Mobile Payments Growth: Just The Tip of The Iceberg?

A new report from Business Insider Intelligence on the state of the mobile payments industry shows that, while the volume of mobile payment transactions still represent just a small percentage of overall payments on the surface, the level of growth is significant and quickly shaping the entire payments industry.

Both consumer and merchant uptake is exploding as smartphone users are quickly adopting mobile wallets, payment apps, etc. to facilitate offline and online purchases and as businesses are turning smartphones and tablets into full-featured POS terminals. The next critical step is to persuade the masses to become users of the payment technology available.

When Amazon and eBay launched their online shopping sites in 1995 and 1996 respectively, the notion that over half the U.S. population would make purchases online would have been scoffed at. Yet in 2013, the number of online shoppers in the U.S. will reach 189.6 million, according to eMarketer. In this case, the majority of the consumers were resistant to change until they made the switch and realized the benefits. The same applies to mobile payments.

The key is to examine the current payments industry growth trends, motivations of current users, the reasons for the gap between awareness and usage, and how financial institutions, retailers, network operators and equipment manufacturers can work together to convert reluctant consumers into loyal users. As mentioned by many of my fintech colleagues recently, it goes beyond a mentality of "If you build it, they will come". There is a need to solve for the concern around mobile security as well as develop incentives for usage.

Defining Mobile Payments

For the purpose of the study being reviewed, 'mobile payments' were defined as when a mobile, internet-connected device (smartphone, tablet, smart watch, Google Glass, etc.) is used to facilitate a transaction that might otherwise have taken place using a physical credit card, debit card, check or cash at a physical (not online) store. 'Mobile transactions' (for the purpose of this study) are a larger category that included mobile payments as well as mobile commerce and e-commerce channeled by an app or mobile website (e.g., Amazon's mobile app).

Mobile payments and transaction innovation is currently be led by start-ups and tech companies, who are prompting legacy payments players and card companies to reevaluate their current strategies and increase their own pace of innovation. 'Coopetition' has become the norm as companies team up with each other as opposed to building a mobile strategy from scratch. These partnerships (and individual initiatives) are pushing innovation forward quickly, making the industry fragmented yet ripe for consolidation.

Mobile Payments: Still Relatively Small on the Surface

Like an iceberg, there is much more to the mobile payments than what the can be seen on the surface today, with a U.S. mobile payments forecast of $30 billion in 2013. According to the research compiled by BI Intelligence, this forecast represents an average annual growth rate of 118 percent since 2008, but still will only account for 2 percent of the $3.3 trillion debit and credit card volume in the U.S. this year. It was also found that other global markets (such as Africa and the Asia Pacific regions) are seeing a much larger percentage of mobile transactions.

In both the U.S. and other global regions, the growth in mobile transaction volume has been driven primarily by the growth in smartphone adoption (especially in areas of underdeveloped banking systems). Not only has the smartphone impacted the consumer side of the payments equation, but also the merchant side, where attachable card readers transform smartphones and tablets into cash registers, making card purchases easier.

Bank Product Proliferation: Too Much of a Good Thing

When someone walks into your bank or credit union branch or visits online to open a new account, how many options are available to choose from? More importantly, how many different legacy products exist that are no longer offered, but still need customized maintenance, specialized communication and integration with your new digital offerings?

Has our desire to provide the best products for everyone resulted in product clutter, complexity, confusion, and additional costs? Now, there's new evidence that customers will reward us for reducing choice and for helping them move to the right product.

Beyond just reducing the current number of products we promote, it is also important to close the books on outdated product portfolios, consolidating legacy products into a more refined, less complex set of offerings. By doing so, your institution will reduce costs, generate new revenue, simplify your customers' lives and provide the foundation for future growth.

In a recent research paper from A.T. Kearney entitled, Reducing Complexity in Retail Banking: Simple Wins Every Time, it was found that the origin of banking's product proliferation challenge is the industry’s product-centric view and the lack of a traditional product lifecycle. By remaining siloed and focusing on the impact of individual products, there had been little internal incentive to reduce complexity for the customer’s benefit.

