March 12, 2013

Banks may be worried about disintermediation down the road from mobile payments and mobile wallets providers, but a recommended strategy is emerging here at BAI Payments Connect for banks to ensure they play a role in these nascent payments technologies. That strategy is to place multiple bets by partnering with or investing in several emerging players in the market. At a panel discussion yesterday called “Mobile Payments: How Do Banks Fit In?” experts expressed that no one single player will become the dominant mobile payments app or mobile wallet so by placing multiple bets banks should be able to find a way to engage with one of the several providers who will emerge with a successful mobile payments option.

“You don’t have to pick a winner. There won’t be one winner [in the mobile wallets race]. A few will succeed,” Chris Garnder, the co-founder of Paydiant, a company that provides mobile wallet solutions for banks, said during the panel. He said that there will be multiple players who become relevant because customers will want likely want to have multiple payments and wallets apps. For instance, a customer might have a Google wallet, but when they go to Starbucks they’ll still use their Starbucks app to pay. “The way everyone has four or five credit cards, they’ll also have a number of mobile payments apps [on their smartphone],” Gardner adds.

Banks may be understandably hesitant to invest in a space that still seems far from mass adoption, but Gardner said that the strategy of making several small bets is the safest way to do so. “Those who will be successful will make multiple bets, and try as much as possible without spending huge money. They’ll probably stub their toes a couple of times, but they’ll learn from it,” Gardner predicts. “It comes down to just trying stuff.”

[See Related: Rise of the Mobile Wallet]

Gardner and all of the other panel members strongly urged banks to pursue those bets now and get involved in the market. Banks will certainly have to be involved in some fashion for the payments to go through, said Paul Moreton, another panelist, and the senior director of smartphone applications and payments for Capital One Bank. “But the question becomes, ‘does the bank just become a credit card on file?’” he added, voicing the fears of disintermediation that many banks feel. Creating partnerships and investing now will help banks in making sure they are top of the wallet in the new payments apps, the panelists agreed.

To figure out where to place those bets, Moreton pointed out that banks already have customers using mobile payments applications. “You already have customers in the Starbucks app, in the LevelUp app. Those are mobile wallets bets. You can get feedback from customers who participate in those. Look for those customers and find out why they’re using them,” he recommended.

Later today Fiserv will demonstrate another way that banks can make multiple bets in the mobile wallets race. The company has developed a proof of concept of a solution that allows third party wallets - like the Google or PayPal wallets - to integrate into mobile banking apps. The idea is essentially a master wallet that can interface with any mobile wallet solution as long as the provider is open with its API’s, said Steve Shaw, Fiserv’s vice president of strategic marketing for digital channels and electronic payments, during an interview yesterday. “Financial institutions are wondering, ‘Should I build my own wallet or partner with somebody?’” Shaw said. “Here the financial institution can build a mobile wallet within its mobile banking app.” This could provide an avenue for banks to partner with multiple wallet providers, since the solution can support multiple wallets providers. This will help banks stay top of wallet, and allow the mobile wallets providers to leverage existing rails in the interest of security and peace of mind for the consumers, Shaw said.

Shaw compared the mobile wallets race to the development of ATM networks decades ago when customers could only use their cards at specific ATM’s. “Consumers demanded that the networks start talking to each other and they began connecting. A few mobile wallets will survive and consumers will demand they connect with each other,” Shaw reasoned. Everyone seems to agree that the future will be an ecosystem with several successful mobile payments app that customers will use for different cases, and banks need to start preparing for that ecosystem.

ABOUT THE AUTHOR
Jonathan Camhi is a graduate of the City University of New York's Graduate School of Journalism, where he focused on international reporting and interned at the Hindustan Times in Delhi, ...