Potential: Revealed

Strategic Thinking, Innovative Ideas, Growth Marketing, and Revealing of Potential

Archive for Payments

Mobile Banking Future Has Not Arrived …. Yet

 Interesting study out of the  U.K. on Mobile banking adoption and usage. A few snippets:

– Smartphone users registered at just 17.5 percent in terms of those who paid bills with their devices

– yet half of all desktop users said they paid bills

– 45 percent of those surveyed had heard of a mobile wallet

– less than half of those (about 20%) expressed interest in having one

If as conventionally believed Europe and Asia lead the U.S. in adoption and use of mobile for financial services and payments, then should we expect even weaker numbers if this survey was done in the U.S.? The future has not arrived … yet, at least in terms of higher levels of adoption and higher value usage for mobile in the area of financial services and payments. Until there is significant growth in usage beyond merely checking account balances and finding a nearby ATM, the potential of mobile will continue to be hampered by lack of consumer interest or weak consumer experience and functionality, or both. . .  How and when will this change?

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Electronic Bill Pay, After All These Years

Recently I did some work for a client who asked “tell me about the market for bill payment services in the United States?” I was in this business for a number of years as an executive for the market’s largest provider of such services but had not looked at the market at a broad level since 2008. I thought it was interesting to see how things have unfolded and thought I would share with everyone.

First of all, even though electronic bill payment is relatively mature I talk to a lot of people who are quite knowledgeable about financial services, payments and technology who don’t really understand the bill payment ecosystem nor the differences between the two main models. Below is the fastest growing model and soon to be the largest in terms of adoption and usage, referred to as Consolidated Bill Payment. Named such because it is a service that consolidates a customers’ bills and payments at a single point – most often through their bank.

(click to enlarge)

The second model which is popular and growing quickly but not as fast is known as Biller Direct – it is projected to be surpassed by Consolidated in terms of usage volume in the next few years. Biller Direct as the name implies is where a consumer pays their bill directly to their biller (for example, logging into your cable provider’s website and paying your monthly bill).

Biller Direct Ecosystem (click to enlarge)

I’ve also included here a snapshot of the size of this market overall. It has grown well since 2009 and projected to continue at overall a double digit pace for key electronic methods – ACH debit at 12% (for example, when you have your mortgage automatically deducted each month from you checking account), Online Biller Direct at 13% and Consolidated at 18.5%.

Bill Pay Market Size Projected (click to enlarge)

Behind these number though is a natural slowing of this growth rate. The rates quoted just before are the compounded average rate over 5 years from 2009 to 2014 but the rate of growth from any year to the next year is decelerating. It is one of the key challenges to providers in this market – how to deal with a rapidly decelerating growth rate without resorting to price and volume as your only competitive weapons for revenue growth. As evidence, the anticipated revenue growth rate for providers selling the Consolidated model is just 8% per year from 2009 to 2014 (and as with volume growth rates, is decelerating toward zero as 2014 approaches and we get beyond it).

Big Data Drives ‘Loyalty Trifecta’ for Banks

A good panel at this week’s Payments Connect 2012, including a client of mine, Rob Heiser, CEO of Segmint.

Check out the transcript of the panel discussion which is very informative, here.

Let me know what you think too!

Randy

Mobile Payments: Informative Hype

News and hype about all the things we can – and are supposed to one day be able to – do with our mobile phones is itself an industry. As with most emerging technologies with great potential this is a natural phemonema. Recently I saw this infographic published and found it to be both well done and informative (if not in and of itself also adding to the hype it hopes to cut through). I thought I’d share it here also and invite commments.

Personally I think the approach by Starbucks has the most promise in terms of generating real evidence about what level of interest and usage might exist with a mobile payments solution. Since it is Starbucks-only it is simple and not as subject to complex technology and adoption issues (e.g., point of sale technology updated or replaced to enable mobile payment acceptance, training and customer service issues of high-turnover retail sales personnel) that plague the other types below.