And unlike other industries, where customers are proactively shifted to the next generation of products when a new product is introduced and an old product is retired (i.e. Apple), A.T. Kearney found that most financial institutions maintain retired product portfolios forever, avoiding the risks and challenges of product migration. As a result, they found that some of their clients had more than 500 products, with two-thirds representing outdated offerings.

"One of our clients had more than 15 different savings products, with just three accounting for 90 percent of new product sales," states Torsten Eistert, partner at A.T. Kearney and co-author of the report. "Some products were being used by no more than 200 customers."

Beyond ongoing new product introduction, the product proliferation challenge is amplified by the impact of mergers, short duration specialty products, multiple branding, etc. This doesn't even take into account the impact of different behind-the-scene pricing algorithms or customer level customization (waivers, bonus rates, etc.) that is commonplace in banking.

As an industry, we can no longer equate variety of offerings with customer centricity. While customers say they want a variety of products and services, recent research by Filene Research Institute entitled, The Psychology of Choice Overload: Implications for Retail Financial Services found that the assumption that consumers always benefit from more options does not always hold, and in some cases, the consumers (and the bank) benefits from fewer, rather than more, options.

An Interview With Chris Skinner on Building a Digital Bank

It is becoming more and more difficult for traditional banks to compete in an increasingly digital marketplace. With most bank systems stuck in the last century, the conversion of legacy technologies to new platforms with total reliability, security and resilience is a massive challenge.


How can today's banks evolve to a new model of servicing and processing, where the mobile internet allows consumers to bank wherever and whenever they want using an increasing array of devices? How can banks leverage their existing foundation to compete with new and nimble mobile-first competitors?

I had a chance to speak to Chris Skinner recently about his perspective on the evolution of banking, the emergence of new competition, winning the mindshare of an increasingly connected consumer and on the release of his newest book, Digital Bank: Strategies to Succeed as a Digital Bank (available on Amazon for $9.99 for the Kindle version or $17.99 in paperback).

Best known as an independent commentator on banking and the financial markets through the Financial Services Club blog and Chair of the networking forum The Financial Services Club, Chis is the author of several previous books covering everything from emerging regulations to innovation and new currencies. He is also Chief Executive of Balatro Ltd, a research company and a regular commentator on BBC News, Sky News and Bloomberg on banking issues.

In reading an advance copy of Digital Bank, I found that Chris provides a great overview of the digital revolution in banking from channels to systems to emerging currencies. He also provides in-depth analysis of the how incumbent banks such as Barclays to new start-ups such as Metro Bank in the UK, Alior Bank in Poland and FIDOR Bank in Germany are building for a digital future.

As several noted fintech followers mention in online reviews of this book, Digital Bank is the most recent must-have for anyone wanting to help their organization stay relevent in banking or for businesses wanting to better understand the impact of digitalization on the marketplace. 

What inspired you to write this newest book?

I've been blogging daily since the start of 2007 at the finanser.com. With the blog, I would write a series of four or five posts on a particular subject, like why branches were the wrong focus, how data is becoming the new banking battleground, why existing banks have challenges, what organizations are innovating in unique ways, etc. These posts were never edited or placed in any sequence, but provided a great foundation for potential chapters in a book. So, I finally got around to taking all of that experience and all those thoughts and personally editing them into a readable, digestible, logical book. 

What do you hope readers take away from your writing?

The overarching theme of Digital Bank is that banks are being fundamentally restructured and challenged by the Digital Age. From physical services through physical branches, we have rapidly become a business that provides digital products through digital relationships. That leap is not happening fast enough, however, as most banks are tied to their traditional operational, technological and physical structures. This book provides a roadmap to take that old bank into the new world, how it can be achieved, proof points as to why it is needed and lessons of what to do and not do. Anyone dealing with digital bank distribution through the mobile, social internet will find it useful.

P2P Payment Simplicity Square'd

Some of the best mobile banking apps are those that make everyday tasks simpler. Two of my favorites are GoBank's Balance Bar, that lets you see your account balance without login, and Moven's real-time mobile purchase receipts and analysis.

