Published by Gbaf News
Posted on January 17, 2013
By Ted Bissell, mobile business expert at PA Consulting Group.
Contactless payments (CP) are expected to take off in 2016[1] when analysts estimate that Near Field Communication (NFC) transactions will hit $74 billion[2] worldwide. With early pilots showing customers would quickly increase spend through this channel[3], this represents a significant growth opportunity for banks.
However, so far, banks have tended to ignore CP; even the most engaged banks are only conducting CP pilots, with a small minority launching full scale solutions Meanwhile, non-banking institutions such as PayPal, Google and the Isis Mobile Payment Alliance have become the standard bearers in pioneering mobile wallets, NFC and their supporting infrastructure. The leading solutions are moving toward marginalizing banks by substituting bank account usage via cash or debit cards with proprietary pre-paid cards, cloud wallets or credit cards – and 48% of Americans interested in CP say they would consider substituting their traditional bank account with a mobile wallet if they could [4]. At this rate, non-banking institutions will soon control the CP infrastructure, demanding some or all of the transaction fees.
Unless banks move to increase their influence in the contactless payment market now, they risk relinquishing much of their traditional role – and fees – to major non-financial players. In other words, banks need a more aggressive CP strategy.
Prepare to take action now
The world’s five leading smartphone manufacturers have either already included or are expected to include NFC support in their next handset upgrades, which should kick start the technology-adoption lifecycle. With early adopters coming soon and the rise of non-financial companies, banks need to be ready with at least two strategies that can be implemented very quickly to simultaneously grow this market and avoid disintermediation.
Identify possible scenarios and develop scalable solutions
With different players taking so many different approaches, banks should prepare solutions that can be scaled quickly in response to the most likely industry scenarios. This means thinking clearly through the different permutations and trigger points for abandoning or pursuing alternative strategies. It also means ensuring not only that the strategy is clear but that practical plans for scaling sourcing arrangements, in particular, are in place.
Capitalise on customer trust
Early adopters may already be convinced of the benefits of CP, but banks need to invest in convincing other consumers and merchants that the way banks are implementing CP is safer, more convenient and more cost-effective (and, for consumers, perhaps more fun) than the approach being taken by technology companies – not just during the transaction but beyond. Here, banks have an edge; customers trust banks more than technology companies to look after their money[5] and already rely on banks for mobile banking. A successful campaign could help accelerate adoption of CP and, once banks’ solutions have reached critical mass, it will be inconvenient for merchants and consumers to switch.
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