When it comes to money, it seems old habits die hard. This is due to the chagrin of a banking industry chomping at the bit to fully realize the efficiencies that come when consumers embrace the technology available to rethink the way they bank and make payments at the point of sale. Mizuho Payments and Fintech analyst Thomas McCrohan talks about some of the exciting advancements that are within reach, but changing behaviors is a difficult thing to do.
Q: Mobile banking is a big area for innovation and growth, have you seen a lot of movement there?
A: Change is coming about slowly, but surely. The challenge is creating new habits among customers used to banking in a more traditional way and leveraging the mobile device as a delivery channel.
For example, 60 percent of people visiting a bank branch do so just to deposit a check. That is a lot of expensive real estate, staffing, and overhead to have on standby to facilitate a simple transaction. So banks have, with limited success, been rolling out remote deposit capture – you just take a picture of the check and there’s no reason to go to the branch anymore.
Q: What will spur greater adoption of these types of conveniences?
A: To get people to start using digital channels you need some sort of a hook. The hook right now is P2P, or person-to-person payments. The ability to send funds directly to someone electronically via one’s mobile device has gain widespread adoption, especially among young adults, and it is now moving up to older age cohorts.
Q: PayPal’s Venmo and Square Cash seem to be the hip ways to P2P.
A: Those are definitely two of the hot, pioneering apps in the space, but while they are fairly convenient, they are non-bank apps that require a second step to get access to funds. If someone uses their non-bank app to send money to your non-bank app, you have to take the added step of sweeping the funds you receive into your bank account in order to use the funds
Q: So banks actually have an advantage in the P2P space, even though they weren’t first movers?
A: As is usually the case when an established industry meets a disruptive upstart, the establishment adopts the technology and adds scale and convenience.
About a year ago, 60 financial institutions introduced “Zelle” a bank-affiliated P2P service that includes four of the biggest banks – JPMorgan Chase, Wells Fargo, Bank of America, and Citigroup. They have huge reach, a lot of marketing dollars, and the benefit of instantaneous fund transfer that eliminates the second step non-bank P2Ps have to add. In fact, based upon first quarter 2018 earnings reports at participating banks, Bank of America in particular, witnessed very strong volume growth in P2P transactions conducted over their mobile apps.
Q: Has the growth in P2P affected the payments space?
A: It’s early on, but the hope is that if P2P use becomes ubiquitous, we will see the model transfer to point-of-sale for payments to merchants, so called C2B, or consumer to business. Right now, merchants are paid on a ‘pull’ method, meaning merchants pull payments from customers. But in a P2P arrangement, consumers ‘push’ payments to merchants. Regulators prefer “push” payments given it gives more control to the consumer and eliminates unauthorized payments being pulled from someone’s checking account. Banks have already built a ‘real time payment rail’ to facilitate the sending of money instantly, and we P2P payments is only the first live “use-case” Other interesting use cases will be real-time consumer bill payments, insurance disbursements, and corporate payments.
Q: What does the future hold for banking?
A: In terms of the bigger picture, banks are creating habits via mobile which will expand into other digital banking services from account opening to making payments online. Attracting and retaining consumers in a mobile first world is the priority within the banking industry and we believe the future looks bright for banks as the FinTech startups have innovative products, but no distribution or balance sheet. Collaboration between the established banks and emerging FinTechs is the path forward from here.