Tipping Point for Mobile Payments?

BAI Strategies
July 15, 2010 | COMMENTS

Mobile money is at a “tipping point” – poised for widespread adoption – and banks need to quickly assume a leadership position or risk being pushed aside by non-bank competitors.

“The time to move for financial institutions is absolutely now,” said Michael Diamond, senior vice president for business development at Redwood City, California-based Obopay, Inc.  

Diamond predicts 2010 and 2011 “will separate the winners from the losers” in the mobile money arena. He made his comments in May 2010 at a presentation entitled “Transition from Mobile Account Review to Mobile Money” at the BAI Retail Banking Solutions LIVE Virtual Conference & Expo.

The catalyst for mobile money came in the tragic aftermath of the devastating earthquake in Haiti in January, when roughly five million people performed their first mobile payment by texting charitable donations to the American Red Cross.

“For the first time in the United States , millions of people sitting on their couches surrounded by their families pulled out their mobile phone and sent money,” said Diamond, noting the absence of bank involvement in these donations. (Processing was handled by the Mobile Accord/mGive Foundation with the various carriers donating their fees.)

“This was an anchor moment,” Diamond said. “It anchored in consumer's minds that when they spend money on a mobile phone, it's a thing for the phone company and not the bank.”

Surveys have revealed that consumers would prefer to get their mobile money services from their bank rather than through third parties, Diamond added, explaining that consumers feel that banks understand payments better and represent a safer choice.

If banks are prepared to move ahead, mobile money can “drive a revenue opportunity for financial institutions,” since consumers do not necessarily expect these services to be offered for free as they do for online and mobile banking, he said.

Despite the revenue opportunities for banks, the first wave of mobile payments has largely bypassed banks and there is a risk of further disintermediation for banks if they fail to be leaders in the adoption of mobile money, Diamond said. Before banks “start to worry about the sky falling,” it is good to recall the experience with online payments, he added. Banks were able to survive those efforts by many smaller start-up companies and establish a role in online payments.

In the case of mobile money, however, the stakes are higher. “Banks need to be aware that those seeking to separate them from the payment relationship are not struggling, underfunded, visionary upstart technology companies. They are giant organizations with many branches and frankly, in most cases, far more established relationships than banks themselves have.”

For more on mobile payments, see “The Bling Approach to Mobile Payments” and “First Mover Advantage for Mobile Players.” Reprinted with permission from BAI's online publication http://www.bai.org/bankingstrategies.