And it is not an insignificant fact that the ONLY mobile payment type that has any traction  today is the one used to buy relatively low importance, low priced things like ringtones and games. And outside the U.S., where supposedly adoption and usage has dwarfed the U.S., the by-far leading uses are parking and other incidental transportation purchases. This after a decade of hype that mobile payments were going to take over all manner of payments across the globe.  Seems like great potential is still yet to be fully and clearly revealed. Stay tuned (and wary).

The most important mobile payment infographic. Ever.

The most important mobile payment infographic. Ever.
Compliments of MobilePaymentsToday.com

Recent Commentary: Person-to-Person Payments (P2P)

For a client recently I published some commentary on recent news in the financial services technology (Fintech) market.  Just sharing the publicly available portions here for your interest – and of course comments!

Here’s the second one (the first is here):

clearXchange P2P Next in Long Line of Mostly Unsuccessful Mega Bank Consortiums

On May 25, 2011  Bank of America, JPMorgan Chase and Wells Fargo announced the launch of a joint venture — clearXchange — which will enable their customers to move money using just a mobile number or e-mail address. A direct competitive move versus eBay’s Paypal unit. And threatening Person to Person (P2P) offerings from Fiserv (NASDAQ:FISV) (ZashPay), PopMoney (CashEdge), as well as money transfer players such as MoneyGram (NYSE:MGI), Western Union (NYSE:WU), Obopay and Fundamo.

The announcement garnered significant attention of course due to the banks involved.

Previous bank consortiums as mentioned in the article (e.g., Spectrum, Pariter, ISIS) have a lousy track record for a reason. Innovation and market success requires many characteristics such as capital – which the big banks have, of course – plus nimbleness and persistence in the face of inevitable challenges and failures along the way — which the big banks generally lack on an individual basis. I never see how the latter gets overcome if a group of mega banks simply band together as a “committee”.

P2P payments as the author notes have found success only where some friction in the marketplace could be reduced for a price the market would pay – providing for a sustainable, relatively defensible revenue model such as Paypal did with small/micro-sized merchant payments (e.g., eBay sellers and their auctioned merchandise).

I am unclear that this requirement is met with P2P where the P’s are really that, “persons” — indeed as the author points out this is a sort of last mile problem/opportunity in the payments market place. But is there enough friction with current methods (e.g, checks, cash) and processes (e.g., the infrequent incidence of paying another person such as a baby sitter or repaying a friend for picking up the drink tab last night) to offer sufficient latent demand that is ready to be met?

If successful in some way though, clearXchange would provide a positive force if they are a “network amongst networks” which interconnect to facilitate the critical mass reach that will eventually be required for P2P to become more mainstream.

Recent Commentary: E-Banking

For a client recently I published some commentary on recent news in the financial services technology (Fintech) market.  Just sharing the publicly available portions here for your interest – and of course comments!

Here’s the first one …

Online Banking Increases Lead While Mobile Banking Continues to Lag

Online Banking (OLB) is far ahead now — 55% v. 28% for branch v. 2% for mobile — as the most satisfying channel for retail banking consumers according to May 2011 study from Foresee. Cautiously good news for leading providers like Fiserv (FISV), Intuit (INTU), Jack Henry (JKHY).

OLB’s main competition (or complement) is the branch. Together they make up nearly 75% of the channel preference for retail consumers. Financial services (FI) firms should continue to see these channels as complementary, driving as much customer interaction as possible to electronic channels but integrating the experience with the branch and other personal touch points rather than trying to fully replace them.

Mobile continues to lag because it is often erroneously sought as an OLB or branch channel replacement (to further drive out service costs and serve younger demographic segments). Since it is not a replacement at all, it falls naturally short of retail banking customer expectations and needs, and in turn harms its value proposition.

Mobile is more likely a successor (or complement) to the ATM and call center – and at best a complement to the online channel. Until some day far in the future, if a killer mobile device form factor emerges, mobile banking is likely to be over-hyped and under-performing. The aforementioned FinTech firms plus others such as ClairMail, FireThorn (Qualcomm (NASDAQ:QCOM)), mFoundry, the telcos are heavily invested in mobile banking technologies and apps — and their strategies need to be well crafted or they’ll continue to miss the mark and expectations.

