About Red Gillen

The New Definition of “Issuer”

The New Definition of “Issuer”
As Celent’s analyst covering the mobile banking & payments sector, I would be remiss to not make at least some mention of last week’s announcement by Isis, the mobile payments JV launched by AT&T, T-Mobile & Verizon. One of the more striking aspects of the Isis announcement was that Barclay’s was characterized as the “first issuer”, implying that many issuers are on the way. For most professionals in the banking industry, the term “issuer” would evoke thoughts of payment card-issuing FIs. While bankers may define issuers as such, Isis is almost certainly going to use a different definition. Specifically, Isis is likely to include retailers (e.g., McDonald’s, Wal-Mart, Starbucks, Shell, etc.) with prepaid card programs in its vision of issuers. The benefits of an Isis-like solution to such retailers are fairly obvious — the ability to make no-interchange, float-bearing prepaid card programs even more attractive to consumers, with mobile-enhanced loyalty, reward, convenience & re-load options. In sum, a no brainer for retailers. Real examples overseas show us that prepaid cards can be a formidable force in the mobile contactless payments space. In the Japanese market, retailers and other non-FIs (Suica, Nanaco, Edy) with prepaid products hold the overwhelming share of mobile contactless payment activity. With T-Money, Korea is the same — a market dominated by prepaid mobile contactless cards. In this context, what’s good for mobile contactless payments isn’t necessarily good for banks. In the Japanese & Korea markets, banks’ roles have been relegated to prepaid reloads, done via low-margin ACH-like funds transfers. We’re now beginning to get a little taste of this model back home — just last week, it was announced that Starbucks’ mobile prepaid cards can now be reloaded via PayPal, with ACH-based bank transfers as a potential funds source. All of this just goes to show that it’s already evident that mobile contactless payments are not the reserved domain of banks — the pre-millenial definition of issuers.

The Coming of Unholy Alliances

The Coming of Unholy Alliances
In trade journals, industry conferences and blog postings, a lot of attention has been placed on the roles of FIs and mobile carriers the mobile payments space. In the United States at least, these roles are typically defined as being mutually-exclusive, and the long-rumored AT&T/T-Mobile/Verizon mobile payments JV is almost without exception portrayed as an impending threat to FIs. In fact, this adversarial relationship is widely viewed to be one of the main impediments to mobile NFC commercial availability. This clearing drawing of sides would have some merit, if it weren’t for what is increasingly becoming an uncomfortable thought for both FIs and mobile carriers — the almost assured market entry of “disruptors” such as Apple, Google and PayPal. From a quick look at the industry tea leaves, it seems pretty obvious that these disruptors are pursuing ownership of customers’ mobile experience (not good news for carriers) and building mobile payments platforms off of low cost transaction networks (not good news for FIs). Put another way, disruptors are aiming to turn mobile carriers into “dumb pipes” and FIs into “dumb ACH rails”. As such, disruptors’ eventual market entry may force FIs and mobile carriers to reassess their views of each other. To some extent, both have complementary strengths & weaknesses. Mobile carriers have an inherent understanding of mobile technology, FIs do not (try asking a branch teller about mobile apps). FIs have earned consumers’ trust to manage money, mobile carriers have not (I doubt there’s anyone who has never had a billing issue with a carrier). Mobile carriers have youth-oriented brands, FIs do not. FIs have millions of card-accepting merchants, carriers do not. And so on. This makes me think that FIs and carriers will eventually have to sit down with each other (if they aren’t already) to figure out how to work together — the “FI vs. carrier” paradigm may quickly be a thing of the past. Then of course, there’s the possibility that the FIs and carriers may deepen their animosity by forming alliances with the disruptors — interesting times ahead…

BAI Retail Delivery 2010 Roundup (Part 2)

