Mobile payments through the use of smart phones and other mobile devices is one of the biggest revolutions in financial services. Consumers are using them for banking, online shopping and, increasingly, making purchases at the checkout.
It’s been projected that mobile payment volumes will reach $214 billion within three years. In fact, about 10 percent of the $2 trillion in small cash transactions – those involving $25 or less – eventually could move to mobile.
We estimate that this will put more than $20 billion in play for the financial services industry – through both new revenue opportunities and avoiding potential losses from the defection of customers.
The revenue opportunities include new fees from mobile spending… the conversion of small cash transactions to mobile payments… and new, value-added services, such as mCommerce, mobile ads, mCoupons and virtual currencies.
The risks are equally clear: Those that fall behind are likely to see the loss of fees and revenue and the erosion of brand equity and customer loyalty.
Traditional players such as banks have an early lead in this market because of their strong customer relationships and confidence in their security. Mobile payments are a win-win for them: The use of these devices will build customer loyalty, increase the amount of assets customers keep in accounts and open up new ways to serve customers.
However, banks and other players can’t sit on the sidelines waiting for the mobile industry to shake out: The door is wide open for competitors to emerge and gain a competitive advantage, everyone from other financial services firms to technology innovators to retailers.
Today’s leaders need to keep up with the fast pace of change if they are to stay ahead of these competitors, all of whom are moving quickly to take advantage of changing consumer preferences.
There is an opportunity for those who can provide end-to-end solutions and improve collaboration to foster standardization and open platforms. At the same time, companies need to address concerns such as security, privacy and the use of advanced technology, both by merchants and by consumers.
There is a real chicken-or-the-egg issue when it comes to mobile devices. On the one hand, merchants are unwilling to adopt the systems needed for mobile payments unless they see consumer demand. On the other hand, consumers won’t use mobile payments systems unless their merchants accept them.
Overcoming this and other hurdles will take new business models that encourage partnerships, enable companies to play new roles and deliver new services in an open, collaborative and fast-paced environment.
For example, banks and mobile payment providers are partnering. Banks can leverage their client bases, trusted brand names and reputations for security. Mobile payment providers can leverage their capabilities with new technologies such as Near Field Communication or QR Codes.
We’ve been working with industry players to help them develop competitive responses that will help them succeed. For example, we’ve been assisting financial institutions with developing mobile payments strategies – designing new business and operating models – building their technical infrastructure – addressing security and risk management issues and helping them with program management.
The mobile payments industry has huge potential, and the winners will be those who can develop new business models and partnerships – invest in promising technologies – and meet consumers’ desire for security, speed and convenience.
If you’d like to learn more about PwC’s views on mobile payments, please see our report “Dialing Up a Storm: How Mobile Payments Will Create the Most Significant Revenue Opportunities of the Decade for Financial Institutions”, at http://www.pwc.com/us/en/financial-services/publications/viewpoints/mobile-payment-revenue-opportunities.jhtml.
Or to have a further conversation click here: John Garvey, PwC, US Banking Leader.