The Four Pillars of Mobile Payments

By Sunil Sachdev, Managing Director, International Payments, Fiserv

With the proliferation of mobile devices worldwide, consumers are becoming more comfortable using them to make financial transactions than ever before. Financial institutions need to focus on these immediate opportunities to cater to the increasing demand of their customers and offer appropriate mobile payment services as this will enable them to seize the opportunity and assume a leadership position in this space.

Getting started with mobile payments – the four pillars

For financial institutions tasked with defining mobile payments strategies, it is best to start by considering the recipients of the payments. Mobile payments go far beyond just the point-of-sale and strategies need to consider other elements, such as mobile transfers, mobile cheque deposit, person-to-person payments and bill payments. The building blocks of mobile payments can be thought of in terms of Four Pillars:

• Paying self – using a mobile device to make transfers and to deposit cheques into a personal account, via mobile deposit and funds transfer capabilities
• Paying other people – making person-to-person (P2P) payments (domestic or international) to individuals and groups from a mobile device
• Paying billers – making payments to a biller either through a financial institution’s mobile app or a biller mobile app; functionality may include e-bill presentment and payment capabilities such as using the mobile device camera to capture an image of a bill to automate payee set up
• Paying merchants/retailers – making purchases either in a store via mobile proximity payments (near field communication (NFC), quick response (QR) code, cloud) or online via apps and mobile websites.

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Growing Consumer Demand for Mobile Banking Services

According to the British Bankers’ Association, the take-up of mobile phone banking now is faster than internet banking was in the last decade. In the UK mobile banking apps have been downloaded more than 14 million times and these mobile banking users are checking balances, transferring money and paying bills.

As consumers are constantly on the move, they increasingly seek to make mobile payments when and where paying with a mobile device is more convenient than traditional payment methods. It is crucial that financial institutions keep up with consumer demands and innovate to embrace the growing popularity of mobile payments.

As this market matures, non-bank competitors such as Google, Apple and PayPal will leverage mobile technology along with their own existing customer relationships to disintermediate financial institutions for mobile payment services. In markets like Australia, Canada and Spain, some financial institutions are taking the threat from outside players seriously. For example, ANZ, Commonwealth Bank of Australia (CBA) and Caxia Bank all have comprehensive mobile offerings across various payment types. It would be wise for other financial institutions around the world to follow suit.

Banks have an advantage over non-bank competitors as the mobile banking and payments user experiences converge. By pushing forward with their mobile payment strategies to establish themselves as the preferred provider of mobile payments banks will be able to reap the rewards of high member retention and compelling returns on investment.  In doing so, they will be better able to compete with the ever-growing number of non-traditional players – and will also better position their organisations to win in mobile proximity payments as those services become standardised and more commercially viable in the future.

How to Start Building These Strong Mobile Payments Pillars?

Financial institutions should think of every consumer with a debit or credit card as a potential candidate for mobile payments, in addition to focusing on existing mobile banking users. In an always-on consumer world banking is becoming multi-channel and banks should extend their communication to the mobile channel to ensure recognition that mobile payments are integral to the brand. And since mobile banking does set a good foundation for mobile payments, campaigns should be implemented to convert members to the mobile channel.

There are several best practices on the path to building the pillars of mobile payments. First however, financial institutions should leverage and optimise offerings for the most prevalent mobile payment types (paying self, paying other people and paying billers). This will help accelerate returns on the mobile payments investment.

Capabilities related to point of sale (POS) payments should also be a focus area – including capabilities such as merchant-funded rewards, loyalty programme functionality, payment-related alerts and the ability to activate card accounts during international travel – but not until later. What is important now is to consider and leverage the POS payments user experience in the design for the mobile banking experience and other transaction types, as this will increase the likelihood of consumers seamlessly transitioning from mobile banking to mobile proximity payments when it becomes more common.

Successful implementation of a full complement of mobile payment capabilities requires the focus and commitment of a financial institution. To be most effective requires establishing a company-wide Mobile Channel Management Discipline that is assigned to an owner from the executive management team and includes stakeholders that will help formulate strategy and implement tactics, engage in industry forums to keep pace with the development of mobile payments, train and develop staff, and put monitoring and management tools in place, inclusive of reporting dashboards.

To Support the Four Pillars

Consumers, financial providers and retailers clearly see the value and the opportunity in mobile payments, with consumers increasingly using their mobile device as the primary point of interaction with many aspects of their financial lives, from banking to bill payments to retail purchases.

Consumers will continue to increase and customise their usage of mobile payments of all types, choosing the apps and payment methods that fit their day-to-day buying habits and giving preference to the options that deliver an exceptional experience.

Financial institutions are well-positioned to benefit from mobile payments by leveraging existing advantages and assets to encourage members to conduct many types of mobile payments today and retain their business for a lifetime. By focusing now on delivering solutions for the way customer are already using mobile payments, they can benefit from increased transactions and greater customer loyalty while creating the potential to attract new members as mobile payments become more widespread. Once financial institutions establish a mobile payments foundation with the first three pillars of mobile payments, they can go on to develop additional services focused on mobile payments to merchants, as the market demands.