Glenbrook's Report from the Chicago Fed's 2007 Payments Conference

Report from the Chicago Fed's 2007 Payments Conference by Carol Coye Benson

The Federal Reserve Bank's sold-out 2007 Payments Conference covered a lot
of material, but two key themes kept recurring:

• First, the debate on the future of checks is basically over: the number
  of checks paid are dropping and those that are paid are going to either be
  converted to ACH or cleared as images - we're well passed the tipping point
  on this. The industry is anxiously waiting for the new Federal Reserve Bank
  volume study (expected to be released in early 2008) to really nail down the
  numbers, but the general mood is self-congratulatory: the industry set out
  to get reduce paper and its expenses, and the goal is being met.
  
• Secondly, the hot topic - almost the only hot topic - is mobile
  payments. The answer is "yes" - but we're still scrambling to figure out
  what, exactly, the question is. The dialog seems to be much more
  sophisticated this year - everybody here "gets" the basic models (remote
  commerce, digital download, POS), understands the technology options (RFID,
  NFC, SMS..), understands the inherent complexity of a multi-carrier,
  multi-payment provider world, and understands the difference between mobile
  banking and mobile payments. It seems like what we're waiting for now is
  data coming out of the current trials to see what, exactly, customers are
  going to like the most and use the most.

• Spencer White of Cingular/AT&T painted a clear picture of the role of
  the carrier as managing the top-level customer interface for mobile payments
  and other applications: a "front door for your money". He sees a parallel
  to email and IM access via the mobile phone - Cingular found that when they
  provided an integrated portal to multiple email and IM services (an email
  "wallet"?) that consumer adoption increased by a factor of 10. Cingular is
  running a number of financial services trials and partnerships (Wachovia,
  SunTrust, Regions Financial, Bancorp South, and others) and he said that for
  mobile banking, cell phone access is increasing the frequency of customer
  access to banking: one bank sited an average access of 13 times per month
  with PC online banking, and 17 times per month with mobile banking.
  Interestingly, one bank has seen a 25% increase in the use of bill payment
  among mobile banking customers. Spencer's discussion of partnerships
  notably did not include Apple. I asked him about this after the panel - the
  answer was basically that the iPhone deal, while significant, does not have
  the carrier-managed customer interface, and is therefore the exception that
  (maybe) proves his rule!
  
• Niki Manby of Visa USA provided some research results on consumer
  attitudes towards mobile payments. The bottom line: a huge interest among
  consumers in using phones for payment - and, among those interested in using
  the phone for payments, a willingness (cited by 90% of those surveyed!) to
  pay more for a device that enables this. She talked about where phones are
  in the "cycle of innovation". To illustrate her point, she asked the
  audience how many had "paid extra" for special features on their most recent
  cell phone: most had. She then asked how many had "paid extra" for special
  features on their mostly recently acquired payment card: none had! So food
  for thought for the bankers - consumers are willing to pay - but will they
  (the banks) get a share of this?
  
• There was a lively panel on cash alternatives. Norma Reyes, the
  Commissioner for the City of Chicago responsible for taxi services, talked
  about Chicago's implementation of a rule requiring cabs to accept cards for
  payment, and the difficulties of getting a highly cash-oriented driver
  community to accept the regulation. One helpful offset: tips are higher
  when customers use cards! (But my cab driver still gave a big sigh when I
  pulled out my card at the airport this afternoon.) Jim Turner of USA
  Technologies gave an update on the vending machine industry's adoption of
  contactless cards - early trials show an astonishing 32% increase in average
  ticket value.
  
• Two panels addressed, from different angles, the "unbanked and under
  banked" sectors. Listening to Hamed Shahbazi of TIO Networks talk about
  kiosk bill payment, Jospeh Cachey of Western Union and James Maloney of
  Mitchell Bank talk about new and improved remittance products, Dave Martin
  of NCBS talking about plans for 430 Wal-Mart Money Centers, it seemed to me
  that there are an awful lot of companies serving the "unserved". it may be
  time that the industry changes terminology. The "otherwise served"?
  
• And finally, in an excellent keynote by Frank D'Angelo of Metavante, on
  "Competition in the Payments Space", he noted that there are now more hedge
  funds than banks in the U.S.! Now that's worth thinking about!