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Remaking the Branch

There are few topics that so engage the minds of retail bankers these days as the future of the branch. The continual migration of customer transactions from the branch to electronic channels can no longer be ignored, particularly in an era when profitability is under pressure and every expense must be scrutinized.

The Mobile Transformation

The mobile banking landscape has changed greatly in recent years as customers graduated from simply checking their account balances on the cell phone to actually making payments via the device. Increasingly, mobile banking is transmuting into mobile payments.

Banks Take a ‘Swipe’ at Square
Financial institutions are looking to mobile payment devices both for a revenue boost and to solidify relationships with merchant customers. by KAREN EPPER HOFFMAN
Feb 1, 2013  |  0 Comments

As the swoosh of the card swipe migrates from the terminal to the tablet or the smartphone thanks to mobile payment devices like Square, banks have decided they want a piece of that action both for the revenue opportunity and to solidify merchant relationships.

Unlike other mobile payment schemes, which may require consumers to enter codes or utilize wireless near-field communications, the mobile swipe approach enables them to conduct a payment transaction in the same way that they have at the point-of-sale (POS) terminal for years. The difference: the minimalist technological infrastructure involved in these mobile POS terminals, which are typically a few inches long and attach to an iPhone, iPad or Android, appeals to merchants reluctant to invest in card functionality.

“This is one of the big untapped opportunities to reach people that may not have taken credit cards before, who only had taken checks or cash,” says Trevor Rubel, product and strategy chief for Bank of America Merchant Services.

In early December, Bank of America Corp. of Charlotte, N.C. rolled out its own entrant to the on-the-go card swipe market, dubbed Mobile Pay on Demand. Marketed through the bank’s venture with First Data Corp., the service is built around a small mobile swipe dongle that the bank gives for free to small business customers to conduct card transactions on their mobile devices. It works with Android, iPhone and Blackberry devices.

So far, signups for the Mobile Pay on Demand service have “exceeded expectations,” says Rubel, although he declines to quantify that statement. He says the greatest uptake initially has come from business-to-business firms, legal and accounting services and charitable organizations.

Seeing a market for casual as well as active card-accepting users, Rubel says Mobile Pay on Demand has two separate plans: a traditional business plan, which offers a better rate for more frequent transactions; and a pay-as-you-go plan for more infrequent card payees. Rubel says both plans are proving popular with existing merchant services customers – who see this as a backup for their static terminals or a way to reduce lines at checkout – as well as vendors who are new to payment card acceptance and see this as a cheap and easy way in.

Although it has not begun offering the technology to its customers, New York City-based JPMorgan Chase & Co. has invested in and supplies the payment security for San Francisco-startup GoPago Inc., which also boasts a card reading attachment for mobile swiping on Android devices. And there’s non-bank competition aplenty in this space. Online payments titan PayPal sells a card swipe device called PayPal Here through AT&T stores in the United States, and internationally with Japan’s Softbank. Groupon Inc. of Chicago entered the fray in September 2012 with its own Apple-compatible card reader, which it has already tested in San Francisco. The online daily deals site gives away the readers, which are made by Roam Data Inc.

Traditional banking vendors and new players are hoping to carve out a presence in the mobile card payments space too. Total System Services Inc. (TSYS), Columbus, Ga., in November acquired ProPay, which makes the Jak device, yet another competitor to Square. Meanwhile, U.K.-based mobile payment startup mPowa markets its card acceptance readers to banks to white-label as their own.

Brookfield, Wis.-based banking services provider Fiserv Inc. partnered with MagTek to offer its own mobile card reader, called SpotPay, for banks to brand as their own. Dave Keenan, product manager for Fiserv’s SpotPay, says banks need to be responding to the demand for this mobile card payment service as well as the potential threat to their checking account relationship posed by companies like Square and PayPal.

“My concern is the non-FIs don’t share the same degree of risk in the payments ecosystems,” Keenan says. “If we want mobile payments to proliferate, we need to make sure it’s secure and trustworthy.”

Squaring Off

Entrants to this market may have their work cut out for them in competing with Square. By all accounts, the San Francisco card swipe maker, famously launched by Twitter co-founder Jack Dorsey, has built quite a head start with customers and in the press and is reportedly running more than $10 billion in transactions a year. (Citigroup and Visa invested in the company.) Teaming with Starbucks in 2011, for example, gave Square a foothold in more than 7,000 of the coffee giant’s locations.

Nonetheless, industry observers see opportunity for banks to capture a good share of this still nascent market because of their position in the payments ecosystem. “Lots of small businesses will look to their banks for mobile payment,” says Mary Monahan, research director for mobile at Javelin Strategy & Research of Pleasanton, Calif. “I think banks have a great chance here.”

Bankers and the vendors who support them believe that they have clear advantages compared to Square and PayPal. Keenan argues SpotPay has technological advantages over the competition because his device encrypts the card information in the reader, as opposed to routing the information into the phone software, where it may be subject to malware or viruses. “A lot of non-FI solutions take the card information into the phone where it can be hacked more easily,” Keenan says.

Rubel says that the shape and utility of BofA’s dongle has also proved important in nabbing new business. For example, one construction firm converted to using Mobile Pay on Demand because the foremen were able to fit the device into their iPhones and run transactions even with the durable Otterbox iPhone covers, he says.

But the more overarching benefits the banks offer have to do with their role as overall financial providers – they can offer the integration and added services that nonbank swipers can’t. Bank of America has been able to play to its existing base of small business customers offering them integration with its mobile banking, 24 hour service, and even coupon and loyalty support. Mobile Pay on Demand is being sold along with an iDeals marketing platform to help merchants market promotions and offer coupons.

“We looked quite a bit at all we can do for small business customers; we want to play to our synergies here,” Rubel says.

Ms. Hoffman is a contributing writer to BAI Banking Strategies based in Schweinfurt, Germany.

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