BAI Retail Delivery 2010 Roundup (Part 2)
While most of the banking world (including key members of the Celent team) has seemingly moved on to Amsterdam for SIBOS, I thought I’d append a few more thoughts to Jacob’s post about last week’s BAI Retail Delivery conference. Both Jacob & I were faced with variations of the “whither on-line vs. mobile?” question numerous times during the conference. This reflects the fact that as Jacob put it in his post, “mobile is a raging topic” and that some people are beginning to think that mobile could replace the on-line channel. However, I’m afraid that aren’t that simple. As many of this blog’s readers will certainly agree, our view is that both on-line and mobile will require ongoing attention in the banking space. And to make matters a wee bit more complicated, it’s now time to start thinking about tablets. The need for continued focus on both on-line and mobile banking products stems from their form factor strengths & weaknesses when applied to differing intersections of use cases and demographics. For example, mobile banking is great for on-the-run balance inquiries, but one would struggle with its small screen and keyboard for PFM. On-line banking is fantastic for investment research & trading, but its tethered, non-push technology makes it useless for real-time alerting. Younger customers with a narrower set of banking needs expect mobile banking, but older customers using relatively complicated banking products are going to demand on-line banking. Whereas tablets can bridge form factor strengths (i.e., they offer the best of both on-line and mobile interfaces), the roughly $500 price point makes it a luxury for most customers. Put another way, on-line, mobile and tablet banking developers will be employed for years to come. I did not attend any of this year’s BAI sessions, but mobile-related observations based on countless bank/vendor meetings included the following:
  • Mobile RDC. This is quickly becoming the “must have” mobile feature that vendors mentioned they are increasingly supporting. Although customer adoption is a big unknown (USAA’s numbers are meaningless to most banks), banks are adding mRDC to their mobile banking checklist when evaluating vendors.
  • P2P. Unlike last year when mobile P2P was the BAI “belle of the ball”, this year’s conference seemed devoid of P2P discussion. Sure, a number of vendors are ratcheting up their support of it, but the breathless descriptions about the potential for this feature have subdued considerably.
  • Marketing & cross-sell. More than ever before at BAI, there was an increased focus on tapping into the mobile channel’s marketing possibilities — this included video chats with bank representatives, the inevitable leveraging of contextual marketing (based on time & place) by couponing players such as BillShrink and Cardlytics, and the use of bold tablet banner ads. Another interesting tablet use case was the selling and pre-processing of deposit and loan products to customers waiting in bank branch lines.
These are just a few BAI-related mobile observations — I’d very much welcome any other observations from our readers.

It’s Alright To Be Little Bitty

It’s Alright To Be Little Bitty
Last week, I met with one of the founders of Supportland, a hip, Portland OR-based start-up that is trying to level the playing field for small, local merchants by building a community-wide rewards program. Merchants pay a monthly fee, and the solution currently uses plastic cards (distributed by participating merchants) as a form factor — however, sophisticated mobile capabilties are just around the corner. Although its initial focus is the rewards program, Supportland’s real work is the building out of a local merchant network, combined with the development of an IT platform that can eventually be replicated/licensed with other local merchant communities in the U.S. (and abroad). In some ways, Supportland’s approach reflects a growing trend in the payments products — merchant-funded rewards. As the Card Act and the Durbin Ammendment negatively impact FIs’ card portfolios, and as points programs are still wildly popular, merchant-funded reward solutions such as those offered by Cardlytics (and to some degree by BillShrink) are garnering lots of interest. The big differences here are that Supportland’s solution isn’t tied to payments, it’s very small (currently 54 participating merchants), and its focus is squarely on local communities (i.e., not on nationwide retailers). This got me thinking — is there a synergistic play with credit unions (CUs)? Like Supportland, credit unions are small and devoted to local communities, while at the same time they bring payment products (i.e., debit & credit cards) to the table. On the other hand, credit unions tell me all the time that they are eager to differentiate and grow a younger membership base — something that a company like Supportland and mobile solutions could provide. Assuming this synergy exists, a few areas of opportunity come to mind:
  • Embedding of community-based reward cards in CUs’ mobile banking apps –similar to the Starbucks app supported by mFoundry
  • Offering of bonus points when the reward card is used in conjunction with a CU’s debit or credit card
  • CUs taking on a role of marketing/issuing community-based reward cards to their membership
  • CUs taking on a role of acquiring local merchant members for reward program participation
CUs and start-ups like Supportland are small and passionate enough to move quickly if they want to — there’s excellent hope that they can offer as meaningful and innovative solutions as the big guys.

A Peek At The 24-Month Horizon For Mobile Banking Whistles & Bells

A Peek At The 24-Month Horizon For Mobile Banking Whistles & Bells
I’m in the process of conducting “refresh” mobile banking vendor analysis, using Celent’s ABCD Vendor View methodology — our last mobile banking vendor report was in 2007. As part of the research process, Celent analysts spend time not only talking with the vendors themselves, but also with their clients. One of the most interesting conversation topics has been about product/functionality roadmaps; the kinds of front-end mobile banking functionality that vendors and FIs plan to have in place over the course of the next 18 – 24 months. As would be expected, there is much talk about P2P payments, remote deposit capture and mobile proximity (aka NFC) payments. By talking to vendors & FIs, I get the impression that while the former two will gradually become “table stakes”, FIs aren’t expecting them to revolutionize banking (and there does seem to be a lot of feet-dragging about P2P within the FI community). Vendors and FIs are holding out hope for NFC (although there has been little articulation about why…), but fuzzy timelines are preventing most from investing significant resources. Aside from these three front-end functionalities being planned for the next 24 months, here are some innovative “whistles & bells” that I’ve come across from discussions with numerous vendors and FIs:
  • Enhanced reality: pointing a phone’s camera at a branch or ATM, to know hours, services offered, special promotions, etc.
  • More prepaid card functionality: i.e., enhanced mobile banking for underserved, non-banked prepaid cardholders
  • iGoogle/My Yahoo-type end user customization of mobile web pages
  • Scanning of receipts: Taking a page from the mRDC playbook, use of mobile phone’s cameras to scan shopping receipts for PFM usage
  • Location-based couponing: Sending of product coupons to a FI customer’s phone when in a retail store (or even within a department in the store)
  • Branch greeters armed with iPads: Use of mobile technology to process banking needs of customers lined up in the branch — mRDC, bank officer appointment schedule, general Q&A.
Of course, it remains to be seen how much of this functionality will actually roll out. Although none of these features will revolutionize mobile banking in their own right, it is fascinating to see how far mobile banking has progressed from just three years ago, when text banking was considered cutting-edge front-end technology.

