Mobile Financial Congress 2010 in Miami, FL

I just got back from the 2010 Mobile Financial Services Congress in a surprisingly cold Miami.

I led workshops on Mobile Remote Deposit Capture and Mobile Security. I also hosted a track of sessions on Day 2 where mobile banking and mobile payments professionals from banks in the U.S., Canada, and elsewhere met to discuss the future of mobile banking and the industry.

The many NFC and mobile payments conversations were timely with the announcement of the Google Nexus S phone that will launch with support for NFC contactless payments. This launch is possibly the opening salvo in the mobile payments arms race.

Here are some other items of interest from the show:

• BBVA Compass demonstrated a stunning iPad application, setting the bar high for other banks
• SunTrust is doing a major mobile launch this weekend. Look for mobile web and other major functionality improvements
• Bank of America announced they have 6 million active mobile banking customers (browser and/or application) and 850,000 text bankers (the service just started earlier this year). Text banking supports offline customers (those that don’t use online banking).
• Scotiabank in Canada shared that 10% of OLB customers were using mobile within the first three weeks of launch.

During a panel session, when asked “What do bankers want from vendors?” Lauren van Heerden from TD Bank eloquently said, “Help me, as a banker, to not have to be an expert in every single mobile device and mobile payment technology.”

“Help me, as a banker, to not have to be an expert in every single mobile device and mobile payment technology.”

Wells Fargo’s Amy Johnston also shared a powerful anecdote on the value of commercial banking to corporate treasurers. Before commercial mobile banking, one treasury customer shared that she dedicated the first 30 minutes of every day to dealing with various exceptions and approvals at her desk. She now looks to see if she has any of these issues to deal with when she gets up. If not, she doesn’t have to rush into the office as fast. The customer said, “Amy, you give me 15 more minutes  with my kids in the morning. Thank you.”

“You give me 15 more minutes with my kids in the morning. Thank you.

You don’t have to calculate ROI on that.

Mobile payments could use phones as a PIN authorization pads making transactions easier, cheaper, and more secure. Image credit: GigaOm

Speculation is heating up again about Apple including near-field communication (NFC) mobile payment capability in iPhone 5 next year after reports Monday by TechCruch that both Apple and Google are in talks with mobile payment company Boku.

GigaOm’s Darrell Etherington piled on in an article yesterday. The only new information is that Apple and Google are showing real interest in mobile payments capability.

But, here’s why it matters:

Boku has had decent success, by modest U.S. standards, in billing micropayments to mobile phone carrier bills.

A typical Boku purchase would be a game player wanting to buy a new weapon for 99¢. With Boku, they simply enter their phone number into the game and a text message is sent to their phone. The user responds “Yes” to the text to approve the purchase. The process provides a very frictionless checkout that encourages spur-of-the-moment sales.

One Click Checkout
U.S. carriers limit purchases to small amounts, sometimes as low as $25 per month. U.S. carriers also insist on keeping roughly half the revenue. Therefore bill-to-mobile purchases are often limited to digital goods with no physical cost-of-goods sold — like online game items.

By the carriers’ usurious standards, Apple’s 30% take of App Store revenue looks downright profitable. Apple has 160 million cards on file. That’s just a bit less than the AT&T and Verizon combined subscriber base. There’s no wonder Boku and their retail partners would be interested.

By comparison Amazon has roughly 80 million monthly purchases and owns the patent on one-click checkout. Google also competes with Amazon in the online checkout business.

Apple can take a company like Boku and provide an appealing alternative checkout option that benefits both consumers and retailers. Easier checkout means less frustration for consumers and more sales for retailers.

Plus, checkout continues to be a challenge in mobile commerce. Entering usernames, passwords and credit card numbers are challenging on small screens.

Mobile commerce sales would soar exponentially with a simple iTunes bill-to-mobile checkout option and Apple gets a cut of it all. Mobile commerce executives tell me they already see significantly higher conversion rates for iPhone users over Android and other phone users. An easy-to-use, built-in payments solution encourages even more retailer optimization for Apple products and encourages consumers to choose Apple products over other devices.

