Mobile Payments: Can Banks Seize the Moment to Transform Consumer Finance?

Although payments have existed in some form since the dawn of civilization, there probably never has been as much innovation, uncertainty and activity in the payments space as there is now. Much of that uncertainty has to do with the role -- today and in the future -- of banks in payments. Banks and financial services firms, including the major card companies, continue to provide much of the infrastructure that processes, supports and maintains payments. But it often seems as if most of the innovation around payments that is capturing the hearts and minds of customers (consumers and corporates) is coming from non-bank players, ranging from Internet behemoth Google to a host of much smaller and less-well-known technology firms.

8 Players Shaping the Future of PaymentsThere never has been more innovation -- and uncertainty -- in the payments space than there is today. But while banks continue to provide much of the infrastructure required to process and support payments, it often seems as if most of the innovation around payments that is capturing the hearts and minds of customers is coming from non-bank players. Bank Systems & Technology's August digital issue peers into the future of payments, identifying the opportunities and threats for banks in the increasingly electronic and mobile market.

With Apple's recent announcement that the Passbook app, which lets users store loyalty cards, passes and tickets in one place, will be integrated into iOS 6 for iPhones and iPads available in the fall, the payments competitive landscape has become even more complicated. Banks can credit Apple, at least indirectly, for much of the growth of mobile banking (due to the popularity of the iPhone and iPad), but they must be wondering if the Silicon Valley giant is going to become at least an indirect competitor in the payments market.

Amid the uncertainty, one thing is clear: Mobile payments are growing. In its new report, "Business Strategy: Results from the 2012 Consumer Payments Survey," IDC Financial Insights found that mobile payments have more than doubled in popularity in the past year, with more than 33 percent of survey respondents reporting that they have made a mobile payment.

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That growth is spurring regulators to take a closer look at what's happening in mobile payments. This could place some of the new non-bank competitors in a "be careful what you wish for" situation. The Consumer Financial Protection Bureau already has fired a salvo, in a statement by its assistant director for card and payment markets, Marla Blow, that was provided in June to the House Financial Services Subcommittee on Financial Institutions and Consumer Credit. "Innovation in mobile payments may yield numerous, significant benefits for consumers," Blow stated. "We are engaging with innovators to understand how these new technologies may transform consumer finance so that we can determine how our regulatory structure intersects with these changes."

According to Blow, "To the extent that technology companies begin to play roles traditionally performed by banking institutions, we may need to reconsider how well our existing regulations apply to a changed environment." In the continuing payments evolution, with an increasingly crowded field, can banks seize the moment?

Katherine Burger is Editorial Director of Bank Systems & Technology and Insurance & Technology, members of UBM TechWeb's InformationWeek Financial Services. She assumed leadership of Bank Systems & Technology in 2003 and of Insurance & Technology in 1991. In addition to ... View Full Bio