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Why the banks want you to pay with your phone

Molly Wood Feb 29, 2012

Barclay’s, JP Morgan Chase, and Capital One announced that they’ll launch a trial program for a mobile payment system this summer. The idea is that instead of paying for something with a credit card or even cash, you’ll whip out your phone, maybe fire up an app, and then swipe your phone over a special reader at the cash register.

Getting this kind of thing up and running is hard. You have to make sure that the customers will try it, you have to reassure people that the whole transaction will be secure, and you have to make the merchants want to have those little readers in their stores. All this while competing with the relative simplicity of just getting your card out of your wallet and paying the same way people have been paying for many years.

Nonetheless, the banks are committed to making this work. The wireless companies are too: Verizon, AT&T and T-Mobile are teaming up on a mobile payment system called Isis, due to launch soon. Google has made Google Wallet available for a while now, getting aboard the mobile payment train as well.

For the carriers and Google, it makes some logical sense: the more you use your phone and their services, the happier they generally are. But what about the banks? Nick Holland from the Yankee Group says banks want to show that the world needs banks.

“You have the potential now with some of the newer payment players such as PayPal or you could even say Amazon or Google or potentially even Facebook entering the market, then you don’t have any more the requirement for issuing physical rectangles for payment,” he says.

Being included in the new hip things is one thing, really being relevant and necessary is another. I could put on a porkpie hat, grow a tiny beard, and hang around Brooklyn but I still wouldn’t be a hipster. So how can banks be not just present but relevant?

“Frankly they really need to look at how they’re going to differentiate from what they already have,” Holland says. “The entity that seems to be missing from a lot of these discussions is what’s in it for the merchants? Is there a way of this being a cheaper transaction, or does it provide more foot traffic? Or maybe some kind of loyalty scheme built into it that provides greater incentives for consumers to go to the checkout?”

If that comes to pass, it will be linked to the other reason that the banks are so keen on mobile: the fact that smartphones are computers and computers carry a lot of data about their users.

“The payment business is a 2 percent business,” says Igor Stenmark of MGI Research. “It’s a business with very thin margins. So that’s why you see other players getting in who will hopefully be able to derive revenues and profits by selling advertising and data.”

Stenmark sees a scenario where banks get a whole lot more from you than the payment processing fee. “Let’s say if Google Wallet is used in a transaction. And you happen to be in the store which they know — because they know the location of their transaction is conducted– they know how much you spend, they know what you spend it on. How much is that worth for selling advertising? It’s worth a lot.”

So the banks want to stay in the game and they want your data.

Also in this program, Apple has scheduled an event for March 7th. The company doesn’t indicate exactly what’s being announced but what’s being announced is the iPad 3. Honestly, there isn’t much mystery there. What we don’t yet know is which of the many rumors about the device will end up being true.

Also, another edition of Tech Report Theater. The new ComScore scores are out. Pinterest users spend an average of 89 minutes per month on the site. Google+ users? 3.3 minutes.

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