New mobile payments technologies could help bring underserved and nontraditional customers into the mainstream banking system – but achieving scale in this field poses a challenge, and many banks are still characteristically reticent to adopt those new technologies.
In a paper released earlier this year, the Federal Reserve Banks of Boston and Atlanta outlined some of the challenges associated with achieving scale in mobile payment adoption, discussed last fall by the Fed’s Mobile Payments Industry Workgroup.
“Our intended audience is a broad one,” said Marianne Crowe, vice president of payment strategies at the Federal Reserve Bank of Boston. “In order to succeed in reaching the underserved consumer, you can’t do it in a silo. We’re trying to reach banks of all sizes and types. We’re trying to reach the card networks and mobile carriers, and then the solution providers.”
Of course, defining the underbanked is a problem in itself.
“You have to look at the Millennials, who may be unbanked because they’re new to the working world. Then you have people who have lost their jobs in the past few years. Then you also have other people, from different ethnic or cultural backgrounds, who perhaps don’t feel comfortable using banks. They all have different needs and all have different behaviors,” she said.
But panelists at the meeting last fall believed that mobile payments technologies could help underserved consumers improve access to their financial accounts and free up a little time, too.
Ideally, Crowe said, that could come about from partnerships across industries, like banking, merchants, card processors and tech start-ups. She points to Bluebird, the prepaid debit and credit card offered by American Express and Wal-Mart, as one example.
Innovations In Boston
Closer to home, last summer First Trade Union Bank in Boston rolled out a new payment application, FT Pay, the result of a collaboration with LevelUp, which also calls Boston home. The mobile phone application links up with a credit or debit card and essentially gives consumers the option of paying with their phone instead of a card at any merchant that accepts LevelUp.
Chris Tremont, First Trade’s vice president of marketing and client services, said a great deal of marketing went into achieving some degree of scale with FT Pay.
Print advertising, email, direct mail and ads on public transit were part of the effort, but the $669 million bank also brainstormed out-of-the-box marketing techniques. For example, First Trade heavily promoted the app, which is free to download, during summer concerts and events it sponsored, and included a link to a coupon or another incentive to download the app.
Today, Tremont estimates about 10 percent of the bank’s checking account customers have downloaded the payment app, but it’s available to anyone, not just First Trade’s customers, and he figures a good 60 to 70 percent of people who do have the app are prospects. In other words, those users don’t currently have an account with First Trade, but now that they’ve already engaged with the brand, they might be more likely to consider it. The app is not just a payment or a branding tool, but also an acquisition tool.
Matt Kiernan, marketing director at LevelUp, said the challenge that mobile payments solutions tend to face is that they aren’t really solving a problem.
“The key to scale is providing real, tangible value,” he said. “You see this across a variety of different players, where you have yet to see a big rollout of their mobile payment solution.”
The incentive LevelUp offers merchants is a flat 2 percent fee per payment, as opposed to the 4 or 5 percent a credit or debit card would incur. LevelUp also offers merchants an easy venue for promoting campaigns among its customers, and in turn, merchants pay some of that money back to LevelUp.
But for now, the First Trade-LevelUp partnership is still something of an anomaly.
“There are a few banks doing this, but there aren’t enough of them,” Crowe said. “We know banks are very risk averse, and they have to be, but there are ways that they can collaborate to come up with solutions to manage the risk.”
And while setting foot into new territory can be intimidating, especially for banks, Tremont said close contact with regulators at the Office of the Comptroller of the Currency helped.
“We’re still working with them and at the same time with LevelUp,” he said, adding that the app does require upkeep to keep security features up-to-date. “This is not a launch-it-and-you’re-done type of situation.”
Email: lalix@thewarrengroup.com
