Glenbrook at NACHA Payments 2007

Convergence and Mobile Payments Headline NACHA Payments 2007

Convergence and mobile payments were clearly the hot topics at NACHA's annual conference held earlier this week in Chicago. While it seems (at least to me) that both of these topics have been the subject of plenty of hype, I was able to confirm some facts "on the ground" that cut through the hype and demonstrate a little more clearly where we are as an industry.

Convergence

One of the more interesting and valuable keynote addresses I've heard in a while came from Pete Kite, founder and CEO of Checkfree. What was exciting about his presentation was that we weren't listening to another analyst espousing the same theory of convergence we've heard for the past few years. Rather, Pete had just led a year-long strategic review of his company and its future, and spoke from that experience. Convinced that convergence is a compelling and real opportunity, Checkfree acquired Carreker and Corillian, making what he called a "half-billion dollar bet on convergence".

I won't go into the details of his talk, but he did a great job summarizing the vision and pragmatic near-term opportunities related to convergence. He summarized the stakes for banks by pointing out that bank customers will consolidate their relationships with the banks who can define and execute a roadmap towards an "integrated payment service"; there will be winners and losers. Hearing Pete call the Carreker and Corillian acquisitions a "half-billion dollar bet on convergence" made it clear to me that convergence is truly moving from theory to reality.

Another data point illustrating that convergence is becoming more of a reality came from conversations I had with Ed McHugh and David Hampton from Unisys. Responsible for key aspects of Unisys' bank payment infrastructure products and services, Ed and David told me that they expect to see the first large bank deployment of a payment hub in the US - one that will fully process this banks' check imaging and forward presentment. And while starting initially with check processing, additional payment silos like ACH can be added to the platform over time, incrementally enabling the new capabilities and cost savings that the "theory of convergence" promises. Ed and David called 2006 the year of the vision and RFIs; 2007 the year of early adoption and validating value; and 2008 the year that the full business case will be proven and adoption really takes off.

"The Mobile Revolution"

The other headline event at the conference was a panel discussion focused on the promise of the mobile channel. Kevin Dulsky from Paypal, Tim Sherwin from Cardinal Commerce, Steve Ellis from Wells Fargo, and Claudia Swendseid from the Minneapolis Fed surveyed the current state of the market and where they believe mobile banking and payments are headed.

Unfortunately, this session didn't go very deep into the issues and opportunities. The "X Factor" in my mind continues to be the prospects for customer adoption, which no one was really able to speak about. Kevin from Paypal was asked about usage of Paypal Mobile, which he deftly avoided. It was too bad that the discussion didn't cover the implications of success in the mobile channel for the various stakeholders in the banking and payments industries, and how different scenarios could create winners and losers. (We at Glenbrook certainly have a point of view on that!)...

Fortunately, I was able to meet up with David Fortney, senior vice president and division executive in Metavante's Payment Solutions Group, to talk a bit more about the competitive landscape and implications for banks and payment companies in the mobile channel.

Metavante recently placed their bet in the mobile space, announcing last month a joint venture with UK-based Monetise. In short, their offering will leverage a Java-based mobile client on the front-end, and interface with Metavante's NYCE EFT network and other banking services on the back-end. David believes this EFT back-end will create distinct advantages for their offering, including real-time balances, mini-statements, payments, and significantly lower integration costs than more customized approaches by leveraging banks' existing EFT network interfaces.

David sees the market evolving in two phases. First, banks will offer basic extensions of existing online banking capabilities to customers to "get in the game" and appeal to younger customers: balance inquiry, mini-statements, internal transfers, and bill pay. Longer-term, he sees mobile payments becoming more of a reality, and playing a critical role for banks in reinforcing customer relationships centered around the checking account (critical to retaining deposits, fee income, and creating opportunities to cross-sell other products). He sees proximity and remote mobile payments playing a major role in establishing the phone as the wallet of the future, and establishing real-time P2P payments will also be a key piece of this longer-term strategy.

However, David acknowledged that we are still very early in the evolution of the mobile channel, and that their own products are not yet on the market (although we should expect further announcements later this quarter).

We'll continue to watch this space closely, with a particular focus on customer adoption and usage (or lack thereof?) now that a handful of top banks have announced and launched their initial mobile banking offerings. Successful solutions and strategies should begin to emerge fairly quickly as we continue to move from theory to reality... Stay tuned!