The Bankwatch

Mobile still gets more attention from Vendors than it does from many banks and this continues to surprise me.  Certainly the large banks have uptake in their mobile offerrings, but it is not stellar growth.  Tower Group recently noted the economic crisis could change that.

Meantime here is another excellent offerring from Fiserv that appears to be geared to help banks get over that hurdle by making the integration of mobile transactional banking and payments easier and faster to implement.

Fiserv

Brookfield Wis., June 1, 2009Fiserv, Inc. (NASDAQ: FISV), the leading global provider of financial services technology solutions, today introduced Mobile Money FastTrack™, a straightforward mobile banking solution that can be rapidly deployed by financial institutions. Mobile Money FastTrack, a streamlined version of the flagship Mobile Money^SM solution introduced by Fiserv in 2008, delivers essential mobile banking features within an affordably packaged solution that can be enhanced as the mobile channel matures.

Mobile Money FastTrack can provide “triple play” technology that enables consumers to access their accounts using any of the three primary mobile access modes: mobile browser, SMS (text messaging) or a downloaded application.

The available downloaded application technology also supports mobile banking on high profile devices such as BlackBerry^® smartphones and the Apple® iPhone™.

Relevance to Bankwatch:

I mention ‘transactional’ banking for mobile because at the root of the hurdle for banks is the lack of consumer drive in North America for mobile. I attribute this to North American consumers coming to the mobile space late, but also and importantly, they are already avid online banking users with decent connectivity wherever they require it, which leaves them wondering what more mobile can bring to them.  Questions North Americans ask themselves are how the mobile fits with their current online banking habits.

With the exception of new markets, eg unbanked, banks would do well to help consumers with the answer to that question.  For example inclusion of payments (bills and remittances), account alerts, or tagging expenses while making purchases are the kinds of things that might supplement the users experience.  Note the Fiserv offerring mentioned above has payments included.

Mobile payments continues to grow worldwide, yet limited in North America so far.

Mizuho and NTT DoCoMo launch mobile payments service

Mizuho Bank, in partnership with NTT DoCoMo plans to launch a financial services and remittance services via mobile phone

ＮＴＴドコモがみずほ銀行と提携し、携帯電話を使った送金サービスなどの金融業務に乗り出す方針であることが２６日、わかった。

Researched by Nobuyo Henderson

This is an exciting development.  After reporting on the far east and their advances in types of wireless payments, RBC in Canada and Rogers wireless announce a new pilot in the works. 

Rogers Wireless joins RBC and Visa m-payments pilot

RBC (Toronto:RY.TO)(NYSE:RY), Visa and Rogers Wireless have come together for the next phase of the mobile phone payment pilot, which will ultimately allow Canadians the flexibility to make purchases securely at the point of sale with a wave of their mobile phone.

Its to be aimed at small payments, and using Motorola phones.  That latter point is a hinderance it its limited to one phone, but hopefully thats only for the pilot.

The technology used is Near Field Communication (NFC) that is described at Wikipedia as –

a short-range high frequency wireless communication technology which enables the exchange of data between devices over about a 10 centimetre (around 4 inches) distance.

In Tokyo last time I noticed the prevalence of smart wireless payment cards.  I have a Pasmo card that was for the subway, and now I can use in convenience stores, and other merchants.  Which all leads to the question of whether the future will be contacless cards or phones.  The answer is likely both.

Others in Japan:

Suica issued by JR East (Railway). Uses RFID.

Pasmo issued by Passnet (other rail providers than JR).  Uses RFID.  Works best for Tokyo people because it works on Tokyo Metro.

CashEdge announce a service that allows small business to transfer funds to their own accounts at another bank.

CashEdge Launches Me-to-Me Transfers for Small Businesses

Small Business Me-to-Me Transfers, part of the TransferNow™ for Small Businesses Product Suite, enables financial institutions to offer secure inter-institution funds transfer services to their small business customers.

This decision by the Canadian Payments Association to discontinue the Truncation and Electronic Cheque Presentment (TECP) is the smartest thing I have seen banks do for a while. 

CPA Board Decides Not to Proceed Further with Image-Based Clearing Initiative | Payments News

The decision was reached after thorough analysis of the findings of the industry-wide project review. During the review, it became clear that the enhancements to efficiency that had been originally anticipated would not be fully realized due to implementation delays and the ongoing evolution of the marketplace towards electronic payments. This review also highlighted the complexity of moving forward to industry-wide implementation, given the extensive interdependencies among participants’ project plans.

TECP was the classic “paving the cowpath” project.  The intent was to swap digital images of cheque’s between banks in place of the current methodology which sends the paper cheques back to the bank of account.  This was ridiculous from the beginning because the obvious solution is to eliminate cheques, which customers are doing by themselves in Canada. 

The few cheques that remain can be managed using the current process.  It made no sense to introduce a horrendously expensive project to automate a dramatically declining activity.

That simple equation spells trouble for Banks.  How long will banks’ watch the likes of PayPal (with Bill Me Later) and Grameen (bankabillion with Obopay) taking away fundamental parts of banking.  The former being small loans (think credit cards), and the latter being payments. 

The PayPal acquisition just makes so much sense.  They are shifting from a pure auction model to that of a buy now model.  As part of that buy now, Bill Me Later will finance the purchase.  The dollar value is forecast $1Bn in 2008.  Further commentary here at Netbanker.

