Category Archives: Credit card

Opportunities and challenges in mobile payments

In recent weeks, we have seen mobile payment launches by Google and Square.  These follow the creation of the Isis joint venture by AT&T Mobile, T-Mobile and Verizon Wireless.  Many of the leading banks (including Bank of America, Wells Fargo and U.S. Bank) are currently conducting mobile payment trials.  And a series of smaller players (e.g., Dwolla, Boku, Propay) have recently introduced mobile payment apps.

Mobile payments have the potential to capture to a significant share of spending in the coming years.  However, there are significant challenges to overcome in order to realize this potential.  These include:

  • Consumer privacy and security
  • Technological functionality and interoperability
  • Revenue-sharing among stakeholders: There are a diverse range of companies looking to gain a share of the emerging mobile payments market, including: banks; payment networks; payment processors; payment app providers; smartphone manufacturers; communications service providers; and merchants.  Each of these companies bring strengths and limitations to the table, and no one company can go it alone.  So, an effective and sustainable mobile payments model will need the involvement of multiple partners, each of whom will need to earn a return commensurate with their contribution.
  • Changing consumer behavior: Consumer spending patterns change over time, and consumers are moving away from paper-based payment methods and towards cards and electronic payments.  However, consumers’ payment usage patterns alter more gradually than many would expect (according to The Nilson Report, by 2015, checks will still account for 12% of consumer payment volume).  To encourage consumers to switch to mobile payments, marketers will need to:
    • Identify and target consumer segments with greatest interest in using mobile payments
    • Develop a value proposition and user experience for mobile payments
    • Determine which merchant categories would be most receptive to mobile payments
    • Identify which payment methods are most vulnerable to being dislodged by mobile payments, and clearly articulate mobile payments’ advantages to consumers and merchants
    • Create incentives to encourage first-time and repeat usage by consumers
  • Merchant acceptance: contactless payments have been around for some time, but fewer than 150,000 U.S. merchants can accept such payments, compared to the approx. 6 million merchants that can handle card transactions.  Many merchants will balk at the cost of equipping their point-of-sale terminals to accept mobile payments.  To overcome this, mobile payment stakeholders will need to:
    • Develop technology solutions that reduce the cost of mobile payment acceptance
    • Market the benefits of mobile payments to merchants, so that they are more willing to make the investment in mobile payment acceptance

Bank of America launches suite of small business charge cards

Earlier this week, Bank of America introduced of a suite of three small business charge cards. Up to now, Bank of America has only issued small business credit cards.

This new suite will compete in the small business charge card space with leader American Express, as well as Chase, which now issues an Ink Bold charge card as part of its Ink small business card suite.

This new charge card suite will also compete with small business credit cards.  Leading small business credit card issuers retrenched significantly following the financial crisis in the second half of 2008.  Since then, some leading issuers have returned to the market, but small business cards are now marketed less as sources of working capital, and more as payment vehicles.  And there is significant spending growth potential for small business credit and charge cards, as card’s share of overall small business spending is much lower than card’s share of consumer spending.

Marketing such cards also enables issuers to maintain relationships with small business customers, who can then be cross-sold additional products and services, including lending products as confidence returns to the market.

Card networks report strong growth in credit and debit card spending

Visa and MasterCard both reported quarterly financials this week, which enables us to develop a picture of how the four main U.S. card networks (Visa, MasterCard, American Express and Discover) performed in terms of card volume.

See the table below for details on the card networks’ total U.S. card volume for 1Q11, with comparisons to 1Q10. Note:

  • Strong year-on-year (y/y) growth in both debit card (+12.0%) and credit card (+9.2%) spending.  Even though credit card spending growth continues to trail debit cards, growth rates have recovered in recent quarters, following significant declines in 2009.  This reflects the efforts of leading credit card issuers to promote spending, as outstandings continue to decline.
  • Strongest credit card volume performance came from American Express, which enjoyed double-digit growth in all customer segments (13% in consumer, 14% in small business, and 18% in corporate).  Its share of total credit card spend rose from 24.6% in 1Q10 to 25.9% in 1Q11
  • Discover reported 24% debit card growth through its Pulse PIN debit network.  Visa also reported double-digit debit volume growth.
  • Visa’s share of total (credit and debit) card spend among the four networks rose 46 bps y/y to 51.9% in 1Q11