Tuesday, Square, Inc. joined my growing list of über-simple mobile banking applications with their introduction of Square Cash, a new app that makes sending money person to person as simple as sending an email. In today's mobile world, simplicity is the 'new black'.

P2P applications are definitely not new. There are literally hundreds of bank and non-bank applications that allow you to send money digitally, including Google, PayPal and Venmo. Consumers also have the choice of simply writing a check as they have done for years. But, I believe Square has introduced the most streamlined app that may have the broadest mass market appeal. 

Imagine emailing money to another person, without a fee, directly from a debit card without a login or password. All that is needed is a debit card number, Zip Code and expiration date from the sender and recipient (only need to be entered the first time you use the service). After that, sending money is only an email address away.

Compare that process to most banks, that require mobile banking sign-in (don't get me started), a test transaction and potentially more steps, even though there is normally no fee for the service. PayPal's P2P app transfers money from a PayPal account to another PayPal account, with transferring funds to a bank account being an additional step (in addition to a one-time signing up for PayPal). Google's P2P service uses email like Square, but requires signing up for Google Wallet and transferring funds to a bank account. Venmo is a growing favorite of younger people who prefer to send money via a Facebook-like newsfeed. This service also requires an application sign-up.

Unlike Square Cash, most of the other P2P applications have fees attached as shown below. Square Cash, however, only supports debit cards at this time, with low weekly limits ($250) unless you provide a mobile phone number and Facebook account or verify your full name, the last four digits of your social security number and date of birth -- then the limit is raised to $2,500. If the Facebook option is selected, no information or messages are ever passed to the social channel. Square is simply using Facebook as part of authentication.

Source: My Bank Tracker, September 2013

The Rise of PayPal as a Major Payments Player

No place in financial services is transformation and innovation more apparent than in the world of payments, where the convergence of mobile and new data-driven business models have the potential to completely disrupt both the consumer and merchant experience.

The recently concluded Money2020 illustrated that there is no shortage of payments players vying for attention,  but no firm seems to be as aggressive as the new PayPal, which continues to roll out new innovations impacting the payments ecosystem.

While some of the 'innovation' at PayPal may not seem new or disruptive (such as the use of QR codes), the ability to quickly build scale by using the existing payments infrastructure may be the key to PayPal's success. The company hopes to transform its reputation as a means of exchanging cash over the Internet into the default payment system for many everyday transactions.

At stake for PayPal is control of a mobile-payment market that is expected to grow more than three-fold from this year’s $235 billion over the next four years, according to researcher Gartner. PayPal faces a host of competitors, including Google Wallet, Square, Lemon and Stripe (and potentially Amazon and Apple).

Brian Roemmele, researcher and business advisor says of a recent PayPal announcement, "The true innovation that PayPal has achieved is really quite invisible and perhaps even boring to technologists. No iOS devices or android devices deployed at the merchant locations. No new add-ons needed, just the a boring laser bar code scanner that every single major retail store already has."

It is clear that PayPal is moving fast to become a ubiquitous option at retail merchants, introducing products for both the consumer and the retailer. In fact, there have been so many changes recently, it may be difficult to keep up.

To that end, I am providing a brief overview of what has occurred over only the past couple months and what the future may hold.

New PayPal Mobile App

In early September, Paypal introduced an updated version of the PayPal mobile app for both iOS and Android, turning it into much more of a mobile wallet. Maintaining all of the old features, the new app added tools to facilitate shopping and paying for goods online at the physical POS.

The app features five clearly labeled sections on the home page, with the major sources of innovation residing within the new Shop tab and Bill Me Later integration. Within the Shop screen, you can find nearby merchants that accept PayPal. Once you check in at a merchant (using your PIN), you can download any special offers from the store and can complete the transaction simply by saying "I'm paying with PayPal". Since the merchant will have your PayPal photo on their POS device or phone, funds can be transferred without needing to pull out your phone a second time.

