Online Payment Methods Shaking Banks to Their Core
Competition arising from services offered by Apple, Google and PayPal is sending retail banks to do away with their traditional business models in preserving their payments revenues as online payment methods are gaining increasing preference among consumers.
According to global accounting and business consulting firm KPMG, consumers increasingly prefer online payment services offered by devices over checks, cash and even debit cards, sending many banks around the world rapidly re-evaluating and evolving their business models.
KPMG previously reported that online payment methods would become the mainstream for consumers over the next four years as companies race to take advantage of the mass adoption of smartphones and rapid development of new technologies to offer this service.
Almost 85 percent of respondents to KPMG’s survey of banking and financial services executives saying that online payment will have significant importance to their business within the next one to four years.
Meanwhile, KPMG added a select group of banks are quickly moving ahead of their peers by leveraging mobile platforms to gain customer loyalty, reduce costs and – ultimately – secure their place in the mobile payment value chain.
“Our survey shows that – around the world – banks tend to fall into two camps: those that see themselves as innovators, and those who prefer to be followers.” said David Sayer, Global Sector Lead for KPMG International’s Retail Banking practice.
“And while a number of barriers still stand in the way of the mass adoption of mobile payments today, both camps will need to focus on overcoming these challenges if they hope to maintain their hegemony over the payment value chain,” he added.
Significant Challenges Ahead
In the report, Monetizing Mobile: How Banks are Preserving their Place in the Payment Value Chain, respondents highlighted substantial challenges that hamper the adoption of online payment. For example, more than 70 percent of banking and FS executives cited security issues as their biggest concern, following recent high-profile online security breaches.
“The security of transactions on mobile devices is certainly an important consideration, and banks will need to take security very seriously.” said Mitch Siegel, a partner with KPMG in the US and co-author of the study.
Siegel said consumers’ desire to accomplish everyday tasks like “buying their lunch or paying for a taxi” will drive them to use their mobile devices most often.
The survey also showed that a lack of technology standards and infrastructure are also posing major barriers to the roll-out of online payment.
Most of the respondents pointed to the emergence of Near Field Communication (NFC) as the technology with the most promise and ease-of-use for customers while very few were willing to categorically endorse any single online payment method.
New Competitors Vie for Market Share
The report further revealed that many banking executives were becoming acutely aware of the growing risk of competition in online payment methods.
Respondents raised concerns that some mobile network operators (MNOs) working with device manufacturers might develop a system independent of the traditional payment infrastructure.
“Others, however, foretold of an even more serious threat in the form of new market entrants, such as specialist online payment players and online service provider giants,” KPMG said.
“There’s been a flurry of activity in this space, not only from banks, but also from mobile network operators and other non-traditional and alternative payment providers like Google, Apple and PayPal.” said Fred Schneidereit, a partner with KPMG in Germany and a co-author of the study.
“For retail banks in particular, a lot is riding on the direction that mobile payments take in the future.”
“Nevertheless, banks are still expected to play a strong role as the mobile payments value chain evolves, according to a large majority of respondents from the technology, telecommunications and retail sectors,” KPMG said.
Consumerization on the Horizon
Despite challenges confronting the industry, there is an overwhelming confidence that mass-consumer online payment systems are on the horizon.
The report showed more than 80 percent of respondents suggesting that online payment is or would be mainstream within the next four years, with 36 percent those expecting mass adoption in the next two years.
“The strategic business decisions around technology will need to be solved within the next 12 to 18 months,” said Andrew Dickinson, Head of Banking Asia Pacific, KPMG in Australia.
“Once that happens, banks will look to combine their mobile payment solutions with value-added services such as loyalty cards, couponing and location-based advertising. At that point, it really will be a ‘killer app’.”