[Dave Birch] In the early days of mobile payments, the relationships between banks and operators were a little strained. I can remember the first time we ever won work advising an operator/bank joint venture (which was a surprisingly long time ago — in the 1990s) and how disappointing it was when they couldn’t work together. Yet many commentators still expect things to improve.

Crucially, what this also shows is that it is possible for banks and mobile operators to compete and cooperate at the same time – a phenomenon in academic circles called “coopetition”.

[From Who Says Elephants Can’t Dance? Structuring Win-Win Partnerships Between Banks and MNOs | Mobile Money Exchange]

Compete and co-operate on what? Operators can’t compete in banking businesses because these are heavily regulated. Banks can’t set up mobile networks without a licence. Surely it would it be more of a win-win for each of them to get on with what they are best at (ie, savings and loans for banks, being a pipe for operators) and have a third-party run the payment service under a separate license?

Here’s a case study to think about. I saw a presentation from Thomas Capka of A1 Bank in Austria, explaining why the operator A1 decided to start its own bank. He said (I’m a paraphrasing) that A1 decided to go and get its own banking license and do everything themselves and be “more flexible than the Austrian banks” (some of whom, incidentally, seemed very flexible about who they lent money to!) because they’d got fed up after years of negotiating co-operation with retail banks. But one of the questions that he was asked was about the way that European regulation has changed. So, if A1 were going to launch services today, would they start a bank, as they did a decade ago, or would they use PSD and EMD to obtain a Payment Institution (PI) license and an Electronic Money Institution (ELMI) license? Thomas said that almost all of what they do could now be achieved without banking license, the exceptions relating to the provision of credit on card products (which, quite rightly, remains a banking business).

So there’s no need for MNOs to co-operate with banks to provide payment services and no particular reason why banks would want to do a deal with MNOs. In fact, right now banks are doing everything they can to go around MNOs, with stickers, SD cards, handset SE, SIM overlay and whatever else.

So if the operator decides to front the service, will it be successful? Or do consumers need to see a bank brand all the the way through. I’d thought I’d check in in Japan to see what is going on there, shortly after I’d blogged about DoCoMo’s iD having 11.5 subscribers and…

NTT DOCOMO, INC. announced today that subscriptions to iD™, its branded platform for using postpaid electronic money with DOCOMO handsets and compatible credit cards, had topped 15 million… The number of subscribers using handsets equipped with contactless IC chips (Osaifu-Keitai™) compatible with iD has surpassed 37.5 million, representing over 60% of all DOCOMO subscribers… Currently, there are approximately 481,000 iD-enabled payment terminals nationwide which allow users to make payments just by waving compatible mobile phones or cards over them. iD can be used in more than 90% of all convenience stores in Japan, including all am/pm and Seven-Eleven stores… According to a survey by the Japan Franchise Association, the average purchase amount is over 20% higher if the customer pays via iD only.

[From Subscriptions to iD Mobile Credit Payment Services Top 15 Million | Press Center | NTT DOCOMO Global]

Wowzer! Check out that last statistic. Here’s a great consumer revealed preference headline for journalists then: According to the Japanese Franchise Association, people using proximity paymanets spend a fifth more than consumers using cash. That sounds to me like a real benefit to retailers, so perhaps we should look more to partnerships with retailers as the way forward.

More precisely, retailers are the key. The issue of mobile payments comes down to sharing revenue, and it will require lots of trust.

[From StorefrontBacktalk » Blog Archive » AT&T And Verizon In A Mobile Payment Alliance. Yeah, That’ll Last]

I don’t think this is correct, because there simply isn’t enough revenue to share. The key is creating more value, not trying to slice and dice the existing value, and it’s the retailers who are the most important stakeholders here. They are the ones who can obtain substantial benefits from the value-added services around. Again, in Japan, this is what has happened and the convenience stores (or ‘kombini’) make some reasonable income by offering payment services.

Services – primarily Kombini payment fees – represent 4.3% of convenience store revenue. Service revenue was up 9.6% versus the previous year, indicating strong growth of Kombini payments. Anecdotal evidence suggests that, in Japan, Kombini payments may account for more transactions than credit cards. A number of convenience stores support Kombini, but 7-Eleven dominates. The company has over 12,000 locations in Japan (the company is headquartered in Japan) and also has a banking license. It has its own eMoney platform, nanaco, to facilitate payments.

[From PayNearMe Refreshes Kombini Payments For The US — Payments Views from Glenbrook Partners]

This is a quarter of the Japanese e-commerce market and, as an aside, is coming to the US market with PayNearMe. Perhaps the real challenge to banks will not come from the operators, who will provide the infrastructure, but from the retailers, who have the distribution (and they hate banks).

As Stephen J. Hoch, a Wharton marketing professor and director of the Baker Retailing Initiative puts it, “Wal-Mart is all about scale. That is how costs could be reduced.” The company’s size combined with a bank charter could make Wal-Mart a force to be reckoned with for traditional banks, he adds. “Long term, I think Wal-Mart would like to get into the banking business not so much to make money on banking–which it could do by outsourcing and taking a cut of the profit–but as a means of creating greater consumer ‘lock-in’ by providing lower cost banking services.”

[From Wal-Mart Gives Banks A Run For Their Money Page 3 of 3 – Forbes.com]

Retailers, like operators, have business models that do not begin and end with the transaction revenue from the payments: even if the payments brought in no revenue at all (which, as noted, is not the case in Japan) it wouldn’t matter, because their contribution to the business model comes from another direction: reduce churn, higher footfall, higher average spend or so on. This dynamic leads us in a different direction, doesn’t it?

Look at what has been happening in Europe. In Spain, BankInter’s MVNO has 30,000 customers and in the Netherlands, Rabo Mobiel has 200,000. In the UK, Tesco’s MVNO has more than 1.7 million. Maybe the natural alliance is between MNOs and retailers, and that’s why it’s such a problem trying to get MNOs and banks to work together.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]

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