Most of the recent mobile payments buzz has centered on “mobile proximity” transactions, done at or near a retail store’s point-of-sale terminal, and the much-hyped mobile wallets that facilitate these types of transactions. With the launch of Apple Pay, which utilizes near field communication (NFC), mobile proximity transactions may gain solid traction after several years of anemic adoption in the U.S. However, payments to merchants or retailers are only one part of a bigger payments picture. It’s important to keep the entire landscape in view when developing a mobile payments strategy.
At Fiserv, we think of mobile payments in terms of four major categories, or pillars, which include:
While Apple Pay is grabbing headlines, it’s important not to get caught up in the hype and overlook the role other mobile payment types play in the overall customer relationship.
FIs’ opportunity in mobile payments
As the mobile payments market matures, non-financial institution competitors such as Apple, Google, Square, PayPal and Walmart are positioned to leverage mobile technology along with their own existing customer relationships to disintermediate financial institutions from mobile payment services. However, banks have an advantage over non-financial institution competitors as the mobile banking and mobile payments user experiences converge.
Consumers are becoming more comfortable making financial transactions through the mobile channel. According to the 2014 Consumer Insights Survey by Ovum, consumers most often cite their financial institution as the service they most trust for mobile payments, with financial institutions trusted by 43 percent, compared with 13 percent for credit card issuers, 9 percent for online payment providers and 6 percent for mobile operators.
Financial institutions that push forward with their mobile payment strategies today can establish themselves as the preferred provider of mobile payments and reap the rewards of higher customer retention and compelling returns on investment. In doing so, financial institutions will be better able to compete with the ever-growing number of non-traditional players–and will better position their organizations to win mobile proximity payments as those services become standardized and more commercially viable in the near future.
In order to capitalize on consumer preference to execute mobile payments through financial institutions, it’s important for banks and credit unions to deploy, brand and promote current offerings. For mobile channel and payment success, financial institutions can:
Work to be top of wallet. Once a card is in a mobile payment app or service, it tends to stay there. A financial institution can keep their cards at the top of the mobile wallet by ensuring that their cards meet the requirements to be used through these services and by making it as easy as possible for consumers to add their cards into them.
In the case of Apple Pay, a card has to have tokenization capabilities to be used through the service. Tokenization enhances the security of online and mobile transactions by replacing sensitive payment account information, such as 16-digit card numbers, with one-time digital account numbers called tokens.
When a financial institution establishes their card as the consumers’ card of choice for mobile wallets and apps, they keep the financial institution brand visible to customers and retain a revenue stream from the interchange. Marketing campaigns and consumer education efforts can promote the benefits and convenience of adding bank-branded cards into third-party wallets and merchant apps.
Reward customers for transactions with loyalty programs. Rewarding customers not only strengthens relationships but also help ensure the financial institution remains part of the payment. Mobile-driven loyalty programs drive consumer adoption of mobile payments – and influence future choices in mobile payment apps.
Deploy peripheral services. Peripheral capabilities such as mobile alert services, card management and payment-related functionality such as mobile photo bill pay create more value around mobile payments and position financial institutions to encourage mobile payments at the point of sale.
Develop a holistic mobile payments strategy. As noted above, contactless mobile payments to retailers and merchants will likely see a boost from Apple Pay due to the company’s influence and market share, so it’s important to keep an eye on the horizon for developments in this space.
Successful implementation of a full complement of mobile payment capabilities requires focus and commitment. A good strategy should be flexible enough to adapt when new services such as Apple Pay come along, with a focus on how new developments fit into existing plans. An ideal approach includes establishing an institution-wide mobile channel management discipline assigned to an owner from the executive management team. This group should include stakeholders who will help formulate strategy and implement tactics, engage in industry forums to keep pace with the development of mobile payments, train and develop staff, and put monitoring and management tools in place, inclusive of reporting dashboards.
By focusing now on delivering solutions for the way customers are already using each of the four pillars of mobile payments, financial institutions can benefit from increased transactions and greater customer loyalty while creating the potential to attract new customers as mobile payments become more widespread.