Leveraging the app's location-based capabilities, there is the ability to push coupons based on a consumers specific location and even allow for ordering and paying for a meal within the app.

As for payments, PayPal is providing the option to pay directly from a bank account, from a PayPal balance or to use a credit card on file within the app. It's also expanded the 'Bill Me Later' function, providing credit for large purchases within the app. 

Money2020 Attendees Share Insights and Takeaways at Bank of America Twitter Chat

On Wednesday, October 9 from 7:30 - 8:30 am, Bank of America hosted a twitter chat at Money2020. 

The live chat was designed to look back at the first few days of the conference, discussing important themes and takeaways, memorable moments, and issues facing the payments industry – essentially an opportunity to connect the dots.

The chat was aimed at conference attendees and people who weren’t able to attend, and was designed to focus on thought leadership around payments. Unlike most chats, this event had a live audience who participated on site along with others who participated in absentia. On the live panel moderated by Peter Osborne were Farhan Siddiqi from Bank of America, Cherian Abraham from Experian, David Birch from Consult Hyperion, consultant Tom Noyes, Elizabeth Dias from Perficient, Jim Issokson from MasterCard and myself (remotely).

The following transcript captures comments made during the Bank of America Money2020 Twitter chat. This transcript was edited to keep the answers to questions together. Retweets were also deleted that did not include additional content to shorten the transcript and show the flow of conversation. 

Metrics for the twitter chat were as follows: 

• Total Participants: 187 
• Total Number of Tweets: 711 
• Total Reach: 574,623 
• Total Impressions: 6,787,715 
• Total Number of Retweets: 318 

Bank of America @BofA_News: Welcome to the Future of Payments Innovation chat, live from #Money2020 in Las Vegas. #BofA_News is pleased to host this opportunity to connect the dots from the #Money2020 conference. My name is @peter_osborne and I’m a communications executive for #BofA. I’m joined by @FarhanSiddiqi, #BofA Strategic Planning Executive for Digital Banking.

Q1: What speakers or topics have most resonated so far at Money2020

Jim Marous @JimMarous: A1: Highlight - #Amazon #PayPal #Citi #AmEx #Discover #MasterCard rocked! Showed that payments innovation never sleeps. #Money2020

Elizabeth Dias @techmktggirl: A1: Standout #Money2020 Speakers: @thefriley of @Square & @PayPal. Topics: #TomorrowsBank, Consumerization of Data & Retail 3.0

Kevin Boglarsky @kmbx2ind: #money2020A1. The keynotes even if they went a bit long.

Thomas Noyes @noyesclt: A1: I thought amazon MCX and Amex did a fantastic job.

Bank Innovation @BankInnovation: I enjoyed the bullishness on Bitcoin and loved the Square and Amex keynotes. - Phil Ryan, Bank Innovation #money2020

Aaron McPherson @aaronmcpherson: A1: Tokens are BIG #money2020

Jim Marous @JimMarous: A1: Loved the tweets Monday "#Bitcoin will do to money, what the internet did for information" #Money2020

Bank of America @BofA_News: A1: Sarah Friar was impressive explaining Square’s lofty mission and its simple approach – Start-Run-Grow. ^fs #money2020

Dave Birch @dgwbirch: #money2020 A1: liked the Amex stuff about the unbanked, the Zapp direct to bank account retail proposition, new PayPal stuff

Money2020 Hump Day Tweet Highlights

Wednesday at Money2020 started very strong with an early morning tweet chat hosted by Bank of America and attended by over 200 fintech followers in a live chat room and digitally.

Participants provided feedback on the topics they enjoyed the most, the biggest takeaway, what the future shopper would look like and what it will take to make mobile payments mainstream. Despite the early hour, the twitter volume hit event highs based on tracking shown below.

Despite many people heading back home, the momentum for the day didn't stop, with keynotes from Facebook, Bank of America and First Data being a bridge to excellent 'Launchpad' sessions where new products were introduced each day in 6 minute intervals similar to Finovate.

Highlights of tweets made up until the lunch are provided below.

