Posted by John Ginovsky in Making Sense Of It All
EMV [chip and PIN] credit card readers in the back seat of taxis. Airline miles and other loyalty awards enabled for use immediately in grocery stores. An iPad equipped with point-of-sale connectivity anywhere.
What's all this have to do with banking? They're new facets of alternative payments that could go mainstream very, very soon. They are not science fiction. They, and many more, are examples of not only the changing nature but the popular acceptance of new ways to pay. Financial institutions, as part of the evolving payments chain, if not the leader any more, need to pay attention and adjust their payments strategies accordingly.
Earlier this month, more than 490 companies demonstrated their new retail-oriented products and services to the 27,000 attendees of the massive conference called "The Big Show" by the National Retail Federation in New York. The key word at the show was "mobility."
"Retailers have responded to rapidly evolving customer use of mobile devices, dedicating much of the past 12 to 18 months to developing and testing rich mobile offerings for both customers and store associates," says Shop.org Executive Director Vicki Cantrell, speaking for the NRF. "While direct mobile commerce is still small, mobile services are now an established and significant part of the shopping experience. Retailers this year are smartly investing to create a holistic customer experience across stores, desktop, and mobile to improve conversion rates, grow crucial repeat customer business, and even capture their share of customer demand from international markets."
A survey by Shop.org and Forrester Research finds that 51% of online retailers say their top priority for 2013 is site optimization, including checkout optimization, alternative payments, user experience, testing, and product detail page enhancements.
"Despite continued growth in mobile commerce, it will be important for retailers in 2013 to pause and understand the opportunities, distractions, and implications of mobile within the ecommerce landscape," says Forrester Research Vice President and Principal Analyst Sucharita Mulpuru. "But it's promising to see that even though there is market pressure to invest in everything from mobile and free shipping to international growth, retailers have improved key metrics while keeping customer service and fulfillment costs in check."
Compare this observation with that of James Sherwin-Smith, senior manager at Oliver Wyman and author of a report on advanced and mobile payments conducted with Celent and Efma-the European Financial Marketing Association-just in December. "Banks believe that merchants are reluctant to adopt the new technology because they fear consumers will not use it, and vice versa. The risk for banks is that new competitors will invest enough in both the technology and the marketing to overcome these barriers. This will weaken the role that banks play in fulfilling their customers' everyday transactional needs, with an associated loss of the valuable information this provides."
In a similar vein, last summer Javelin Strategy and Research weighed in with an unequivocal pronouncement: "Cash is no longer king."
"Traditional credit and debit cards have knocked cash from its pedestal as consumers' traditionally favored payment method. Although cash is the most widely used method of payment, debit cards have the largest share of the retail point of sale market by purchase volume, followed closely by credit cards," Javelin's report says.
Back at the NRF show, NCR issued a global study of shoppers and retailers that shows consumers seek personalized and integrated multichannel experiences to make their everyday lives easier. Specifically, it says that 52% of shoppers say they want the option of using mobile technology to scan and pay for items while shopping, while 70% of shoppers say they would welcome personalized offers delivered electronically.
Whether it's the chicken or the egg, it's becoming apparent that one or the other has made its move.
So it's instructive to go back to the exhibitors' hall at New York's massive Jacob K. Javits Convention Center and look at a few of the offerings, starting with those mentioned:
· Ingenico-Partnered with Creative Mobile Technologies to place secure point-of-sale devices in 300 cabs in the San Jose, Calif., area. The secure pin pads and screens attach to the back of the front passenger's seat and are integrated with the cab company's dispatch and meter system. They can accept all forms of credit and debit payments, including EMV chip-based payment cards, NFC-enabled mobile phones, contactless cards, and traditional magnetic stripe cards.
· Swift Exchange-Is beta testing a system to turn rewards earned, for example through travel, into currency that can be accepted at brick-and-mortar and online retail locations. Its web and mobile-based platform dynamically connects consumers, merchants, and reward providers so they can effectively use their reward programs and reward currencies in a seamless, efficient manner.
· Revel Systems-Claims to offer "the first iPad point-of-sale system to provide EMV compatibility in the United States." Previously, tablets required external hardware for EMV reading. "Direct integration can save over five seconds per transaction, which can equate to huge time and money savings for high-volume clients," says Chris Ciabarra, co-founder.
· Wincor Nixdorf-Unveiled the "Wincor Wallet," which enables smart phones to make cashless payments in retail and service station sales channels, by using QR codes or NFC technology.
· QuantiSense-Announced new customer analytics capabilities to allow retailers to automatically identify the hidden relationships between their customers, products, stores, web, and social interactions, in order to orchestrate more effective marketing and merchandising decisions.
· Digital Retail Apps-Provides an easy and convenient in-aisle, anywhere way to pay for in-store purchases, literally allowing customers to check themselves out from anywhere in a store, while receiving contextual and timely offers directly on their mobile devices.
Probably many more examples could be offered. The point is, the leaders in the retail industry clearly expect and believe that their customers have demonstrated their preferences for paying for things differently. Banks, particularly retail banks, should take notice of this and respond, not only appropriately, but with dispatch.
Javelin points out that many banks are taking specific steps forward in this regard. "Financial institutions are investing in prepaid cards, which are becoming a more attractive option to consumers," says Beth Robertson, director of Payments Research. "Unlike gift cards, prepaid card features and functionality have evolved to be comparable to traditional demand deposit accounts. Prepaid cards often include features like advanced account management, bill-pay capabilities, and a linked savings account, providing consumers with more choices and greater flexibility."
Note: ABA offers a Community Bank Prepaid Program, a partnership between ABA's Business Solutions subsidiary and TransCard, a leader in prepaid card processing. TransCard created the program with ABA and provides servicing with MasterCard.
In any case, it's worth it to consider these words from the Celent/Oliver Wyman/Efma report, from Patrick Desmarès, Efma secretary general: "Banks no longer have the payments field to themselves and have to fight against retailers, mobile phone providers, tech firms, and new start-ups to position for a share of the market. Even if banks decide not to push hard in the alternative payments space, this should be a considered, strategic decision."
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About the AuthorJohn Ginovsky is contributing editor of ABA Banking Journal and editor of the publication's TechTopics e-newsletter. For more than two decades he has written about the commercial banking industry. In particular, he's specialized in the technological side of banking and how it relates to the actual business of banking. He previously was senior editor for Community Banker magazine (which merged with ABA Banking Journal) and was a staff writer for ABA's Bankers News. You can email him at firstname.lastname@example.org