With all the jockeying in the payments space, keeping up with new partnerships, upstarts, and product innovations could be a full-time job. Prepaid cards, alternative currencies (Ven, Bitcoin), mobile payments, and person-to-person (P2P) payments are just a few of the payment schemes that may or may not threaten a bank's traditional business. Add nonbank competitors like PayPal, Google, or Facebook, and payments becomes even more challenging.
Like most banks, Home Federal Savings Bank, a $1 billion-assets institution in Sioux Falls, S.D., is wary of nonbank competitors in payments. Says Natalie Sundvold, senior vice-president, service and support, "From my seat in a financial services company, the thought of an outsider coming into payments is frightening. It doesn't feel good, especially because consumers may not understand how payment security works."
When evaluating payments players and planning their own strategy, banks would be wise to keep the words of the Chinese general and military strategist Sun-tzu in mind: "Keep your friends close, and your enemies closer."
That may seem extreme, but consider that earlier this year ABA formed a Payments System Task Force to evaluate the impact of the many new developments on banks and to ensure that banks of all sizes will have the ability to participate (See story, page 31).
Here's a roundup of some payment types and competitors to watch closely.
Is it time for P2P?
Today, true P2P payments have a very low adoption rate due to usability issues, says Nancy Langer, senior vice-president of ePayments Solutions for bank technology company FIS. "P2P is standalone and not integrated with the consumer payment network or online banking," she says. "You cannot survive with a proprietary approach to P2P." But even with its problems, Langer says that P2P is positioned for great growth.
"There is a real potential for P2P payments, especially for unanticipated transactions that need to happen rapidly," wrote Dean Seifert, senior vice-president, product strategy, Vantiv, in the report Top 10 Payment Trends to Watch in 2012. "So far, it's been a consumer-to-small business tool," said Seifert, noting that the average P2P transaction value is $300.
One example of an operating P2P network is clearXchange, the joint venture of Wells Fargo, Bank of America, and JPMorgan Chase. Langer believes it can make sense for banks to partner with clearXchange, as long as they are careful that it doesn't take away the bank's brand. (ClearXchange notes that it allows member banks to control branding.) Customers of the three banks can move funds directly from their existing checking accounts to any customer of any other bank. However, if the receiving institution is not a clearXchange member, then the recipient has to create a profile in order to receive the payment.
Fiserv is another major player in the P2P space, having acquired CashEdge and combined its Popmoney solution into Fiserv's Zashpay (keeping the Popmoney name). Popmoney allows people to pay the babysitter or the cable bill or their share of the rent, for example, using an online bank account, email, or even a mobile number.
According to the Fiserv website, 1,400 financial institutions are currently signed up to offer Pop-money--one of them being New York heavyweight Citibank, which is actively promoting the service.
Home Federal Savings Bank is moving quickly to Popmoney, says Sundvold. The bank launched mobile banking in April with great customer acceptance, and it plans to offer P2P in late summer. Sundvold says she expects bank customers to adopt P2P much in the same way they took to mobile banking--quickly.
Mobile banking vs. mobile payments
The adoption figures for mobile banking and mobile payments differ significantly. While 21% of mobile phone users used mobile banking in the past 12 months and 11% believe they will use it within the next 12 months, only 12% of mobile phone users made a mobile payment, according to the March 2012 report, Consumers and Mobile Financial Services, from the Federal Reserve Board. …