#Money2020 Banks & Google are positioned in a way to capture a lot of customer context and can deliver value if & when they make useof it.
— Cherian Abraham (@cherian_abraham) October 9, 2013

@noyesclt makes the point: even with strong product, persuading consumers to change behavior is hard and slow. #money2020
— John Muller (@jmuller) October 9, 2013

Tweet Recap of Mon/Tues - Mon: http://t.co/ll2PP0Wvai Tues AM: http://t.co/55lE6uWhVn Tues PM: http://t.co/LNwvynrB8x #Money2020
— Jim Marous (@JimMarous) October 9, 2013

Watching Deborah Liu of #Facebook payments. How far will she go in exposing their goals of being the ID engine for alt payments? #money2020
— Scott Dueweke (@Scott_Dueweke) October 9, 2013

The @facebook ecosystem supports 55 currencies, 80 pmt methods and over 1MM pmts daily. Heck yes, they're a player in payments! #money2020
— Suzanne LaProva (@SuzanneLaProva) October 9, 2013

Tuesday Afternoon Tweets at Money2020 Combine Insightful & Snarky

After a very exciting morning of Money2020 new product announcements and visions for the future, it would be difficult to maintain the same energy level on Tuesday afternoon. 

As can be seen from the hashtag tracker below, #Money2020 tweets reached a crescendo during the opening keynotes, with more than 300 tweets during the 9:00(PT) hour.

Unfortunately, the other spike in tweets represented primarily snarky comments, as attendees became restless in expectation of a major announcement from the MCX panel than never occurred. This not uncommon at events like this, where a tone is set for the day and patience grows thin when all presentations don't deliver equally.

Even without the two major tweet spikes for the hashtag #Money2020, the discussion on twitter was robust throughout the day on Tuesday as it was on Monday. The combination of comments around megatrends as well as product insights made for interesting reading at the event as well as from afar. 

In just it's second year, #money2020 is to payments what Mobile World Congress is to mobile. Great, well done event and *everyone* is here.
— jake furst (@furst) October 8, 2013

Has everyone underestimated Amazon's potential to crush payments? High trust, 215 mm active accounts, pushing to Pay With Amazon.#money2020
— Kate Fitzgerald (@plasticpayments) October 8, 2013

Chat with us & our panel of experts on the future of payments innovation. 10/9 at 7:30AM PST. #Money2020. RSVP here: http://t.co/Ay5v2twhh8
— Bank of America (@BofA_News) October 8, 2013

Tuesday Morning at Money2020 Filled With New Product Announcements

After an evening of fun at the Haze Nightclub, Money2020 kicked it into high gear on Tuesday with a series of industry updates and major product announcements from PayPal, Citi, MasterCard, Square, American Express, Ericsson, Discover and Amazon.

While not being at Money2020 in person, I have compiled the highlights of the day from tweets posted during the day from my fintech friends as I did at the end of Day One.

Note: Each of these tweets are 'live' allowing you to access, re-tweet, favorite, etc. Thanks to everyone for the great digital conversation that makes the event a worldwide gathering.

Day 2 of #Money2020 ahead and they just pushed the keynotes to 20 minutes later. Maybe I can go lose $20 more? #20overload
— Norman Guadagno (@ThinkTone) October 8, 2013

Sign Up for Wed. Twitter Chat Breakfast at #Money2020 @dgwbirch @cherian_abraham @techmktggirl @noyesclt http://t.co/iyhW73z7Fn
— Jim Marous (@JimMarous) October 8, 2013

Partnerships are critical to success in technology innovation #money2020
— Matt Wilcox (@mattwilcoxpro) October 8, 2013

"More iPhones sold than babies born" via @PayPal - I love mobile but that's frightening #money2020
— Walt Cox (@waltrcox) October 8, 2013

The battle is joined at #Money2020...as #PayPal and #ISIS exchange blows during their keynotes (respectively). Game on!
— James Ray (@Rockhopper08) October 8, 2013

@paymentsnews: PayPal Introduces Payment Code for POS Purchasing http://t.co/dzZPKCadTw #money2020
— Erin McCune (@erinmccune) October 8, 2013

@PayPal omnichannel announcements: PayPal App (new), PayPal Beacon, & Payment Code (QR). Where does this leave FIs?#CreditUnions #Money2020
— Walter Cunningham (@cunningham95) October 8, 2013

Monday at Money2020 in Tweets

Billed as the largest event focused on emerging payments and financial services, Money2020 has easily eclipsed its inaugural event in 2012, bringing together more than 4,000 fintech followers, including 300+ CEOs and more than 1,250 companies from 50 countries.

