Reaching for the Brass Ring
Preparing now to provide anytime, anywhere, any device retail payments options
By Scott Broughton
You don’t need a crystal ball to see what’s coming down the payments pipeline. And it starts with consumer credit and confidence, which, according to a recent MasterCard study, is on the upswing. Credit scores are improving nationwide as consumers are doing a better job of managing their debt, and their tolerance for credit also seems to be returning—an enticing combination for issuers if the rise of credit card solicitations is any indication. (Mail volumes of the large national credit card issuers are going up by 25 percent to 37 percent year over year.)
But credit and debit card issuers should not expect a return to the status quo in this post-recession spend environment. Consumers are still being cautious with their purchases, and new regulations and mounting competition (from traditional and nontraditional entities) continue to squeeze margins and add greater complexity to today’s payments model.
Driving a lot of the payments developments is a shift in consumer mindset with convenience reigning supreme, according to a number of studies charting consumer preferences. Eight out of 10 consumers bank online, and of these, 74 percent use a computer, 26 percent use a smartphone and 17 percent use a tablet, a trend that is only expected to increase, according to a Vantiv Top 10 Payment Trends to Watch in 2014 survey.
What’s more, today’s “omni-consumers,” are just as likely to make a purchase at a brick-and-mortar establishment as they are online, requiring merchants to up their game to secure the sale. Besides matching online prices, storefront retailers are offering interactive experiences for customers, while online merchants are taking great pains to streamline the checkout process and avoid shopping-cart abandonment.
A digital wallet is the equivalent of a physical wallet—housing your payments, loyalty and other card products—deployed online.
Community banks too must answer consumers’ thirst for anytime, anywhere access and be prepared to engage with customers in a new way. One approach that has manifested is the creation of a mobile payments strategy. Forty-one percent of community banks with $501 million or more in assets currently offer mobile payments and 54 percent plan to by 2015 (compared with 21 percent and 45 percent, respectively, for banks with less than $100 million in assets), according to the 2013 ICBA Community Bank Payments Survey.
While these numbers are promising they don’t tell the whole story. Until recently, customers could not use their smartphones as a payments device. That changed with the debut of Apple Pay from Apple, which allows iPhone 6 smartphone users to complete a purchase at near field communication–enabled devices by depressing their finger on the iPhone’s touch ID reader. Given consumers’ attachment to their mobile devices, Apple’s announcement could help jump-start mobile payments options for customers.
Forty-eight percent of consumers use stored account numbers (up from 34 percent) and 16 percent use a Web application (up from 7 percent) for mobile commerce, while 70 percent of consumers expect that they will eventually use mobile payments, according to the Vantiv study. To compete, brands will need to deliver faster—real-time response, fluid processes and same-day delivery—to customers. And thanks to emerging technology, like digital payments, community banks don’t have to sit on the sidelines.
While 80 percent of community banks rate their debit card offerings as “somewhat profitable” or “very profitable” and 53 percent of banks rate their credit card offerings as “somewhat profitable” or “very profitable,” the bottom line isn’t necessarily the driving factor in community banks’ decisions to make using these payments vehicles more accessible in the digital world, according to the 2013 ICBA Community Bank Payments Survey.
Only 59 percent of community banks say increasing profitability is one of their most important payments strategies, down from 70 percent in 2011, according to the survey. While the majority of banks (55 percent) see payments as a source of efficiency, a greater number now see payments as a way to improve customer service (up 5 percentage points to 52 percent) or create or improve customer access channels (up 9 percentage points to 45 percent).
On the horizon
What are digital wallets and why should you care? A digital wallet is the equivalent of a physical wallet—housing your payments, loyalty and other card products—deployed online. For shoppers, it’s a convenient way to authorize online payments quickly and securely with just a username and password. For competitors, like Paypal or Google, it provides a pathway to cross-sell other products and services (demand deposit accounts, credit cards and loans) to your customers.
ICBA Bancard has partnered with Visa and MasterCard in support of Visa Checkout and MasterPass, respectively, to give community banks a vehicle to help streamline online checkout and build brand awareness in the process (both companies have co-branded options).
Another technology fostering online transactions is tokenization. Tokenization replaces a traditional payments card account number with a unique, digital, one-time use token (or code). The tokenization process happens in the background in a way that is invisible to the consumer. Tokens can increase transaction security, reduce the risk of fraud in digital channels like e-commerce and m-commerce, and further enhance your ability to manage risk and provide customer support.
This technology is developing at the same time that EMV (Europay, MasterCard and Visa), the globally interoperable standard specification governing transactions between chip cards and terminals, prepares to make its way stateside. Both approaches have been touted as a way to reduce fraud and are in their infancy (in terms of U.S. deployment). A small number of U.S. banks have issued EMV-enabled cards (both PIN and signature-based) primarily to affluent international travelers, and ICBA Bancard is piloting the technology with select community bank clients.
The world of payments is expanding exponentially. A progressive bank’s payments strategy should extend beyond the traditional checking, credit and debit card product definitions of the past to embrace this evolving world and continue to reach customers whenever and wherever they desire.
Scott Broughton (firstname.lastname@example.org) is ICBA Bancard senior vice president, and director of card products and promotions.