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Lisa Hronek Posts Tagged ‘Chase’
The Mobile Wallet: Coming to a phone near you
In case you haven’t heard, Apple announced its upcoming mobile wallet service. It will be introduced through an app called Passbook with the release of its next iPhone. The app will allow users to store loyalty cards, event tickets, and coupons in the app. The company’s intentions are somewhat unclear, but experts seem to think this positions Apple to move into mobile payments mainly because it’s not a huge leap from storing loyalty cards to storing credit cards. And consumers already trust Apple – the company has 400 million credit cards on file through iTunes, so the transition could be relatively seamless.
Apple will enter an already crowded space. Google, of course, has been offering Google Wallet for a year now. The offering is limited by the fact that it works only with Sprint on a handful of phones, with one payment card – the Citi Mastercard – and can only be used where Mastercard’s PayPass system is used. Sprint has announced its intention to introduce its own mobile wallet, and it’s unclear how that will affect the mobile relationship. Isis has been in development for almost a year, and is a partnership between T-Mobile, Verizon, and AT&T. American Express cardholders will be able to use the Isis mobile wallet, along with Chase, Capital One and Barclay cardholders. The service is scheduled to begin testing this summer in Salt Lake City and Austin, TX.
And then there’s Facebook. It’s hard to imagine that the company would actually move into the mobile wallet space. However, the company does seem to want a piece of the action, although probably most likely in the form of processing payments, rather than creating mobile wallet products for consumers. It recently moved away from its virtual currency to real money – something that the experts think is an indication of the company’s intentions to move into the payment space. And in a survey – this one by Cisco – 30% of consumers surveyed said they might one day use Facebook for banking services if they were offered. In terms of specific types of banking products, 14% said they would use a Facebook prepaid account they could reload, 8% would consider using a Facebook checking account or debit card, and 5% would consider a savings account or online bill-payment service. Despite the Cisco survey, there’s no indication that the company plans to provide traditional banking services. The company has also obtained money transmitter licenses in 15 states which are required for companies that keep, retrieve or transfer money. Additionally, any eWallet service would require a money transmitter license. The general consensus is that the licenses are an indication that Facebook plans to create a wider payment system, but guesses on the specifics vary widely.
Despite a large number of surveys done on the subject, it’s somewhat unclear how consumers feel about mobile payments. Starbucks is certainly a success story that no other retailer has been able to match. The app launched in January, 2011 and by the beginning of December 2012 the company stated that there had been 26 million transactions using the app. According to a study by the Carlisle & Gallagher Consulting group, which surveyed 600 consumers, 48% were “interested” in mobile wallets. Of those, 53% said they would prefer an alternate provider over their primary bank. But according to a survey by IDC, of consumers who have a phone enabled with Near Field Communications, only 2% are expected to use them for purchases in 2012.
The technology landscape is certainly littered with product failures. Some because of bad marketing approaches, some had fatal design flaws, and some because consumers just weren’t ready. But sometimes these product failures pave the way for the future. Remember Apple’s Newton? It was a complete flop, but in retrospect provided valuable information to make the iPad the huge success that it is. When Apple announced the release of the iPad, many naysayers talked about the failed Newton. Many of today’s mobile wallet players most likely won’t be around in the future. But most of them will probably provide valuable information on how to construct and offer a mobile wallet to consumers. Despite less than enthusiastic consumer sentiment, the mobile wallet is destined to happen sooner rather than later.
Make Way for the Smart Chip
The U.S. payments industry is probably the most advanced on the planet when you consider the size of the market, card penetration, the extent of innovation and many other factors. Yet, one development where the U.S. has been seemingly lagging is in the technology required to authenticate credit and debit card transactions. In an effort to reduce card fraud, more than 50 countries have now migrated to EMV enabled cards (named after the developers Europay, MasterCard and Visa) incorporating smart chip technology. In comparison, the U.S. payments industry still relies on the magnetic stripe, invented by IBM back in 1960, to authenticate payments.
The reality is that EMV didn’t catch on in the U.S. because there wasn’t the same need to address fraud as there was in other countries. Factor in the huge cost of changing card terminals at millions of merchants and there has been little justification to make the switch. However, recently, both Visa and MasterCard have outlined their plans to implement EMV enabled terminals by April, 2013. The initiative is being motivated by a desire to usher in the age of mobile payments by equipping merchants with terminals that can accommodate both EMV and NFC (Near Field Communications). NFC facilitates payment at the point-of-sale with a smartphone and is the platform used by two of the leading innovators in mobile payments – Google Wallet and Isis.
One of the first countries to adopt EMV was the United Kingdom – my homeland – which embraced a system branded as “Chip and PIN” back in 2004. As a frequent visitor to the U.K., I have experienced firsthand the blank stares of waiters and sales assistants as I have handed over my U.S. credit card and explained that “I need to swipe” backed up with “I don’t have a PIN” (the machines that accept chip cards can also accept a mag stripe). Usually we get through it, eventually, although occasionally a similarly bemused manager has to be called and the additional delay and uncertainty can be frustrating. The issue will only get worse for travelers given that, in just 4 years, anyone in the U.K. below the age of 30 is unlikely to have any concept of signing a credit card receipt unless they have been specifically trained in how to handle visitors from America.