According to today’s investors presentation the company will do more than $1 billion in transaction volume in 2008 and serves 4 million customers (see note 2).

I was initially surprised at the price ($945 million), but given that eBay is projecting $150 million in revenues and $50 million in profits, it makes some sense, especially if CIT is taking most/all of the credit risk. Hoped for synergies with PayPal, which already operates a similar program, is the stated upside for the deal.

Relevance to Bankwatch:

How long will banks’ stand by and watch their basic business model be chipped away by newcomers?  During this period of relative panic, is the ideal time to consider relatively small acquisitions with large forward potential.  They would also serve to mitigate against being disrupted, because that is happening anyway. 

Retail payments, and in particular mobile payments have been a long time coming.  The mere fact that Banks still refer to ‘wires’ when sending money, and firing it at a rapid 48 – 72 hours delay around the world is tremendously archaic, and in dire need of rejuvenation.  However there is hope on the horizon, and two examples popped up this week.  The first brought to my attention by the good folks at RBC Applied Innovations.

First off, RBC have a limited time trial underway.

RBC Mobex Mobile Payment Service is currently just a limited time Trial Program with RBC staff, their family and their friends. The objective of the trial is to test the functionality of the service and gain an understanding of what improvements are required to ensure the best user experience.

The RBC solution is a ‘stored wallet’ solution, where you upload funds from credit card or bank account then you can use the following transactions, courtesy of rbcmobex.com

Note the recipient does not have to have a Mobex account to receive the funds, although they need to register.

The other is a different solution, and one that is more vendor centric.  CashEdge as part of their overall solution send funds to other Banks customers accounts.  What is not entirely clear to me is whether the recipient Banks must be CashEdge  users.  Anyone from CashEdge care to chip in with an answer to that?

CashEdge introduces money movement platform

Third-party Transfers, a modular add-on to CashEdge’s TransferNow Product Suite, enables financial institutions to offer their customers the ability to make secure funds transfers directly from a customer’s account to third party (such as friends and family) accounts held at other financial institutions. The service enhances financial institutions’ online offerings, improves customer satisfaction and generates incremental transaction-based revenue.

Relevance to Bankwatch:

Money movement for average retail customers that is convenient, cheap and not ‘wires’ are a long time coming.  I assume these solutions will be intra country at first.  UK, Australia, Japan and others do have ATM transfers to other people, but the convenience of mobile is what sets the RBC solution apart. 

In any event, quick retail money movement alternatives not stuck in the expensive and bureaucratic SWIFT worldwide system would be a good thing, and nice to see competition on the way, with the potential for inter country transfers too.

Javelin are out with a timely report on expedited payments.  Judging by the preview it makes the point that Banks had better implement expedited payments or risk being cut out by others doing it for them.

Javelin Strategy and Research

September 2008

2008 Expedited Payments Forecast: Banks Must Add Expedited Payments Now or Lose $5 Billion in Fees to Billers

In keeping with the payments theme, here is a classic interpretation.  Give the product for free and charge for the value at the point of interaction.  In this case a 3% fee on transactions.  In return the user gets the reporting, and a “web-based expense manager and uses cellphone cameras to upload pictures of receipts to match against purchases”.

Netbanker:  Expensify Launches Decoupled Credit/Debit Card Using Prepaid Model

To cover the extra interchange and create some revenue for itself, Expensify levees a 3% transaction fee on the cardholder. Although, the card is otherwise relatively fee-free, that’s a significant surcharge.

Why would anyone pay 3% extra in order to use the Expensify card when they already have a credit card? The company believes that small businesses will pay the fee in order to get the expense manger features and to help employees separate business expenses from personal ones. Businesses could have multiple Expensify cards tied to different category of expenses.

A business with just $1000/mo in expenditures would pay $360 per year. In addition, the business would tie up several hundred dollars in a prepaid account because cardholders can only make charges that do not exceed the prepaid balance held in the Expensify account.

Relevance to Bankwatch:

I agree with Jim that its expensive, but the model has appeal. It matches the cost to the value perceived.  Its a good start.

I sense there are big changes afoot in the payments industry in Canada.  Translated that could mean changes in pricing, which in turn would mean changes for consumers.  Those changes might be positive or negative, but either way are enormously significant for Banks. 

Interac seeks shift to for-profit status

Mr. O’Connell fears Interac risks falling behind as the industry rapidly innovates. There are already products, such as MasterCard’s “tap & go” PayPass, that he would like Interac to be keeping up with. “The payments market is evolving every day,” he said. “It’s not just the U.S.-based credit card companies. You have PayPal, you have a number of unique payment companies in the marketplace, a number of new technologies. Look at mobile payments and its evolution in other countries around the world.

“Canada needs to ensure we can keep up and innovate in those areas,” he added

Payments revenues account for 30% +/- of payment related revenue.  While interest on cards is a big revenue source, interchange is the hidden secret of revenue, and the one component that is at risk.

This presentation is just terrific.  Deloitte are on fire these days, and this deck is no exception.  The data and breadth of the study is enormous, and anyone in Canadian payments needs to read this.  Statistics include how Banks make money from payments, and there is data on new competitors. 

However what strikes me the most is the source;  why am I learning about payments from the Credit Unions?  This is symptomatic of the problem that Banks in Canada <everywhere> have.  The whole “if we don’t talk about it, no-one will challenge us’ mindset is ridiculous.  Go Credit Unions, and thank you for making this kind of information available. 

Credit Union Central – Payments

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