The industry movement created of any disruptive technology will create winners and losers. What entities create value out of disruption in the early stages will set a base for future success. In the mobile payments sector we have talked a lot about the confluence of technology companies with payment processors and debated who will ultimately emerge as winners. One sector that is often forgotten in this discussion is the fact that banks already play a central role in the day-to-day lives of consumers. There is huge potential for the banks to profit from the mobile payments evolution and they need to move quickly before the industry passes them by.

It is no secret that many U.S.-based banks are in trouble. One reason for that are government regulations on overdraft and transaction fees that effectively zapped $25 billion in revenue from banks coffers. Mobile banking solutions provider Clairmail believes that mobile payments will be financial institutions saving grace.

The Dangers of Getting Passed By

I think for the financial institutions, they don't want to become a dumb pipe. That is what has happened to a lot of mobile network operators is that one could argue all day about the merits of the different mobile network operators but ultimately they generally offer the same handset and same types of services. I think financial institutions, the ones that we talk to, are very concerned about this.

Juniper predicts that mobile payments will be a $670 billion industry in 2015. That number may be a little misleading if you think of it only as a smartphone-to-point-of-sale. The entire mobile payments industry encompasses direct-to-carrier billing, e-commerce purchases (such as done through Amazon or eBay), bill pay, as well as actual brick and mortar retail stores.

The major players are already setting up foundations to profit on the mobile payments revolution. Google has its Wallet initiative, the payment processors are investing heavily and the mobile operators (AT&T, Verizon etc.) are making sure that they are not being cut out of the loop. What about the banks? Transactions, especially on the local level, are what banks do. On a micro level, no other institution has as much influence on local merchants than the banks do. On a macro-level, the biggest banks are partners of the biggest retailers. Some of the biggest retailers (like Wal-Mart) have banking licenses of their own.

"The consumer research that we have seen is still, despite everything that the technology folks are doing, consumers still overwhelmingly want to trust their bank for movement of money," said Carl Tsukahara, VP of product for Clairmail.

Banks Integral in Race to the Middle

In the "What's In Your Mobile Wallet?" series we have talked often about the top-down versus bottom-up approach of mobile payments when it comes to the point-of-sale. The top-down approach comes from the giants like Google, AT&T, eBay and MasterCard (as a cross-list of representative companies from each sector) that will ultimately set the standards for mobile payments. The bottom-up approach contains companies that create groundswell like LevelUp and Dwolla. The race will be to middle, the small to medium businesses that create the bulk of transacations in the U.S.

This is where banks can be extremely important. The ability to facilitate mobile payments (in whatever form they come) between the retailers and consumers is extremely important.

It is not all about moving money from one place to another. Think of money like mobile data. From the mobile carrier perspective, they are enabling the entire smartphone revolution on their infrastructure. The last thing the carriers want to be are "dumb pipes" that do little else but facilitate the movement of data. That is why you see the carriers get into app stores, development, cloud and entertainment verticals. It is all about value-added services. The key for the banks in the mobile payment space will not only be to help with the movement of money data but also in creating an ecosystem where they profit.

"Assisting transactions really is their business. They are in a great position to do it but I think the question is really a race for the consumer mind share. The other thing that is really interesting is what is going to be the value for the consumer around this," Tsukahara said.

"For instance, what is going to be the value of the consumer around this? When you bring together a consumers information about the state of their financial health with payments you potentially have a really interesting user experience. I can tell you what you are buying, what is the status of your credit card balance and things like that and that might help you decide that this coupon you are getting from your mobile wallet should be redeemed. Can I afford it? Can I buy it?"

Gaining Consumer Mind Share

Outside of depositories where money is stored and then moved, banks provide a lot of services to the financial realm. Security and risk management are primary examples and something that is not often in the conversation in mobile payments. According to a Clairmail white paper, services that banks can provide are person-to-person payments, mobile deposits (taking pictures of checks to deposit), bill pay and "top-ups" (refilling of a pre-paid card etc.).

For the most part, outside of the role of depository, banks are not yet in the mobile payments discussion. In the Google Wallet scenario, CitiBank just happens to be the original source of the money. MasterCard moves it and processes it while Google provides the platform to do that. Dwolla can work with the local banks or it can be its own depository. LevelUp creates a scenario where you are paying from straight your bank or credit card resources. Banks are still in the mode of defining their mobile presences, from mobile banking apps and deposits to fraud management services. Payments are in the discussion but movement is slow.

"We encourage our banking customers to get out there and start thinking of piloting stuff but for all the reasons that I described, this is going to be a learning process for everybody," Tsukahara said. I do think the banks and most of the thought leading banks are thinking about this. They are not saying that they are going to wait three years until the dust settles. They really are thinking about how to get out and start pilots or creating their own ecosystem."

Tsukahara says that the race will be for consumer mind share. The mobile payments leaders will be the companies that consumers come to identify as those that add the most value and can be trusted with the most important of data; their money. Banks will have a place in that mind share. Whether it is as the "dumb pipe" that mobile payments are built upon or integral pieces of the economy remains to be seen.

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