While not being able to attend this year, I was able to live vicariously through the tweets of others who captured the highlights (and some humor) from the first full day of the event. Below is a recap of today's sessions.

#money2020 has started. Read the blog of 3 questions to be asked in almost 60 sessions: http://t.co/X7JIS61Tx1’s
— Money2020 (@money2020) October 6, 2013

#money2020 "what happens in Vegas, gets tweeted from Vegas"
— Dave Birch (@dgwbirch) October 7, 2013

Money2020 looks to be an awesome event. Sold out, it looks like EVERYONE is here. @Wmagency #money2020
— William Mills (@williamemills) October 7, 2013

Omni-Channel Reality: "67% of consumers have started shopping on device but completed the purchase elsewhere" -Kevin Levitt #money2020
— comScore FinServ (@comScoreFS) October 7, 2013

$Mitk and Experian® Collaborate to Help Organizations Monetize the Mobile Channel http://t.co/cqFCNfizbu #money2020 #mobile #technews #tech
— Deppilf flippeD (@deppilf) October 7, 2013

From Scott Grimes: Adding mobile to a banking relationship adds 6 touchpoints per week #money2020
— Ryan Page (@helloryanpage) October 7, 2013

#money2020 MasterCard have already used my favourite statistic! US is a quarter the world's card volume but half the world's card fraud
— Dave Birch (@dgwbirch) October 7, 2013

State of Gift Cards this morning at #money2020. Here's what @rsrresearch says about the best digital gifting programs http://t.co/4lPzhfL5ko
— CashStar, Inc (@CashStar_Inc) October 7, 2013

GoBank Introduces One of First iOS7 Mobile Banking Apps

If you are an Apple iPhone devotee and have downloaded the new iOS7, you probably have a strong opinion about the new design. Maybe you love it. Maybe you hate it. Maybe you are like me and are still getting used to the new look, feel and functionality. 

Upon introduction, many apps immediately took on the new 'flatter' iOS7 look. That is, except for your mobile banking apps. In an industry desperately trying to keep up with customer demand for basic functionality, most didn't have time to change the look of their apps . . . except for GoBank.

In line with the GoBank brand, the relatively new mobile-first banking brand considered the introduction of a new design in late September an important differentiator for GoBank. "Being first to introduce a new design that leverages the iOS7 look shows that we're not just a bank, but also a technology company … right on the pulse of what's new and next," stated Sharon Pope, chief marketing officer of GoBank in an online interview with Bank Marketing Strategy.
  

Download (or update!) the #gobank #app to experience why Apple is featuring us as one of the "best new… http://t.co/x8AKAtK9xA
— GoBank (@gobank) October 1, 2013

According to Pope, GoBank's iPhone team worked carefully to incorporate Apple's new vision for the iPhone aesthetic so that the app would feel right at home on customers' recently updated devices. "You can see a lot of the elements of Apple's vision throughout the design. And a great indicator how beautifully we applied Apple's guidance is that Apple has featured GoBank as one of the "Best New Apps" for the iPhone."

Hoping to design in line with Apple's iOS7 'human interface guidelines' as outlined in their developer user interface design resource guide. According to Apple, an iOS7 design should embody the following themes:

• Deference: The UI helps users understand and interact with the content, but never competes with it.
• Clarity: Test is legible at every size, icons are precise and lucid, adornments are subtle and appropriate and a sharpened focus on functionality motivates the design.
• Depth: Visual layers and realistic motion impart vitality and heighten users' delight and understanding.