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Industry Insights with Fred Brothers
Q: What opportunities does mobile bill payment represent for financial institutions?
A: The first opportunity is to retain their current customers and existing transactions.
Seventy-two percent of the U.S. population owns a mobile device. Fifty percent of U.S. mobile subscribers use a wireless data application—wireless Web, text and photo messages, and game, ringtone, and music file downloads. Ringtones are a $7 billion industry annually.* There are more U.S. mobile-only households than landline-only.
Mobile is a primary Internet access device for Generation Y. Unfortunately, many bankers don’t understand the implications because they don’t think of e-mail as real-time, don’t send 1,000 text messages per month, and don’t understand MySpace or Facebook. Gen Y grew up with small screens—think Gameboys. A five-inch touch screen is fine for their mobile payment needs.
The second opportunity is to enable new transactions that don’t exist today. Instant message–based impulse buying will soon be common. Imagine sitting at a professional sporting event and the scoreboard displays a slick video ad for the jersey of your team’s star player. It says, “To purchase, text ‘shaq123,’ and we’ll ship the jersey to you.”
If retail banks decide not to participate in these transactions by enabling debits against a checking account or debit card, this market will be ceded to the monoline card issuers and Paypal, as many other e-commerce transactions have been.
Q: Do financial institutions face a serious challenge from other entities in the mobile bill-payment space?
A: Yes, biller direct will continue to be a big threat to financial institutions in mobile. Consumers won’t use mobile to pay bills they’re still receiving by paper in the mail. Initially, they also won’t view higher-value bills such as card statements via mobile. They’ll wait to review the bill’s line items on a bigger laptop or desktop screen.
But they will receive and approve e-bills such as utilities and recurring amounts on their mobile device. E-bills are even more important for mobile than for Web bill payment. If the bank’s payment solution isn’t well integrated with the biller’s bill presentment solution, the bank will be disintermediated as the consumer opts for biller direct.
Q: Since most payments that go electronically are already posted same day or next day, what benefits would a mobile expedited, or same-day, payment service provide?
A: We believe that heavy users of mobile payments will be either time constrained or convenience oriented, so payment speed is incredibly important. How silly would it be to offer a real-time portable electronic payment solution that takes two business days for the payment to be posted?
Some banks and billers will elect to offer the fastest payment-posting times for a premium price, i.e., mobile expedited or emergency payments. We believe this is a significant fee-generating opportunity in the next few years, since most forecasts show the number of expedited payments doubling by 2010.
Certain segments of consumers have proven they will pay fees for a last-minute payment on an IVR or the Web. Mobile can enable even more of them to do so.
Q: What challenges—technical or otherwise—face a financial institution that wishes to implement a same-day payment service?
A: The biggest challenges are connectivity, relationship, and business model. The biller has all the power. The payments can only post same-day if the biller chooses to enable connectivity and posting processes for a given bill-payment originator.
Having a network like MasterCard RPPS is very important—billers will not implement individual “pipes” and same-day posting with dozens of banks or processors. They want a single remittance pipeline that aggregates all of the inbound volume, filters out unpostable transactions, and settles consistently.
It is important to remember that some biller verticals realize significant fee revenue from last-minute payments or late payments. For these billers to enable same-day posting from a new source, their existing revenue streams must be protected. Banks offering mobile payments may need to selectively share a portion of the fee revenue with the biller.
Q: Any closing thoughts?
A: Web-based mobile will be as important to banks and billers as Web-based desktop/laptop banking, billing, and payments have been. The demand already exists among younger consumers.
But this isn’t just a Gen Y thing. Much like the adoption of the Internet, online banking, and online bill pay, the other consumers will also adopt a few years later.
If financial institutions start working now, they just might have a solution in market by the time all of their consumers are demanding mobile transactions.
About Fred Brothers
Fred Brothers is managing partner of eCom Advisors (www.ecomadvisors.com), a consulting firm serving financial institutions, billers, vendors, and investors in financial services technology and online banking, billing, and payments.
Mr. Brothers is a leading expert on consumer and business e-commerce. He is the former head of strategy for CheckFree’s Electronic Commerce Division, where from 1994 to 2005 he helped to grow their Bank ePayments business from $2 million to $600 million in annual revenue.
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