I Want The Real Story

I Want The Real Story
Over the last month, the U.S. market has been flooded with stories about major developments in the mobile NFC payments space. These have included the “outed” rumors of a joint venture among AT&T/T-Mobile/Verizon, Apple’s hiring of a senior manager with an NFC background, and the revelation that BofA will test mobile NFC payments along with Visa & Device Fidelity in New York starting next month. These stories are indeed interesting from a payments analyst’s perspective, as they all deal with major companies, some of them disruptive, that could possibly “move the NFC needle”. Despite this, these news stories all leave me wanting. In particular, I am waiting for some insight on how these companies expect their mobile NFC payment solutions to be better than plastic cards. Oh, I expect we’ll be hearing shortly about how convenient these new solutions will be, their cool factor, or how relevant they are given that consumers are more likely to carry mobile phones than wallets. However, what I will be listening for is the real product story (if there is one) — the meaningful, sustained incentives that these players’ mobile NFC solutions will provide to consumers. Free airtime from AT&T? Free iTunes downloads with Apple? “Keep the Change” bonuses from BofA? If the discussion centers on new players and their NFC solutions, these stories really don’t have a ton of depth — previous NFC pilots around the world have shown that the technology works and new entrants aren’t going to prove anything new. What would truly be newsworthy would be industry players’ credible explanations of why they think consumers should care.

Mobile Carrier and Bank Convergence

Mobile Carrier and Bank Convergence
Yesterday’s report about AT&T, Verizon, T-Mobile, Discover and Barclays potentially working together on a mobile payment service in the U.S. brings up a a topic (banking and mobile industry convergence) that Bart Narter has blogged about, and about which I have added my two cents’ worth. Looking around the world, there appears to be a number of convergence models unfolding in developed countries:
  • Mobile carriers offering their own mobile banking/payments services: e.g., NTT Docomo’s DCMX Mini (Japan)
  • Mobile carriers making sizeable, yet minority mobile banking/payments investments; e.g., NTT Docomo in Sumitomo Mitsui Credit (Japan), SK Telecom in Hana Card (Korea), Korea Telecom in BC Card (not yet finalized, Korea)
  • Mobile carriers investing equally with banks in mobile banking/payments: KDDI & Bank of Tokyo Mitsubishi UFJ (to create Jibun Bank in Japan)
  • Mobile carrier joint ventures, with financial institutions playing a behind-the-scenes role: e.g., EnStream with Peoples Trust (Canada)
  • Mobile carriers entering joint marketing arrangements with FIs: e.g., Orange and Barclaycard (U.K.)
From the aforementioned report and conversations with industry contacts, it appears that the U.S. model would most closely emulate that of Canada. In both countries, the participating FI is relatively obscure, which means that it has nothing to lose and everything to gain by working with mobile carriers. The result would be a shift in payments volume from incumbent banks, an unwelcome turn of events in an increasingly less profitable payments market.

