One in three people in developed markets now carries a smartphone, and few doubt that banks will rely increasingly on digital channels to serve the fast-growing population of consumers who rely on multiple devices to conduct daily business online. In the United States, where smartphones account for more than half of mobile subscriptions, one-third of consumers are using their phones to make payments. Unfortunately for banks, many of these payments are transacted through mobile apps controlled by online-payments specialists and digital merchants. Payments represent the beachhead for the entire banking relationship, and this beachhead is under attack. Offering a strong payments plan as part of a comprehensive strategy for digital banking is therefore an imperative for banks. But to compete in this emerging arena, banks must meet the expectations of digital natives, delivering diverse tools to help customers make smart decisions across a range of financial services. They should begin by capturing their customers’ most frequent transactions with the new mobile channel and then proceed toward a fully digital relationship.
Beachhead under fire
The average customer interacts with his or her bank at least twice a day for payments-related matters, such as buying a financial product, checking on a payment, or paying a bill. These interactions represent more than 80 percent of customer interactions with banks, making payments a superb platform, or beachhead, for cross-selling other financial services.
But the contest for the beachhead is intensifying, particularly in the area of mobile payments (any payment initiated with a portable handheld device) and digital payments (transactions initiated with a digital device—phone, tablet, computer—in which the service provider’s business model relies to some degree on leveraging the data around the transaction for added commercial value). Armed with deposit accounts, lending relationships, an enduring reputation for security, and a robust infrastructure for clearing and settling, banks are currently the only players with the ability to achieve the scale required for mobile payments. They also enjoy huge advantages as digital-payments service providers, to the extent that they leverage these strengths against digital attackers.
While banks such as Danske Bank (with Mobilpay) or Barclays (Pingit) are reaching substantial new customer communities, it is nonbank attackers, ranging from large telecommunications companies to small and nimble technology players, that are defining the standards for digital banking. They have blurred the lines between media content, product merchandising, order, and payment, all while tailoring cross-functional offers to individual, real-time needs. In addition, nonbank digital players enjoy some important advantages, including fewer regulatory constraints, a higher risk appetite, and greater leeway from customers. For now, the payments business remains squarely within the core bank franchise, but attackers such as Google, Apple, and PayPal threaten critical sources of revenue
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