Big U.S. Banks Look for A Business Case for NFC

How do the big U.S. banks view the prospect for payments moving to mobile phones? Their recent discussions with a group of large merchants are illuminating, but perhaps not so surprising.

Representatives of three of the country's largest banks, Bank of America, Citigroup and U.S. Bank, attended a meeting last month organized by the Merchant Advisory Group, which represents such big retailers as Wal-Mart and Best Buy in dealings with payments industry organizations. The parties were there to talk about the new opportunities that mobile technologies, such as NFC, will create for the payments industry.

"You know what they (banks) told us? There’s just not a business case right now," Dodd Roberts, head of the merchant group, said last week during a conference session at the International CTIA Wireless trade show in Orlando, Fla.

That would not surprise many payments industry observers, who believe that the only business case the big U.S. banks can find for launching mobile payment is to defend their turf against new payments players liberated from the card form factor by NFC mobile phones and related technologies.

These threats come from such new players as AT&T, Verizon and their Isis joint venture, as well as PayPal and its planned move to the physical point of sale. Some banks also have a vague–though probably unfounded–fear that tech giants Google and Apple are after their payments business.

Besides the three banks, representatives of Visa, MasterCard Worldwide, American Express and Discover Financial Services attended the Merchant Advisory Group confab, which was held at the association’s Irving, Texas, headquarters. Major retailers on the group’s board were also there. And at least some of the reps from the card brands also expressed doubts about the business case, said Roberts at an earlier conference.

Merchants have their own theories about why banks and card brands can’t seem to find a business case for moving to mobile and NFC, which they contend could help the banks reduce fraud compared with their insecure mag-stripe cards, increase transactions incrementally and give them a more immediate connection with their customers.

"There are people that are not wanting to move as quickly as others because they don’t want their world upset," said Roberts.

In other words, the banks and card brands don’t want to see their "apple cart" overturned, he said at the conferences.

'New Mobile-Shopping Experience'
Dickson Chu, managing director of global enterprise payments for Citi, who attended the Merchant Advisory Group meeting, freely admits the business case is lacking for banks to move to mobile payment if they are merely going to try to replace plastic cards with phones.

"In and of itself, taking the existing financial architecture and existing business model and putting it into a handset and making it virtual doesn’t make more money necessarily," said Chu, who like Roberts spoke on a panel at CTIA. "It might create some more efficiency. That’s not really long-term sustainable."

But in answering a question about Google’s planned foray into mobile commerce with NFC-enabled smartphones, Chu allowed that this could create a "real business model."

"It’s the value delivered to consumers; it’s the mobility. It’s the instant access to deals."

He told me after his CTIA panel discussion that the interactivity offered by mobile phones creates the potential for a new mobile-shopping experience.

Companies pushing this idea, which include Google, hope to deliver targeted advertising and offers using cloud-based apps and NFC when consumers are in or near the physical store.

"What if, as a consumer, I can close that transaction and pay for it in the aisle, and I’m the payment provider?" Chu said. "That becomes interesting."

According to sources, Citi along with MasterCard are planning to participate with Google in planned launches of NFC-based mobile commerce later this year. Neither Chu nor representatives from MasterCard would confirm that.

'Paranoid About Losing Revenue'
Consultant Steve Mott, CEO of BetterBuyDesign, who also attended the Merchant Advisory Group meeting, told me the U.S. banks do see the advantages of mobile to increase transactions. But mobile confronts them with an unfamiliar payments landscape at the same time they are being squeezed by regulators with the Durbin amendment, which will exact cuts worth billions of dollars annually in fees the banks now earn from debit card transactions.

"They’re paranoid about losing revenue they make from existing transactions," said Mott. "Durbin makes the conflict more acute. All they have (left) are credit and prepaid." And soon regulators could go after interchange and other fees banks earn from these transactions, as well, he added.

Citi, which will not be hit as hard by Durbin as such rivals as Bank of America, is one of the banks that "understands the world has changed" and, therefore, appears to be more open to NFC-enabled mobile payment, Mott said.

But for their part, merchants have not exactly led the way in pushing for mobile payments and certainly not for contactless-card acceptance. Fewer than 3% of the roughly 7 million card-acceptng merchant locations in the United States take contactless cards–far too low for NFC to take off. NFC phones will use the same contactless infrastructure as cards.

Many or most of the merchants that have installed contactless terminals did so because MasterCard and Visa paid for them. Many others refused even this offer.

"Some merchants like Wal-Mart won’t do contactless until they are sure it won’t be dominated by Visa and the big banks," said Mott.

The interchange issue aside, most merchants, like consumers, just haven’t seen the advantage of tapping cards to pay.

It remains to be seen whether Google and others planning to roll out mobile wallets, such as the Isis telcos, will encourage merchants to install terminals and participate in offers.

And to hear the Merchant Advisory Group tell it, if the merchants do buy in, it means banks would either have to get used to doing business with a new apple cart or risk getting left behind. 

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