks and less likely to defect. Savvy banks will also cross sell higher margin bank products (lines of credit, mortgages) to these customers.
P2P looks like a promising bet for the future. As this space evolves and payments become frictionless, all signs point to P2P becoming table stakes. For banks that have already have a P2P offering in its infancy, secondary investment should be made to ensure it is delivered with a rich customer experience in mind. This means (1) P2P must be as easy as paying someone by cash or check, (2) the consumer perceives some inherent value through use of the service, and (3) regardless of the channel utilized the customer experience remains the same.
Banks are currently operating in a tough market with limited cash to throw at developing ancillary products and services. But, that doesn’t mean the well should run completely dry. Through smart, targeted investment in payments banks might find themselves winning the game… perhaps while others are busy playing on an overcrowded field.