The US mobile payments market is dominated by non-bank players. Banks should undercut the likes of Apple on merchant fees and learn lessons from the success of services such as Danske Bank’s Mobile Pay, but even this might not be enough.
JP Morgan Chase recently launched its own mobile payment app, Chase Pay, signing a deal with Merchant Customer Exchange (MCX) for acceptance at major US retailers including Walmart stores – where Apple Pay is not currently accepted. Chase Pay leverages JP Morgan’s own payment network, allowing it to offer merchants lower fees than Apple Pay and similar wallets. However, since its 2014 launch Apple Pay has been rapidly developing its network, and even with the MCX deal, Apple Pay is still accepted by more merchant stores than Chase Pay and is not limited to JP Morgan customers.
One of the only real success stories for bank-led mobile payments is Danske Bank’s Mobile Pay. Since its launch in Denmark three years ago, Mobile Pay’s customer penetration has reached more than 3 million. Mobile Pay is useable by any Danish consumer, regardless of which bank they’re with or what type of device they own, and about 70% of its users are non-Danske Bank customers. Users can make contactless payments at the point of sale without having to manually enter any amount or having to utilize a payment card – the user only needs to approve the transaction by swiping their mobile screen. The technology directly moves funds from bank to retailer, allowing merchants to get significant reductions in transaction fees compared with card transactions.
The success of Mobile Pay was the result of the considerable progress of Denmark towards a cashless society, as well as Danske Bank being first to market with a free, innovative product that responds to customer needs and is accessible to the large proportion of customers with a credit card and phone. Mobile Pay became the standard mobile payment service in Denmark, but its success would be difficult to replicate in the US market due to the far larger number of retail banks and the lack of a fast, universal interbank payment network to underpin a mobile payment service.
In the US, Apple has already claimed first-mover advantage, and there is currently no cheap infrastructure to use instead of cards that can reach every bank customer and every retailer – making it difficult for banks to offer a superior alternative to Apple Pay. TCH Technology’s efforts to develop a real-time payment system in the country may provide banks with the network they need to compete, although it is unlikely to be completed in the short term. In order to catch up in the wallet wars, banks will need to strike better deals with merchants and promote faster and more comfortable transactions for customers.
By Nicolae Bacila, Consumer Payments Analyst