NFC Tops it Off

Adding NFC to the iPhone would complete Apple’s access to the entire payments marketplace. NFC enhances the bill-to-mobile capability with the potential to drastically reduce fraud. In theory, Apple bill-t0-mobile on an Apple NFC-enabled phone could be the equivalent to a card present EMV smartcard transaction. (EMV is the smartcard standard adopted almost everywhere but the U.S. which significantly reduces fraud (and transaction costs) using a chip-and-pin system).

Checkout would be super easy for consumers. They enter their phone number on the website, then are prompted for a PIN on their iPhone. The NFC-chip ensures that the phone is indeed the consumer’s phone and the PIN ensures the user is who they say they are and that they authorize the transaction.

This approach would simultaneously reduces merchant transaction costs while increasing sales. (Assuming Apple and merchants can convince the card companies that these more secure transactions warrant a lower interchange rate).

But the real excitement about NFC is paying at physical retail locations. NFC chips on iPhones would instantly let users pay at contactless terminals in retail stores. Terminals exist at many gas stations, fast food retailers, drug stores, and some home improvement stores.

Apple would instantly make a market for contactless payments by including NFC on the iPhone. Competitors would jump in just like we’ve seen with tablets, and additional POS terminals would be added as NFC became commonplace by the millions of iPhone users.

The technology exists, is thoroughly tested, is proven to work, and users like it. And if you’re going to get all these benefits from NFC, why not also use it in ingenious ways like logging in and storing preferences? See the Cult of Mac reports.

NFC is just waiting for a catalyst like iPhone 5.

It's more risky to NOT take risks on mobile banking & remote deposit Photo: (c) ColdCut

As a consultant, I see inside a lot of organizations. Increasingly mobile is the competitive battleground for customers and revenue. Mobile is critical in a number of industries like retail, health care, and insurance; but, mobile banking is shaping up to be an especially dangerous battleground.

As banks roll out mobile banking and other mobile innovations, like mobile payments and mobile remote deposit capture, the ability to execute strategic plans is becoming the key difference between offerings. There’s not a creativity or enthusiasm gap between banks. Often there isn’t even a budget gap. The difference is in getting the job done.

Since the advent of online banking, banks have developed detailed formal processes for development, testing, and risk management. Organizations have blossomed even in relatively small banks and credit unions. So now, many institutions find themselves unable to implement even modest mobile projects in a matter of months. The sheer number of organizations involved cause implementations to be measured in fractions of a year rather than weeks.

Mobile banking is also uncharted territory for lawyers, risk managers, and information security. It’s far safer to stall or say no than to approve unfamiliar projects, despite a compelling business case. Sometimes even competing lines of business inject themselves into the process. Perhaps it’s cynical, but it seems groups want to ensure they’re associated with the high-profile success of mobile, or they want to disrupt what they perceive as foolishness. Either way, the process gets slower and slower and time-to-market gets longer and longer as each group piles on.

I cannot overstate the amount of gridlock I’ve seen in organizations.

Executives (this is you, CEO) must change their culture. Risk should be managed and process should keep groups organized, but they should not stop projects with compelling business cases if the benefits outweigh the risk.

CEOs should earn their hefty pay from making decisions like this.

The irony is that the gridlock caused by risk and process creates more risk than it removes. Gridlocked companies risk getting passed by their more nimble competitors. USAA and PayPal are two examples of more nimble companies getting something done and attracting customers from their competitors.

Business is about taking calculated risks to serve customers better. So do it.

Mobile and electronic payments are important to us. Checks are inconvenient, expensive, and take longer to move around. Checks invite fraud as well. Bankers justify many internal business initiatives using these facts.

So when I founded this company, I made a point to use electronic payments whenever possible. Ironically, almost all our bank clients pay with paper checks. Banks are going to great lengths to reduce the number of checks, yet they cling to checks themselves, despite arguably having more expertise and infrastructure to handle electronic payments than any other industry.

What follows is a sordid and cautionary tale for bankers:

[Note: Skip ahead to avoid the whining about bank customer service]

We have two primary banking relationships (which the banks will thank us for not disclosing). One bank is a megabank. The other bank is a regional bank. We considered a number of community banks and credit unions but neither had the necessary infrastructure to support us (nearby branches, ATM network, mobile banking, online banking, billpay, etc.).

We went to both our banks to discuss payment options. Neither bank bill payment option worked for us. We couldn’t setup small vendors (like consultants) as payees without long payment delays and expensive fees — if it was offered at all.