This will mean for foreseeable future mobile banking will at best grow to 15% penetration as the “preferred” retail banking channel. A better strategy is a focused and integrated set of functionality centered around payments and customer service.

An online bank — as a stand alone or as the flag ship of retail strategy for a brick and mortar FI — done right has a significant and receptive market awaiting it. . .

Payments Evolution Continues

Sorry for the delays between posts. Much has been going on for me. Recently I was working with a client on an assessment for where payments, especially online bill payment offered particularly by financial institutions. I turned part of it into a white and will share that here. Thanks for giving it a read and providing feedback!

The Digital Transformation – The Evolution Continues In Electronic Bill Payment

The digital transformation is changing everything – how we obtain and consume information, how we interact with one another and how we conduct business. The digital transformation has been evolving for several decades and it is easy to lose track of its impact in various parts of our personal lives and business dealings. Its impact is so pervasive that it requires stepping back and focusing to see the particular impact in any one area since pervasive does not equate to uniform. For example, in the area of bill payments the impact of the digital transformation has been profound but is still evolving and hardly complete.

One way to see both the impact and the evolution is to focus on the payments value chain. As a simple framework, think of it as a chain starting with payors (Originators), ending with payees (Receivers) and in the digital realm, passing through and facilitated by intermediaries such as Payment Networks. This payments value chain is changing at each stage. Players in this value chain, particularly financial institutions and payment network firms, will need to understand the current situation, clearly understand the developing changes across the value chain, and make wise choices in order to be relevant, competitive and win as the digital transformation plays out.

The Current Situation

The digital transformation is changing how consumers listen to music, how they shop, how they plan vacations, how they manage their money and how they make payments. As evidence, according to a recent Fiserv consumer research study, Internet Banking (36%) handily tops Branches (25%), ATMs (15%) and all other (24%) interaction channels as the preferred channel for U.S. financial services customers. The widespread adoption of mobile phones is further accelerating change. An emerging factor is the rapid growth in use of Smartphones. In 2010 there were nearly 60 million adults in the U.S. with a Smartphone and by 2014 this is expected to more than double to 129 million according to a recent Javelin Research study. Smartphones are a possible game changing device with their ability to provide an intelligent but easy to use user experience, always-on access and capabilities that facilitate several options for making payments while on the go. Altogether the digital transformation places increasing demands on financial institutions, businesses and their financial technology partners to both meet the expectations of consumers and to take advantage of the possibilities these changes may offer.

As expected these digital channels and devices are transforming payment options and choices. Overall they have driven the move from paper (and offline) models to electronic and online. Over the past two decades bills paid with checks, stamps and envelopes have been replaced by electronic bill payments made directly at biller sites or at consolidated sites such as a financial institution. Cash at the point of sale has been replaced by debit and credit cards and all sorts of pre-paid cards. Cash and checks used to pay friends, relatives and the babysitter is being replaced by electronic person-to-person payments. All of these developments, though, continue to march ahead, going mobile and making them ever more convenient and available on-demand. Correspondingly this further raises the bar on the level of intelligence, service reliability and security required. Clearly the move to electronic payments continues but is hardly complete. A recent study by a payments research and consulting firm estimated that from 2009 to 2014 over 11 billion paper (cash and checks) payments will move to electronic payments. Where those payments will go and who will benefit depends upon choices made by the players in the payments value chain.

Opportunities in the Payments Value Chain

Fleshing out the reference earlier to the payments value chain, a simple, traditional depiction begins with Originators, such as consumers, businesses and governments with an obligation to pay some other party. It also includes Receivers which are the “other party” and can also be consumers, businesses and government. The payments made by Originators are facilitated in some way by a Payment Network which connects the Originators and Receivers, moves information and money to handle settlement, and provides various levels of required security. Specifically in the electronic bill payment arena, value was initially created by giving Originators – largely consumers — more convenient options versus the routine of writing checks, purchasing a stamp and putting an envelope in the mail. The value to Receivers – also called Billers – came mainly from more timely payments, and cost savings due to reduced risk and more efficient processing with electronically received payments. The Payment Networks in the middle have been the drivers of these benefits enjoyed at the ends of the value chain. Through reach and scale they have offered low cost yet fast, reliable and highly secure payment services. The value provided however is limited and as electronic bill payment has emerged into the mainstream it has become commodity-like in growth and margins. 

