BankTech

Mobile Payment 2017: Have Mid-Level Banks Done Enough?

The mobile payment industry is the future of how the consumer wants to pay. If you give that a serious thought, you’ll realize that it's not really about the future but, in fact, our present-day reality. Mobile payments are here and if the banking industry hasn’t done enough, it needs to look into serious investments to target this area of innovation. The industry needs timely action from all conservative mid-level financial institutions in this highly dynamic contest where relatively out-of-the-box players like Apple/Google/Samsung/PayPal and many more small payment companies like Paytm, Airtel, etc. are investing heavily and exploring its potential.

The references available on the Internet show that the first example of mobile payments came in 1997 when Coca-Cola introduced the unique concept of vending machines where the customer could make a mobile purchase. The customer would send a text to the vending machine to set up payment and the machine would then vend their product. The year also marked the start of a mobile commerce-based banking service which no one knew would turn into multi-million dollar business. The true potential of mobile payment is yet to be accurately evaluated.

The continued innovation and extraordinary work in the field of mobile technology where smartphones are being integrated an extension of human brain is nothing but a key driver for the payments industry to consider mobile payments as a key in their race of destructive competition to capture growing market shares and a large customer base in the mobile (digital) payment services segment. Conservative approach by the banks in the age of digital world combined with the increasingly rapid adoption of new technology will most likely result in loss of market shares.

With the growing competition and the economic conditions in the banking world, a bank's strategic decision on when to enter this highly potential market either by investing in research and development or by forming alliances with the already-established player will play a decisive role in its future market position.

Based on strategic decisions, banks could be classified into four broad categories:

The Innovator: In this category, a financial institution invests heavily either in research and development or collaborates with players working in this segment. They understand the potential revenue stream and continue their investment even if the market has not bloomed to its full potential yet.

The Follower: In this category, the FI has deliberately chosen to be a follower and not invest heavily in research and development; it mainly relies on industry leaders working in a segment of mobile payments. The reason – to be on the safe side of investment risks. They are usually pretty active in keeping track of their competitors and if something really appealing appears on the horizon, they make a smart direct investment.

The Watcher: The FIs in this category are aware of the available potential and have decided to wait and watch. Considering the fact that the market for innovative mobile payments has not taken off to its highest potential yet, the banks in this segment believe that they won't lose too much market share even if they’re late to market when compared to their competitors.

The Ignorant: The banks in this category have no clue about the market potential and have paid little or no focus on offering mobile solutions at all. And this could be the main reason – they feel consumer payments via mobile phone are not compelling and add no value to the traditional card or web-based payments. The other factor could be that the merchant's segment they cater to might have refused to introduce these solutions because the cost of the upgrades being too expensive when compared to the modes of payments already used today or because of security/data protection challenges.

To summarize, if banks want to succeed in offering mobile payment solutions for a highly tech-savvy civilization (which we will be eventually), they have to come up with highly attractive payment solutions or should make the right strategic decisions to collaborate with mature players in this segment to satisfy the growing demand for networking, mobility, communication thereby playing an active role in shaping the future market of mobile payments.

Suchit Kulkarni

Suchit Kulkarni is a Senior Consultant in the Payment & Cards Division of Information Technology and Services at Wipro. He has more than 10 years of experience in the banking & IT industries, mainly in the area of Global Transaction Banking, Card Payments and Dispute. He is currently working with a US largest payment processor and takes a keen interest in payments and emerging payment trends.

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