We tried setting up treasury services. We understand wires and ACH payments. Ultimately it took two months of back-and-forth with both banks for them to give us the pricing and functionality available (we need international capabilities too). No one customer-facing bank employee knew the options or the pricing. Many simply didn’t return calls or even show up for meetings.

When we did select which bank to use for treasury services, it ultimately took another two months to go live. Despite good credit, the bank insisted we provide tax returns for the past two years. Once we were approved, the bank also required signatures from a number of internal employees to move forward. It took nearly a month, many emails, and six unreturned voicemails to get one manager to sign the form.

Once we got the welcome packet via FedEx, we waited another week for tokens that never came. We made another round of unreturned voicemails and phone calls to get tokens. After escalating the issue, two separate packages were overnighted on two separate days.

It also turns out that the treasury services web site is written so it will only work in Internet Explorer on Windows computers (we’re all Mac here). Furthermore it wasn’t that the web site doesn’t support Macs, it simply won’t work at all. With 10 years of software development experience, I can say it takes effort to make a web site this incompatible. But no worries, we found a software workaround to make it work.

[Note: It's safe now. The whining is over.]

So, months later we were finally ready to send our first payment!

It turns out the international ACH capabilities the bank said they had aren’t really there. It also turns out the recipient’s bank charges $15 for incoming wires.

Add in the $30 outgoing international wire fee my bank charges and the monthly fees become far more expensive than the $35 I’d been paying in the interim to FedEx a paper check.

Meanwhile, PayPal removed all fees for bank-account funded P2P transactions.

I pulled out my phone and sent the money instantly for no charge while sitting in the parking lot.

I pulled out my phone and sent the money instantly for no charge while sitting in the parking lot.

P2P and mobile technology are becoming hugely disruptive. Banks need to rethink how they help customers move money around if they want to protect treasury revenue. Giant corporations will continue to pay the high fees for a while, but soon they’re going to start wondering what they’re getting for their money.

Banks have the opportunity to lead this transformation and attract highly profitable customers. If they don’t, banks risk everything.

P2P payment networks must connect

There’s a lot of momentum behind Person-to-Person (P2P) payments in the U.S. JP Morgan Chase is the most recent, but PayPal, Fiserv, CashEdge, Obopay, and others are signing banks and trying to get consumers to enroll and use the service. The networks must interconnect if banks want the new payment revenue.

P2P promises the ability to pay anyone electronically essentially as a check or cash replacement. Mobile is the ideal platform for P2P since we’re usually not at our desk when we need to pay someone. With P2P, users can send (or request) money to others using just an email address or mobile phone number.

P2P also offers a strong ROI for institutions. Handling cash and checks is expensive. Theft and fraud are real costs of doing business when dealing with cash and checks. Yet banks can’t charge for cash and checks. P2P can reduce the number of cash and check transactions while generating new revenue from expedited payments.

Current P2P offerings generally allow free transfers for 3-5 day clearing, offering an opportunity for banks to generate float revenue. Users can choose expedited (next day) clearing for a fee. Banks make more money in both cases because the transaction is making new money while costing less. That’s a good business model. It’s certainly better than free checking.

The problem is that P2P offerings aren’t connected. There’s no way for a Fiserv customer to pay a PayPal customer. They system is missing what Jim Kittridge at Wachovia a few years ago called “The Big Directory in the Sky.”

P2P payments simply will not go mainstream if users must belong to multiple networks. People already forget their online banking password. They’re not going to memorize credentials to multiple systems. They’re probably not going to remember what network they use. They’ll either identify their financial institution or PayPal. They won’t know it’s a CashEdge or Fiserv network. How many consumers know what debit card network their cards use?

The system needs The Big Directory in the Sky. P2P needs a standard mechanism to see if an email address or phone number is registered on any of the networks then route the payment to that system.

Yes, there’s a ton of complexity and coordination to work out but it’s possible. Americans should look north to Canada. Canada has had P2P payments for years through the industry consortium Interac.

Canada’s system isn’t perfect and Canadian bankers would likely agree a few tweaks are needed. However, it’s a suitable model for us to study as we figure out our own system.

The American market is bigger and more complex. However, there’s also an opportunity for more revenue given economies of scale.

P2P networks must interconnect or they will fail.

This sounds like a task for NACHA.