Mobile Payment Alternatives Expand: To Be or Not To Be?

The number of alternatives that support mobile payments expands every month it seems. As I queried in my first column of 2010 ("Mobile Banking & Payments Feed Customer Experience Lab"), "Are mobile banking and payments among the most promising innovations, capable of disrupting the retail banking market? Or, will they drive more bankers crazy, in both business and IT, chasing ever elusive expectations?" I offered the following opinion in January: "For the next few years, my sense is that bankers will not go crazy over mobile banking. By 2014, their success stories will solidify the business case(s)/cost(s) for adding mobile banking and payments."

In less than a year major initiatives, including a joint venture involving three big wireless carriers, Discover and Barclaycard, plus ones from Visa, Google and Citibank, have added to (or soon will) the mobile payments landscape.

AT&T Inc., T-Mobile USA Inc. and Verizon Communications Inc. announced Isis, which is working with Barclaycard US and Discover Financial Services to bring payment-enabled mobile phones to consumers. However, it appears that only newly issued cell phones or upgrades to existing ones will work initially on one payment network (Discover's). Google, which wants to be cell phone neutral, is working on a future version of Android, expected before YE2010, to support near-field communication (NFC) technology to enable contactless payment schemes.

Visa is still working on its mobile payments pilot program with four national banks (Bank of America, JP Morgan Chase, Wells Fargo, U.S. Bank). Visa's program involves inserting a microSD card containing a consumer's account information into a cell phone, which complicates the distribution and adoption challenge.

Citi's retail banking focus concentrates on growth in the emerging-affluent and affluent sectors in key cities. Citi serves one of every six households in the U.S. with at least one Citi product, most often a credit card. The adoption rate among the affluent is one in four households using at least one Citi product. Citi is investing $3 to $4 billion to upgrade the technology supporting its consumer business to consolidate all consumer accounts, across regions and product lines onto a common platform by 2014. Cards will be a key component in Citi's retail payments strategy, including mobile applications. For example, Citi's new 2G cards will allow customers to use reward points at point of purchase by pushing a button on the card itself before swiping it through any merchant terminal that accepts credit cards.

Some readers may be wondering if the mobile payments landscape has reached a tipping point for one or more alternatives. Other readers may be wondering if they can afford to stay on the sidelines for another six to 24 months. Still others may be scratching their heads over how to integrate mobile payments or treating it as a separate solution.

Among the more successful mobile payments launches is one that is relatively low tech, but consumer and merchant friendly. Bling Nation offers a mobile tap-and-pay point-of-sale service that works with any cell phone and carrier and has been expanding its reach through locally focused banks and community-oriented merchants. Its challenge is to scale its footprint to regional and national levels, perhaps through its recently announced partnership with Fifth Third Processing Solutions.

On the research front, IDC Financial Insights announced the results from a recent survey of 1,008 random U.S. consumers. In one finding, the U.S. is far less equipped for mobile payments than most people assume. Only 12.5 percent of respondents had a smart phone with a data plan, which are among the requirements for many of the mobile payment alternatives.

Common sense demands that bank, thrift, and credit union executives have clearly defined payments objectives. Within these objectives, the role of mobile payments must be grounded in reality -- meaning that the expectation for adoption needs to be worth the effort, cost, and opportunity lost by delaying or avoiding other investment alternatives. Failing to be realistic will lead to disappointment regardless of the alternative(s) selected. Mobile payments have been tested in the market for over 10 years in the U.S., so waiting has not penalized anyone other than those institutions that failed to do a reality check first.

Bill Bradway, founder and managing director of Bradway Research LLC, analyzes the business strategies and IT investments of US banks and credit unions.