Relative to potential value, the consumers who have adopted electronic bill payment have received a disproportionate benefit; saving substantial time, money and increasing their security. Despite this, still less than 50% of online banking users – those showing a clear interest in dealing with their bank electronically – use their financial institution’s online bill payment service. Over 60% of the electronic bills that could be presented to those who use online bill payment go unsubscribed and are never viewed each month.

The Billers have yet to receive, at least in significant proportion, a number of potential benefits such as richer and more standard information flows and as just noted with the lagging adoption of bill presentment, the elimination of paper from billing side of the payment cycle. The value potential, however, is real and substantial. A study done for a very large cable company identified over $100 million in annual savings from the application of intelligence available from the mining of bill payment data (e.g., understanding payment channel and type choices and precisely guiding subscribers’ choices), and an equally sizable amount of savings from elimination of monthly paper bills.

Financial institutions, which have been the allies of the Payment Networks have arguably benefited more so than the Billers but have also borne most of the cost of providing the service. Compounding the challenge, the benefits the Financial Institutions enjoy are indirect and soft since bill payment is typically provided for free and generates no direct revenue.

While the Biller benefits are lacking and the Financial Institutions find the benefits to be soft, the value to consumers is on a new, upward trend – driven largely by developments such as those described earlier with the widespread adoption of Smartphones. In turn these enhanced services are likely to further raise the costs of the Billers and the Financial Institutions and their Payment Network allies as they scramble to keep up with consumer demands, making the precise ROI even more elusive.

Winning Strategies

Returning then to the depiction of the payments value chain as a three part process, consumer and billers at the two ends and the payment network and financial institutions in the middle, going forward the opportunity for new value creation calls for a focus away from the middle and outward toward the two ends where emerging and unmet needs clearly exist. For consumers as the Originators there are still unmet needs in making basic electronic bill payment compelling for mainstream households. While a majority of households now pay at least one bill online at either the Biller or through their financial institution it remains a minority that have made the commitment to paying most or all of their bills this way. As mentioned earlier, a far larger number of electronic bills could be presented to online customers which would eliminate paper and further enhance security (with reduced identity theft).

The winners in the race to capture these potential consumer users and their transactions will recognize that existing choices must be expanded both in terms of where online bills can be received and paid, particularly on Smartphone devices and generally everything mobile, and choices about how the payment is made such as expanding to include as many payment options as possible and moving to even faster payment speeds. There are information-based opportunities as well, with examples including enhanced financial management tools and alerts, which can help consumers better manage and increase control over their household cash flow. The stepped up value proposition may in turn provide a firmer foundation for charging a fee for online bill payment and creating a more intense electronic relationship. A relationship which offers richer data that can be tapped for deeper insights financial institutions can leverage to improve cross-sell and enhance customer profitability.

On the Biller side, unlocking latent consumer demand for electronic bills is a clear opportunity. In addition, Billers today face a complex array of payment streams coming to them which are neither uniform in their quality nor the quantity and value of the information that accompanies them. Billing and accounts receivable systems while obscure are the life blood of consumer oriented companies such as energy and telecom, cable, insurance and financial services and any improvements made by payment networks that reduce errors and speed revenue collection cycles will be eagerly received. The winners will recognize this opportunity and work to streamline their information flows to Billers and provide easier ways to integrate and facilitate straight-through processing. They will also enrich the data that is transmitted including pre-processed analytics that Billers can act upon directly or integrate into their own data analytics engines and customer marketing systems for use in up-sell and cross-sell, risk and fraud management, and improving customer loyalty.

Together these types of improvements offer the promise of a more widely adopted and active value chain where richer payment and information flows move more quickly, nearing real time. In turn, latent and highly valuable demand at the ends of the payment value chain can be unlocked and monetized by those that compete in the race to provide the winning value proposition.