Banks see Little Commercial Gain from Mobile Payments

Last Updated Sep 4, 2009 7:34 PM EDT

Bank have sung the virtues of mobile payments for more than a decade, but as a business it's been a dud. Now comes word that "Near Field Communication," a highly touted technology that enables a range of mobile services, may have less commercial potential for financial companies than its advocates claim.

Banks that let customers use their NFC-equipped mobile phones to conduct transactions can expect a boost in transaction fees of only $1.83 per debit account annually, according to consulting firm Celent. That's a paltry return relative to how much U.S. banks have invested in their mobile payments infrastructure. And it's a kick in the bottom line for bankers who had hoped NFC would help turn mobile payments into an ample new source of revenue.

Not that NFC isn't promising. And it's certainly slick. The technology, which was launched in 2002, lets users make payments, use tickets, download coupons, exchange business cards and do other things with a simple tap of their mobile phone. Pilot tests show that the service is a hit with consumers, with customer satisfaction levels exceeding 70 percent.

Financial companies, along with merchants, especially hope that young people, literate as they are in all things tech, will one day forgo cash in favor of using their mobile devices as a digital wallet.

For U.S. banks and mobile operators, the major roadblock is the lack of proven business models. "Mobile operators, banks and other service providers are trying to figure out how to identify the additional revenue they can get from mobile payments and are negotiating over how to share it," said Dan Balaban, the former editor-in-chief of Card Technology magazine and an expert on NFC, in an interview. "Until they figure that out, the operators aren't going to order handsets with NFC."

Banks also are waiting for merchants to buy the readers and other equipment they need to allow consumers to tap both NFC phones and contactless cards at the till, while mobile operators and merchants are waiting until enough bank customers come on board to justify their own investment.

Beyond finding new ways of making money, many U.S. banks are investing in mobile payments to defend their turf against non-financial competitors, Balaban said. Giants ranging from Nokia to Google and eBay are looking at mobile payment. Nokia, for instance, is taking dead aim at banks with a service that lets people use their mobile phones to send money and top up their pre-paid SIM cards, as well as making purchases.

A few banks, including JPMorgan Chase, are testing a less costly alternative to full-blown mobile payments that relies on contactless "stickers" affixed to the back of a cell phone. Among other advantages, that lets banks bypass mobile carriers. Yet skeptics contend the approach is a poor substitute for NFC, noting that stickers don't provide direct contact with the phone or mobile network. That means users can't use their sticker-powered cell phones to, say, check account balances or review previous transactions.

For now, mobile payment in the U.S. remains an idea whose time hasn't quite arrived.

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