Current Trends in the Electronic Payments Industry
Jeff talked about four drivers to build growth, profit and loyalty in the financial services industry:
1. “Away From” is the New Global Position
Social media has become ubiquitous and is available on every mobile device. You never really know where someone else is when you’re communicating with them … and it doesn’t matter! Functionality that provides mobile banking and mobile payments is slowly coming to the US, years after it became common in Asia.
For example, Starbucks has enabled customers to access their pre-paid cards from their smartphones to pay for their coffee (see Everything is easier with Starbucks Card Mobile). “Fast and easy” is a value proposition usually works.
How would banks respond if Apple announced that iTunes users could make P2P payments to each other? How would that disrupt the mobile payments market? Apple has filed at least nine (9) patents for a closed-loop payment system, as covered in Apple to build mobile payments business around iTunes credits?:
A patent application filed by Apple in August 2009 and published today [April 2010] describes the use of an iPhone, or other electronic device, to make payments to other consumers or traders using the consumers’ choice of a credit or debit card, their bank account or credit stored in their iTunes account.
How would the mobile payment industry be disrupted if Apple enabled their 200 million iTunes to make P2P payments to each other?
Google Wallet is already in field trials and assuming that Google’s purchase of Motorola is not blocked, Motorola phones running Google Wallet could be on the market shortly. See Google Wallet: First Impressions.
In a real-time Fiserv conference survey, 69% of attendees plan to make new investments in mobile technology within the next 12 months.
2. Electronic Payments Options Continue to Grow
Debit transaction are growing faster than credit and now represent 35% of all non-cash payments. Use of prepaid cards was up 21% last year with 6 billion transactions. Payments processing generated over $280 billion in revenue in the US. Only 53% of the 140 billion payments are electronic.
There is approximately $50 billion in uncaptured payment interchange transactions in US. This is a tremendous opportunity for financial institutions to capture market share.
Electronic payments are also good for the environment! They reduces paper, increases efficiency as well as drive new revenue. (see How do electronic payments benefit the environment?) And 58% of users of online bill payment say that the environmental impact influences their decision to pay electronically.
Consumers who use online bill payment generate more revenue for banks. They have lower “churn” and are 3-4x more profitable than others. Fiserv bill payment and presentment solutions can facilitate banks’ ability to offer online bill payments to their customers. Bill payment data can also be used to predict customer’s future actions. According to a study done by Fiserv:
… bill payment data can be used to reliably predict customer behavior. Decelerating online payment activity served as an early “red flag” that the customer was likely to move his or her account to another institution in the near future, providing the financial institution with an opportunity to take preventative action.
3. Peer-to-Peer (P2P) Payments Taking Off
There are still $2.4 billion in physical checks still being written and transferred in the consumer-to-consumer segment. P2P payments are growing rapidly. There were $865 billion in P2P payments (11 billion transactions) in the US in 2010. That works out to about $175 in transactions per household per year. This is another big opportunity for financial institutions to capture new revenue.
How can banks “electronify” these physical payments? ZashPay from Fiserv is one option. Popmoney was an alternative, until their parent company, CashEdge, was bought by FIserv. These two services will most likely be combined in the near future. PayPal is the largest player in P2P payments. However, banks see PayPal as a direct competitor and have even teamed up with each other to create an alternative to PayPal, called clearXchange. Jeff didn’t miss the opportunity to point this out to the audience, which contained a few hundred banking customers!