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Perspective: Exploring the Possibility of Bank-Initiated Mobile Payment Solutions

As the penetration of smartphones across the globe grows and their usage permeates both personal and business realms, it is becoming increasingly clear that this is a genuinely disruptive technology. Not only does the smartphone change the way people interact with the world around them, it is also expediting the obsolescence of some traditional technologies. If you want an example, ask a teenager what the time is and watch them reach for their phone to tell you!

This relentless march of disruption has not gone unnoticed by the financial services industry as it endeavors to grow business in difficult times. The profusion of financial institutions now offering mobile banking solutions to their customers is a demonstration of the importance of this space. In recent months, the focus has shifted to enabling mobile devices for making and accepting payments—and this is where it gets really challenging. One problem with attempting to launch new forms of payment is that there already exists simple and ubiquitous ways to make purchases (e.g., cash and payment cards). In addition, the payments industry is responsible for assuring the highest levels of security in transactions, and replicating this in a mobile environment is not a trivial undertaking. The third problem is identifying exactly what to build to support mobile payments. Introducing a new payments ecosystem is expensive and carries no guarantees of success, as exemplified by the failed attempts to introduce a Pan European payment scheme. These factors have collectively delayed the introduction of the standardized open solution which carries the best chance of success for facilitating widespread adoption of mobile payments.

Financial institutions are increasingly eager to provide mobile payment capabilities to their customers, and consumers are enthusiastic about the potential of these new payment mechanisms. Non-traditional players and well-funded start-ups are also seeking to participate with new and exciting ways of directly enticing consumers to use their solutions.

Notably, there has been a recent surge in the number of banks seeking to gain traction in the mobile payments space without entering into potentially complex agreements with mobile network operators (MNOs). But is this approach viable?

Jon Rutter is director of product development of First Data.