Two weeks ago, Motorola Inc. introduced the same mobile payments platform already being used in Japan and India, opening the door for U.S. banks on a retail payments future that could spell prosperity or doom, depending on the choices they make.
Those loaded alternatives have little to do with the immediate future for mobile payments in this country. Buying cheeseburgers by waving a cell phone will begin as a gee-whiz novelty in this country, packaged in ways that will preserve the bank brand, and allay the current boardroom anxiety that banks are fated to become mere payments utilities.
The real danger to banks is the next generation of m-payments, when the payments chip is miniaturized to fit into a ring or necklace; at that point, opportunities to remind customers of which bank’s card they’re using will disappear, along with the visible screen, taking with them much of the bank’s relationship with its customers. But this generation is here now, says Dan Schatt, a Celent Communications analyst, and likely to shake things up.
“This is going to happen in the U.S. a lot faster than anyone thinks,” says Schatt. “You’re going to see the technology-platform providers and handset makers pave the way for banks and [cell phone] carriers to get together.”
Schatt is describing exactly what Motorola is doing. The giant handset manufacturer teamed up with an Illinois-based company called C-SAM Inc, which holds the patent on an m-payments platform it calls the M-Wallet, and which it’s already licensed to Japan’s NTT DoCoMo, Standard Chartered Bank in India [in association with Visa], and the UAE Exchange in Dubai, United Arab Emirates. C-SAM’s m-payments platform gives payers a choice of charging bottled water to their cell phone bill, or Ferraris to a credit card, and displays the card logo during the transaction. Cell phone carriers that use the platform can either operate it themselves, or have it hosted by a sponsoring company like Motorola.
M-payments seemed pie-in-the-sky speculation a mere three years ago, and even reports it was gaining traction in Japan and Korea were typically dismissed by many bankers, who believed the platform unsuited for U.S. consumers. However, the rapid growth of market share in Asia, in some cases accounting for as much as US$2 billion in annual banking payments, has prompted DoCoMo to become a card issuer itself, by buying into the card subsidiary of Sumitomo Mitsui Bank; DoCoMo plans to issue its iD credit card for mobile payments, scheduled for a spring debut (see Electronic Payments Week, January 27, 2006).
The wall between banking and commerce is still enshrined in federal law in this country, but unless Wal-Mart’s application for a Utah industrial loan corporation is rejected, avenues do exist in the U.S. that could permit telecom companies to expand their payments operations from paying for the iconic cheeseburger into mainstream credit card products, if they choose. The consumer, after all, is uninterested in which institution processes their payments, as long as they can take the goods home.
There’s fear as far in the present ranks of payments processors, of course, and that anxiety is aggravated by the size of the market they stand to lose if they make the wrong decisions. Celent estimates that global m-payments will be more than $55 billion by 2008. While it expects 60 percent of that amount to be made in Asia, Celent points out that mobile subscribers in the United States recently topped 200 million, and it expects U.S. m-payments to total about $3 billion in 2006. This strongly suggests that the implications for the U.S. market of Motorola’s launch are not dismissible by any means, even if that passel of billions is a spit in the ocean as far as the trillions of payments dollars go.
The M-Wallet platform is made only more formidable to the typical bank card franchise by being international. (In this country, MasterCard’s, and probably the rest of the U.S.-based mobile payments pilot programs now being conducted, are based on it, although neither Motorola nor C-SAM would say so.) But it’s a small step to infer from the facts that C-SAM’s platform—especially since it’s been adopted in several big countries, and by giant handset manufacturers like Motorola or Nokia—could become a global payments platform that, by definition, is interoperable.
The result is obviously good news for C-SAM and its founder, Sam Petroda, but in a paradoxical way it could also prove to be good news for the banking industry. For years, America’s banks, and especially its commercial banks, have been trapped by their various business lines into resisting change and trying to adapt it to themselves, instead of vice-versa.
The result has been a slow leaching of operations and revenues to non-bank competitors like mortgage and car-loan companies, as well as investment banks and companies like GE Credit, while the bankers have anxiously wondered what is their role in the new game playing out around them. In that sense, banks have been in the famous predicament of a monkey with his hand stuck in a cookie jar, clutching cookies; he can’t free himself without letting go of them. Banks have similarly been trying to hold onto the business lines they have left, afraid to let go of anything for fear they’ll never replace what they drop.
All the while, technology has been roaring through the banks’ world, transforming first how business is processed, and eventually, what business there is to be done. But the advent of practical m-payments in the United States seems likely to force the bank’s hand by making the institutions an offer they can’t refuse: to either prepare themselves for the future, or be edged to the periphery of commerce.
“The guys who succeed in this market will be the ones that come up with solutions that straddle the terrestrial and digital divide,” says Schatt. “A company like that could tell a bank that there’s a lot more money to be made [by the bank’s] acting as a settlement provider, and allowing a carrier to connect to [the bank’s] mobile payments application.” If that makes them mainly a processor and enabler, so be it. What’s the difference, if they’re making money?
Banks should stop worrying and start loving this stuff, he adds. “There’s a larger opportunity that the banks are going to see,” he says. “They don’t have to necessarily be front and center with their brand in order to make a lot of money here. There are new points of sale that are going to be created now that don’t exist.”
One such: So-called NFC (Near Field Communication) posters enabled with an RFID (radio frequency identifier) chip that advertises something like a concert, at which a buyer can wave a cell phone and buy tickets for it. That’s a long way from free toasters. (Contact: Celent Communications, Dan Schatt, 650-627-8897; C-SAM Inc., 630-928-0890; Motorola Inc., 847-632-6021)