The emergence of mobile personal payments and the opportunity for banks

By Mark Moore and Dan Schatt

In a nondescript shopping center made up of a grocery chain, family restaurants and eclectic shops on the outskirts of Atlanta, consumers were asked what it would take to build back trust and confidence in their financial institution, which eroded considerably during the global economic crisis. The answers varied but one theme that emerged clearly was access and convenience. The consumers interviewed wanted to do business with banks that helped simplify their lives rather than further complicate them, reassuring consumers that they understood their needs. Enter a technology that allows them to send money immediately from their bank account to any person or business in the world using their mobile phone - in a way that was tailored to their needs.

Haven't we been here before? Wasn't the concept of person-to-person payments from a mobile phone originally launched in late 1999 to early 2000 - and summarily dismissed by the banking industry at that time? How is it that the concept is re-emerging now as a way of addressing the needs of the "man-on-the-street" looking for a financial institution to do business with after in the recent challenges faced by the banking industry? It is the result of an intersection between the increasingly complex and fast paced life of consumers and a mobile technology evolution. The convergence of the smart phone, rich mobile content and high-speed access with real-time banking and universal money movement has removed the barriers from the past decade, clearing the way for truly convenient commerce, one transaction at a time.

The popularity of smart phones, which research and advisory services firm TowerGroup projects will reach 100 percent penetration of U.S. households by 2014, has helped usher in the mobile personal payments era, creating a compelling market for financial institutions. TowerGroup forecasts the mobile personal payments opportunity to be $137 billion, or 2.4 percent of the $5.6 trillion in annual U.S. consumer spending. Included in this projection are opportunities for banks to capture unbanked consumers, who represent 11 percent of the U.S. population, global remittances and casual sales from both banked consumers and businesses, including casual cash spending by banked individuals, representing 12 percent of all consumer spending today.

There are endless practical uses for mobile personal payments services in everyday life, including purchases at garage sales or on the Internet, charitable donations, spending on food or splitting the tab at a restaurant, sending money to children in college, and settling personal loans, as well as paying for personal services such as school dues, child care, babysitting, lawn care, home repairs, household cleaning or personal training. Today, cash and checks reign as the primary payment mechanisms for these types of casual purchases, but the door is wide open for financial institutions to deliver the right mobile personal payments service to make strong inroads.

While several models are emerging, one approach quickly gaining interest among banks is aimed at simplifying the sender and receiver sides of the equation. In the past, complex enrollment processes and difficulties accessing funds undermined the promise of mobile personal payments. A new service launched in November 2009 by S1 and PayPal provides easy, fast and secure payments sent directly from a bank account to PayPal users around the world using any mobile device - and requires no enrollment by the sender, who merely has to type in the recipient's email address or mobile number before funds are transferred in real-time to the receiver's PayPal account.

PayPal has the largest personal payments community in the world, with more than 81 million active registered accounts in 190 countries and markets. However, if the receiver does not have a PayPal account, he can set one up in a few easy steps - upon which the payment is immediately released. The sender has full insight into the payment's status, including whether or not the money was claimed by the receiver.

The new service, which is expected to be available in the first half of 2010, combines the S1 Mobile solution and Realtime Framework with PayPal's Adaptive Payments API. Mercantile Bank of Michigan, an S1 Online Banking and Mobile customer as well as a PayPal customer, will be the first financial institution to go live with the service later this year.

For Mercantile, the mobile channel is increasingly important to the bank's focus on increasing customer retention. "We see tremendous value for our customers in expanding our mobile banking functionality to include person-to-person payments," affirmed Mercantile CIO and Senior Vice President John Schulte.

To that end, mobile personal payments services can be deployed as part of a broader strategy, which enables financial institutions to deliver any payment through any channel at any speed to any destination worldwide. As part of that strategy, institutions can also use robust entitlements capabilities to tailor services and pricing of both their online and mobile offerings down to the per item level.

As a result, financial institutions have the flexibility to decide how they want to deliver the mobile service - as part of a value-added service bundled with online banking, as part of a hybrid offering that blends a monthly subscription fee with per transaction pricing or in a purely à la carte fashion. They can also set limits around which transactions are free and which are not. This flexibility opens up the potential for institutions to cultivate revenue opportunities from the emerging mobile channel - or to use the service as a differentiator from competing banks.

Finally, mobile personal payments services can also open up branding opportunities for financial institutions who can leverage text messages by embedding web links to bank-branded HTML payment confirmation messages that cross-sell other banking products. In addition, banks have an opportunity to become visible to the millions of PayPal consumers who check-out using PayPal with a bank payment instrument.

As the new decade arrives, the emergence of the mobile channel and its convergence with payments has created new opportunities for financial institutions. Institutions that take a high-touch approach combined with flexible technology can better serve their profitable customer segments using this burgeoning channel. All this touches a basic need the consumer has to know that his or her bank wants to help make life easier, not more complicated.

For more information, see www.s1.com/mobilepayments or call us at 866-355-6695.

Mark Moore is Vice President of Strategy and Business Development at S1 Corporation, a leading global provider of flexible, bank-centric solutions and payment services. In this role, Mark is responsible for authoring the company's Core Strategic Vision and managing strategic partnerships. Mark joined S1 in September 2008 to help build a global marketing organization within S1 Enterprise, bringing together the marketing teams from the company's Retail Online, Treasury Online, Branch & Call Center and International business units. Prior to joining S1, Mark spent over 8 years at CheckFree Corporation (now part of Fiserv) serving in a variety of business development, strategy and strategic marketing roles. He has also worked as a market analyst for a number of Atlanta-based companies including Witness Systems (now part of Verint Systems) and Per-Se Technologies (now part of McKesson Corporation).

Dan Schatt heads Financial Innovations for PayPal. In this role, he is responsible for defining the business and product strategy for PayPal's initiatives with financial partners. Prior to PayPal, Dan was an industry analyst with Celent, and led the company's retail payments practice. Prior to his role as industry analyst, he served as GM of Yodlee's data services group, responsible for integrations with top tier financial institutions. Prior to Yodlee, Dan worked as an investment banker for Salomon Smith Barney and held positions in Asia, Europe, and Africa with Citigroup. Dan has been widely quoted in the media, including The New York Times, The Wall Street Journal, Financial Times, Business Week, and has also written articles for American Banker and Bank Systems & Technology. He has presented at national and international venues, including the United Nations Development Program Roundtable on Remittances, the World Bank / APEC Dialogue on Remittance Systems, NACHA's Annual Payments Conference, BAI's TransPay conference, and The Internet Retailer conference. Dan received a dual MBA (Finance) and MIA (International Economic Policy) from Columbia University and his BA from the University of California. He is fluent in Romanian.