Recently there has been some movement toward EMV here in the U.S. specifically for cards targeted at international travelers. A handful of issuers now offer EMV enabled cards including Chase and U.S. Bank. As an existing Chase British Airways Visa Signature cardholder I recently received my replacement card with “smart chip technology.” A customer communication followed, encouraging me to “shop like a local everywhere” and explaining that the chip will “avoid inconveniences at the point of purchase when traveling abroad.” To add a little urgency to the situation the communication provided an interesting fact posed as a question: “Did you know that chip cards are required at unattended kiosks on the London Underground?” Next to this question a phone number was provided in case I wanted them to “rush” one to me “for no additional charge.”
U.S. Bank has been communicating to its FlexPerks Travel Rewards Visa Signature cardholders promoting the card as “one of the first ‘smart cards’ in the U.S. that features a traditional magnetic stripe and EMV technology.” The communication highlighted the fact that Forbes recently named the card to its list of “10 Financial Innovations That Make Your Life Easier in 2012” siting “smarter travel-friendly spending.” (Source: Comperemedia)
U.S. card issuers can learn from the experience of their neighbors north of the border when it comes to EMV cardholder communications. Canada began migrating to EMV in 2008 and there is still work to do. Canadian banks continue to educate their customers through statement inserts and other cardholder communications suggesting that it is an on-going effort. RBC mailed customers in May setting expectations that “for several years to come you will experience two types of transactions” and to reassure them that transactions are “just as secure as ever.” The bank also provided a step-by-step guide to using the card. (Source: Comperemedia)
It seems that cards with smart chips are finally on their way to the U.S. International travelers will understand the benefits, but the bulk of consumers will need to be convinced through on-going communication. The U.S. payments industry is gearing up to accommodate multiple transaction methods as it begins the migration towards mobile payments.
It’s beginning to feel a lot like…Earnings Season!
Right now football season is in full swing and the holidays are right around the corner. For banks, however, there seems be little hope of a lot of holiday cheer to look forward to. Why?
Two words: Earnings. Season.
In advance of most banks releasing their earnings, The New York Times stated in an article, “For banks, the situation is likely to get worse before it gets better.”
The scary thing, of course, is that we’ve been saying that for years now.
Chase released its earnings on Friday and posted a 4% profit decline for the third quarter compared to the same quarter of 2010. This doesn’t bode well for the rest of the industry given that Chase is considered one of the best managed banks in the industry. Indeed, according to data from Trepp, overall revenue is expected to fall 4% in the third quarter, slipping back to 2005 levels. Consumers, however, seem to be worse off - household income has reportedly dipped to 1996 levels, when adjusted for inflation…
The banks, of course, are looking for ways to make up the revenue lost due to new federal regulations. It’s no secret that banks are attempting to do this by imposing fees on their customers. Free checking – if it even existed in the first place – has largely been eliminated. And infamously, Bank of America announced a $5 fee in any month in which a customer uses a debit card. Wells Fargo and Chase have been testing debit card fees for some time.
Consumers aren’t taking these announcements lightly. One woman – Molly Katchpole – has started a petition asking Bank of America to “stop the debit card usage tax.” Her appeal isn’t to just Bank of America customers. She goes on to write, “Even if you’re not a Bank of America customer, this should matter to you. This campaign will show other banks who are planning to follow suit that the public won’t stand for Wall Street’s newest way to take money from its customers — and that they will take their money somewhere else.“ The petition currently has 224,000 signatures and has received TV, radio, online and print press coverage.
Uh, can you say, “viral?”
Remember Netflix? Remember when they increased their prices by 60%? As a result, the company’s stock lost 60% of its value and lost 1 million customers. The company has also had to backpedal on its plan to split into two services – again because customers were angry.
So what’s a company to do?
Granted, it’s much easier to leave Netflix than it is to leave your bank. Javelin Strategy and Research estimates that only 7% of consumers will switch banks in 2011. An article in the New York Times claims that online banking is the reason that customers don’t switch. But from my perspective, that’s just customers being lazy. It’s also a pain to move, change email addresses, or change phone numbers, but people do it all the time. Can you imagine living in the same place your entire life because it’s too much trouble to change your address?
Perhaps the state of inertia is finally poised to change…November 5th is “Bank Transfer Day” and a Facebook page dedicated to the day has almost 13,000 “likes.” Most likely the day needs a few more supporters to make a difference, but combined with Molly’s petition and the Occupy Wall Street protest, who knows what will happen in the coming weeks.
The irony of the situation is that banks developed debit cards as a replacement for paper checks – debit transactions are cheaper than check processing. Lloyd Constantine – lead counsel in the 1996 antitrust lawsuit against Visa and Mastercard – makes the point that debit transactions are still significantly cheaper than check transactions. If so, aren’t the banks potentially cutting of their now to spite their face, so to speak?
It’s a free country, so banks can charge what they want for their services. But I always wonder about the wisdom of punishing the people who keep them in business – their customers. Isn’t there some merit in having Happy Customers? Surely there’s another way to make money besides charging fees? Until the banks figure this out, expect earnings season to be dismal.