Rates Braking The Mobile Bank In Canada

Rates Braking The Mobile Bank In Canada
Earlier this month, I was fortunate enough to have the opportunity to speak with almost every major bank in English- and French-speaking Canada. As it is well-known, one feature that distinguishes the Canadian banking market from the U.S. is the relatively low number of (mostly) nationwide banks. The “big 5” banks based in Toronto, and the Quebec-based banks represent the overwhelming lion’s share of Canada’s banking business. With such banking concentration comes great visibility. As such, one would expect Canadian FIs to be running neck-and-neck with their retail banking offerings. Interestingly, this is not the case with mobile banking. Among the top banks in Canada, I found a wide range of mobile banking services, from the very advanced (e.g., including bank-to-bank P2P), to the very basic (e.g., ATM/branch locator only), to no mobile banking at all. Notably, Canadian mobile banking really didn’t even get going until this year. This was quite a surprise, as in the U.S. the top 10 retail banks all offer mobile banking, with major banks launching their services in 2007. One would expect more of banks in the home country of the Blackberry. However, Canadian banks cannot be entirely blamed for the spotty mobile banking landscape. As our Canadian readers know all too well, the biggest culprit is likely mobile operators’ data plan pricing. To illustrate this, I quickly checked out the data plans of a major U.S. and a major Canadian mobile carrier: AT&T: 2GB data plan (smart phone) + unlimited text msgs = USD 45 Rogers: 1GB data plan (smart phone, includes text msgs) = USD 42 (CAD 45) Very simply put, Canadians pay twice as much as Americans for mobile data. This of course places a damper on the demand for mobile data services, including mobile banking. Unless these prices change, I would expect mobile banking to progress in two directions — apps (iPhone, Blackberry) for corporate and high-income bank customers, and text banking for the wider customer base. Simple use cases (e.g., balance inquiry and transaction history) will flourish, while more complicated, data-intense usage (e.g., bill pay, PFM) will be relegated to on-line banking. Although gasoline and liquor may be a lost cause, mobile data is hopefully one area where our Canadian neighbors (whoops, I meant neighbours) will eventually pay the same price as we do…

A Merchant’s Argument For Mobile Contactless Technology

A Merchant’s Argument For Mobile Contactless Technology
A couple of weeks ago, while in Japan, I took a break from studying banks and payment solutions and met with an unlikely research subject — McDonald’s. I met with McDonald’s because during my latest mobile payments research, the fast food chain was frequently mentioned by payments industry players as a merchant to watch. Being an analyst, I decided to check out McDonald’s for myself. The focus of our discussion was McDonald’s use of mobile technology for sales lift purposes — i.e., as a channel to distribute coupons and special offers, to entice customers into McDonald’s restaurants. In a nutshell, here’s how the McDonald’s program works. Customers (now about 18 million of them) register as members of McDonald’s “Toku” promotional program. On a weekly basis (in time for the weekend), McDonald’s sends program members a mobile e-mail, with a list of coupons and promotions available that week. Customers then have two choices. One is to use their mobile browser to open mobile coupons, which are shown to McDonald’s cashiers (a promotional code is clearly visible). The other, if customers have already downloaded the McDonald’s app (which 8 million have already done), is to download the coupons to their contactless mobile wallet. Either way, the customer gains the benefit of the coupon. However, with the contactless version, there is a special advantage. Namely, McDonald’s is able to close the loop between coupon distribution and redemption. By associating redemption patterns with a customer’s “Toku” membership ID number, McDonald’s begins to develop intelligence about that customer’s preferences. Based on this, McDonald’s is able to configure and send out highly personalized promotions (by menu item, specific restaurant, time of day/week, etc.) to the customer’s mobile phone, which the customer is more likely to redeem. This increasingly tightening marketing loop cannot be achieved with plastic membership cards, nor with mobile browser-based coupons. And there’s one more thing that contactless technology does for McDonald’s. Once customers tap their contactless coupons, the data is leveraged to immediately send orders back to the kitchen. Quite amazing (and quite Japanese…). This just goes to show that contactless is not just about payments. In fact, it often isn’t about payments at all — although McDonald’s accepts contactless payments with these coupons, it happily accepts cash too.

Learning from Asia About Banks & Carriers Playing Nice

Learning from Asia About Banks & Carriers Playing Nice
One of Celent’s greatest strengths is that we have offices and analysts all over the world, covering various aspects of financial services. This is important because Celent is able to research cutting-edge technologies developed in one country/region that may be harbingers for market developments in other countries/regions. My latest report, Lessons from the Mobile Payments Leader: What the World Can Learn from the Japanese Market, is a good example. I’m now back in Asia, to examine retail banking technology and trends which will likely carry impact in North America and Europe. The first area of research focuses on a Japanese bank which has been built from the ground up, with mobile as its main channel. This bank offers a number of innovative features, including mobile-based account opening, loan origination and credit card/ATM lock. The second research area centers on the Korean mobile contactless payments market, which is much more bank-centric than the Japanese market, and thus holds different learnings for financial institutions hoping to enter the mobile NFC payments arena. Perhaps even more significantly, this research will reveal business models marked by collaboration and co-investment between banks and mobile carriers. In both Japan and Korea, there are a number of major mobile banking & payment players which have spun out of such bank-mobile carrier cooperation. In the U.S. and other non-Asian developed countries, mobile carriers are said to be looking to enter the payments market, while banks are hoping to enter the mobile market — the Asian experience shows that these aspirations are not mutually-exclusive. Stay tuned.