Endpoint: Why Financial Institutions Should Be Building Mobile-Payments Networks

How banks and credit unions handle card payments from mobile devices will determine whether they remain relevant in the battle for mobile payments, says Dave Keenan.

Using integrated networks, banks can create a branded mobile-payments hub to enable consumers to make payments on their own terms across all channels and in all situations.

Dave Keenan is general manager of Network Solutions at Fiserv Inc., Brookfield, Wis.

For more than a generation, plastic cards have been the de facto on-ramp to the payments highway. So, as smart phones, tablets, and other mobile devices continue to facilitate consumers’ daily activities, financial institutions of all sizes must answer one critical question: How will the use of plastic cards change in this mobile world?

Here’s why this question is so important. The payments industry is in a period of dramatic change, with innovation and experimentation surrounding mobile technology at the forefront. Over time, the mobile channel will likely become the new payments on-ramp, providing safe, secure, and real-time access to debit, credit, and prepaid accounts.

The threat to financial institutions is that non-traditional competitors, including technology giants, telecom companies, and various startups, are increasingly attempting to attract consumers’ mobile payments now. To keep payments in-house, banks and credit unions of all sizes must innovate to remain relevant and keep their brands at the top of the mobile wallet.

Card-payments innovation is happening at breakneck speed. Consumers are downloading payments apps and loading card-account information securely on their phones to facilitate payments. Near-field communication (NFC) technology, enabling consumers to use payment information stored on mobile phones instead of plastic cards, is becoming more prevalent. At the same time, mobile-payment solutions are extending the life of plastic cards by dramatically expanding how, where, and when card payments can be accepted.

To keep pace and facilitate the use of institution-branded cards on the phone or in hand, banks and credit unions should partner with financial-service providers that seamlessly bridge yesterday’s card-dominated environment with tomorrow’s mobile-based environment for both payee and payer applications. As innovations unfold, these integrated networks will best position financial institutions to strengthen their customer relationships.

The Ultimate Vision

Using integrated networks, banks can create a branded mobile-payments hub to enable consumers to make payments on their own terms across all channels and in all situations. The ultimate vision is that each customer will then customize use of that hub to manage a personalized array of payer/payee relationships for bill payment, social payments between individuals, and point-of-sale (POS) payments that support debit, credit, and prepaid accounts.

The mobile-payments hub empowers banking customers to pay and get paid far beyond the capabilities of plastic cards, given the powerful attributes of mobile devices. Private payment data linking their primary bank account will be safely and securely accessible from their phone to facilitate transactions any time, anywhere. While on the go, consumers will also be able to track loyalty rewards points earned and spent at the point of sale without requiring an in-hand plastic card. These capabilities make commerce and member relationships more dynamic.

The mobile-payments hub enables consumers not just to make payments, but to also accept funds from others. Mobile networks, through Internet access, GPS recognition, and NFC capabilities, enable dynamic customer experiences that redefine interactions between merchants and patrons.

The industry is already seeing the first wave of such solutions that enable merchants to use their smart phones as on-the-go POS terminals. Merchants use these devices to swipe credit, debit, and prepaid cards with their mobile device to accept payments. This capability is especially important for those businesses outside traditional retail storefronts—taxi drivers, landscapers, retailers at farmer’s markets, and other venues.

By providing card-reader technology to small-business and merchant clients, financial institutions will facilitate client cash flow, protect demand-deposit account relationships, and strengthen client bonds. This will be especially true as mobile-acceptance technology becomes more versatile. Beyond card acceptance, for example, the SpotPay solution from Fiserv positions payees to accept social payments and even checks any time, anywhere, and in real-time.

Consumer Trust

Mobile solutions are also redefining the shopping experience, from supporting self-service ordering and checkout to purchase aggregation that increases buying power. In these solutions, the transaction will be embedded and authenticated without the need for hackable transmission of private payment credentials. By enabling mobile solutions through integrated networks, financial institutions will remain the preferred funding source for payments.

Financial institutions are well-positioned to win mobile-payments relationships because consumers overwhelmingly trust their financial institution to handle their mobile financial activities. Fiserv research indicates consumers prefer to use mobile-payments services from their primary financial institution, as opposed to a third party.

According to this research, nine out of 10 consumers surveyed say they trust the security and privacy offered by their financial institution, and 85% want to manage their money in one location—their financial institution. Among the many implications of this research is that those who take the lead in developing branded mobile networks will be rewarded.

The transition from a card-based commerce environment to a mobile-based landscape is well under way. Banks and credit unions must be able to support payments tendered from debit, credit, and prepaid card accounts accessed through mobile phones and also be able to process transactions from mobile card readers.

Providing these capabilities will put financial institutions of all sizes on the path to becoming the mobile-payments hub for their customers. By embracing mobile networks sooner rather than later, banks and credit unions will be able to provide a dynamic payments experience to safeguard their markets and prevent consumer payments from defecting to non-bank providers.