How to Generate Critical Mass for Mobile Payments

June 11, 2012

Mobile payments continue to receive widespread coverage in payments-related media, as various companies pilot and roll out mobile payment products targeted at both consumers and merchants. In recent weeks:

Visa launched the V.Me digital wallet, with plans for a consumer launch by the 2012 holiday season.
MasterCard launched PayPass Wallet Services, which includes a PayPass Wallet, PayPass Acceptance Network and PayPass API
LevelUp received $12 million in additional funding and reported that there are now 200,000 users spending $2 million per month via LevelUp
VeriFone launched SAIL with VeriFone, an open payment platform targeted at small and medium-sized businesses, which works with mobile devices as well as traditional payment methods. VeriFone’s solution competes with other mobile acceptance tools, such as Intuit’s GoPayment and Square’s Register.

While these launches are generating a good deal of hype in the industry, and mobile payments are the hot topic in 2012, it is worth noting that researchers assessing consumer and merchant interest in mobile payments are finding that consumer interest in mobile payments is lukewarm at present:

Catapult found that only 25% of U.S. consumers are somewhat or very interested in using mobile payments.
According to a recent Nielsen survey, mobile lags in-store and online shopping for reliability and likability, although it scores relatively well for ease and convenience.
Financial consulting firm Carlisle & Gallagher Consulting Group found that nearly half of U.S. consumers are interested in using a mobile wallet to help them manage card payments.

Most consumers are comfortable with established payments methods and feel that they do not have a compelling enough reason to change. In addition, they have concerns regarding security and privacy. In addition, most merchants have yet to embrace mobile payments. The main reason for this is that there is a cost to equipping terminals for mobile payments acceptance, and merchants do not yet see the benefits outweighing costs.

However, with growing smartphone penetration, increased consumer use of mobile phones for shopping, and enhanced mobile payment and acceptance products coming on stream, most observers expect consumer and merchant attitudes to and usage of mobile payments to grow significantly in the coming years.

With this in mind, we have developed the following ten steps to overcome challenges and build a strong mobile payments franchise:

Incorporate mobile payments into a digital wallet. Although mobile payments on their own have a “buzz” factor as well as enhancing ease and convenience, these attributes on their own will not be enough to encourage widespread adoption of mobile payments. Some mobile payment providers are looking to leverage power of the smartphone as well as social media apps to develop mobile wallets that will include targeted offer and loyalty program management functionality, in addition to mobile payments.
Identify and target segments who are more willing to try new technologies and alternative payments. In addition, develop strategies for other segments along the product-adoption curve.
Conduct consumer and merchant research. Focus on identifying what these audiences would look for in a mobile wallet or in mobile acceptance tools, what offers and incentives would drive usage, as well as what factors reduce the likelihood to adopt mobile payments.
Clearly articulate key selling points (over both existing payment methods and other mobile payments products), and incorporate these into all communications.
Establish a partnership strategy that seeks to harmonize the different objectives and concerns of each stakeholder in a mobile payments consortium. (This is particularly important as there is widespread recognition that no one company can go it alone in the embryonic mobile payments space.)
Develop local marketing plans, as mobile payments will tend to be rolled out initially in select markets rather than on a nationwide level.
Conduct mobile payments pilots in select markets to assess and enhance the user experience, evaluate different offers and incentives, and test different media and messaging
Create compelling incentives for consumers and merchants to trial mobile payments.
Build referral programs to encourage initial mobile payments users to recruit friends and family.
Once it has been launched, continually enhance your mobile payment solution to continue to meet changing customer needs, as well as to maintain a competitive advantage.

U.S. Issuers Continue to Push Small Business Card Spending With Bonus Offers

June 11, 2012

In spite of the stuttering economic recovery, leading U.S. card issuers appear united in their belief that there is significant growth potential in small business cards. Given the anemic small business loan demand as well as continued strict underwriting standards from issuers, issuer focus continues to be on driving small business spending rather than outstandings. This is illustrated most clearly in the bonus points/miles/cashback offers for making initial purchases on new cards as well as for signing up for a number of services.

Chase is offering bonuses on each of its three Chase Ink cards: up to $250 on Ink Cash; up to 25,000 bonus points on Ink Classic; and up to 50,000 points on its Ink Bold charge card.
Capital One has professed that it does not typically compete with strong bonus offers or introductory rates, but it is offering 10,000 miles on the Spark Miles credit card. This card is targeted at heavy spenders, and features an earn rate of two miles per dollar, but it also carries an annual fee of $59. Capital One is also offering 30,000 points for customers who sign up for Capital One Personal Checking account, Small Business Rewards Checking account and Spark Business credit card.
SunTrust is offering 25,000 points on its Delta SkyMiles Business Check Card. This card has a rewards earn rate of 1 mile per 2 dollars, and comes with a $120 annual fee.
Citibank, who pulled back significantly from the small business space between 2008 and 2010, recently launched the CitiBusiness ThankYou Card, featuring 15,000 bonus ThankYou Points after spending $3,000 in the first 3 months.

These offers can be effective in driving new small business cardholder and acquisition. However, to optimize customer lifetime value, issuers also need to develop initiatives that anticipate and capture opportunities at various stages of the customer lifecycle. These initiatives include onboarding campaigns, anniversary communications and offers, ongoing usage incentives, upsell and cross-sell initiatives, winback programs and referral offers.

Bank C&I lending advances, small business lending lags

May 31, 2012

The NFIB recently published first-quarter 2012 data on U.S. commercial banks, which shows strong growth in commercial and industrial (C&I) lending, but continued decline in small business loan portfolios.

Overall, C&I loan portfolios at the end of 1Q 2012 were up 15% year-over-year (y/y). The growth was driven by the larger banks; banks with more than $1 billion in assets grew C&I loan portfolios rose 20%, while banks with less than $1 billion in assets increased C&I loans by just 2%. Most of the leading U.S. banks reported C&I loan growth rates of 20%+. American Express grew C&I loans 13%, indicating that its spend-centric approach is beginning to stimulate growth in business card outstandings. C&I growth was 2% between 4Q11 and 1Q12.

Small business loan portfolios (defined as C&I loans of less than $1 million) continued to decline, falling 1.6% y/y. However, banks with more than $10 billion in assets grew small business loans by 4.6%, indicating that these banks have increased their share of small business loans. However, the smaller community banks (with less than $100 million in assets) were the only bank-asset category to grow small business loans between end-4Q11 and end-1Q12.

Our analysis also looked at loan intensity–C&I and small business loans’ share of overall bank loan portfolios. As expected, the larger banks have a higher C&I loan intensity, with this ratio declining steadily for smaller bank-asset categories.

For small business loan intensity, we see the opposite trend. Smaller banks tend to have highest ratio of small business loans to total net loans, underscoring the importance of small business relationships to community banks.