Mobile Payments: Banks vs Internet Darlings
The stereotype is easy to make. Banks: slow, old and stodgy. Worried only about extracting every penny they can from us and maintaining the status quo. Internet companies: the darlings of investors, the public and the press. Headline grabbers pushing technology forward and making all our lives easier.
True at times - but there's one area of technology where one UK bank is trying to give the internet darlings a run for their money - and that's a good thing.
Internet companies pose a strategic threat to banks that might not be immediately obvious. To date, banks "own" the high street payment chain - whether you've used plastic, cash or a cheque, a bank or building society has been involved on both sides of the transaction. They provide the bank accounts, the payment method and the processing of the payment - and make money along the way from cash machines, merchant processing fees and bank account fees (especially from businesses).
This monopoly, however, is under threat of being disrupted. First came "in the background" payment processors like WorldPay and then the very public Paypal and Google's Checkout. They interposed themselves between consumer and website, cutting out the bank’s payment processing arms (RBS bought WorldPay in 2002) but leaving them revenues from card processing and bank accounts still left in the process. Unsurprisingly the banks acquired or built their own solutions and tied them to business bank accounts and physical credit card processing offerings.
An uneasy peace has reigned. But now the most old fashioned sort of payment - across the counter and face-to-face - is under threat from the technology companies. Google have made no secret of the fact they want their Google Wallet product hard-wired into future Android phones, enabling contactless payment for small to medium size purchases (around £20). Cash and some card transactions could become unnecessary - meaningless fees for banks and, just as crucially, a reduction in their relationship with the consumer. There will still be the bank account and the card but only used for occasional large purchases - that's all.
Think about this from a customer relationship point of view - what are the positive experiences we have of bank brands? Getting cash out to spend on that gift for yourself or someone else? Looking down and seeing their logo on your card alongside Visa, MasterCard or Amex as you pay for that memorable night with loved ones? It's certainly not logging on to pay the gas bill.
Google Wallet, and future efforts by the other obvious contenders in the race for the wallet - PayPal and Apple - will push banks and grubby money-lenders further into the background. I exaggerate, but the point is this - consumer relationships with the most physical product of the banks will be reduced if technology companies dominate payments.
"So what?" you might ask. Technology companies are more forward thinking than the banks - who we've all paid enough to bail out, anyway.
Exactly. We, the UK public, own part of these banks. Technology companies - Google, Apple and Microsoft - have come to be instrumental in many aspects of our lives. Do we want them dominating another industry sector, with even more influence over businesses, knowing even more about us, having more sway over governments and - ultimately- taking their profits back to their mainly US shareholders? They've not been shy of moving offices to countries like Ireland or Sweden with favourable tax regimes, after all.
This is why I'm happy to see Barclays embracing contactless payment - and innovating. They've offered a contactless payment Barclaycard for a few years now, which also has an Oystercard built in for use on London transport - that's three bits of functionality in one, and one less piece of plastic to carry.
Whilst the contactless payment element of this has seen slow take up in the UK - most shop staff think you are crazy if you start waving your card over the reader - this is exactly the sort of innovation banks need to show to moderate the impact of Google et al.
Barlcays have gone further. They launched an app in February that allows you to send money via your mobile - ideal if you've no cash at lunch with a friend and don't want to wait for the credit card machine at the table. It's not new technology - micro payments via mobile are in use in some developing countries - but it's the first of its kind from a UK bank.
Now they have announced a stick-on (yes, stick-on) contactless payment chip for the back of your mobile. That might not sound elegant - I know how precious some iPhone owners are about the look of the thing - but it's a great innovation that could, if it takes off, bring contactless payment to the masses and convince us to want it on our bank-branded cards or tech-company branded phones. Everything's a platform and a branding opportunity these days.
Google etc. will still win marketshare via their phone-based solutions - they can push phone manufacturers to make this a "standard" feature on Android handsets, marketed by their phone network partners.
Innovation by financial companies and start-ups can only restrict the technology giants power over the payment sector and help them maintain a relationship with customers. If this spurs on other innovations in the sector which lower the fees businesses face for card processing from the banks, that will be a good thing, too.
Well done Barclays - now let's hope the rest of the banks can be as innovative.
By Duncan Parry, COO, STEAK