Related articles:

1. The Check is in the Email? Electronic Payments Orders Could Be An Opportunity for Banks
2. Fiserv Will Fill the Gap as Fed Sunsets Paper Check Services
3. Check 21: Open Discussion Among Bankers, Billers, and Vendors (TAWPI Conference)

Green Dot’s IPO plans revealed that they are becoming a bank holding company. This is completely fascinating to me – and gives, I think, a peek at what may come for retail banking in the future.

At Glenbrook we’ve been talking, thinking, and writing for some time about two related issues. One is the problems retail banks have with their economic model: in a nutshell, that consumers expect “free checking,” and that too much of the bank’s revenue comes from either customer-invisible (interchange, NII) or customer-antagonistic (overdraft fee) sources. The other is the growth of the open-loop prepaid card industry, and the potential for these “banks on a card” to serve not only the unbanked, but the unhappily banked as well.

The first logical intersection of these two issues is to predict continued growth for prepaid cards as they exist today – issued by non-bank companies with a shadow “network bank” as a supplier. But Green Dot’s plans go in a different, and potentially much more interesting, direction. Simply put, a prepaid, open-loop card from “Green Dot Bank” could be not just an alternative to a bank account, but a new type of bank account – one with a completely different economic model from current retail banks, but with some of the positive attributes (trust, security, etc.) that consumers associate with banks.

What appeals to me is the potential to get away from this trap of consumer-invisible or consumer-antagonistic revenue sources. These cards are, after all, paid for by consumers – at least in their current incarnation. The skeptic in me, of course, says that over time, these new prepaid cards will simply become “normal” retail bank accounts- with the bank living off of overdraft fees, interchange and NII. We’ll have to wait and see!

Related articles:

1. Watch Out! Big Changes in Retail Bank Pricing Are Coming
2. No News is Bad News?
3. Payments Views Challenge: What Are the Best Ways for Banks to Replace Lost Overdraft Fee Income?

When it comes to mobile payments in the U.S. market, there’s a lot of talk and action around P2P and remote purchasing (bill to carrier models, etc.).  But the biggest potential is our huge POS (point of sale) market.  This market today is arguably the best-served payments market in the world, with extensive merchant terminalization and multiple cards in the hands of all banked and many non-banked consumers.

The assumed path forward for mobile at the POS has been NFC (near field communication) technology.  The technology is reasonably stable and has been extensively trialed around the world, with encouraging consumer reactions.  Despite this, there has been little in the way of commercial launches – and none in the U.S. market.  That may be about to change – rumors are rife in the industry that major mobile NFC/POS announcements are imminent  – possibly through a consortium of carriers working with a single or a group of card issuers.

If there is an NFC introduction, the players will have to tackle the “usual suspects” – the reasons that NFC has been stalled, to date, in the U.S. and in many markets around the world (see “Common Wisdom” inset below).

Common Wisdom: Why NFC at the POS Has Stalled

• An economic stand-off between card issuers and carriers over fees paid by issuers to carriers to enable secure storage of card data on phones: the fees could be one-time, recurring, or even include a portion of issuer’s card interchange.  Carriers understandably want value for access to the phone’s secure storage capabilities; issuers understandably are reluctant to cough up incremental and ongoing fees for a technology that is most probably replacing, not adding to, existing card swipe transaction volume
• The cost of adding NFC chips to phones, which currently don’t have them
• The cost of upgrading merchant terminals to support NFC.  (Terminals in the U.S. which currently support contactless cards can already support NFC, but this is mostly concentrated in the quick-serve markets such as convenience stores, drug stores, and fast food outlets.)
• A concern that consumers may not really want to use their phone to pay: the lackluster adoption of contactless cards is seen by some as indicative of this; others feel the comparison is irrelevant and cite the growing importance of phones in daily life and transactions for the consumer
• An overall feeling of “a technology that’s solving a problem that doesn’t exist” – a belief that consumers love cards and think they are convenient to use

Alternatives

I’ve been intrigued, recently, with a number of alternative approaches to mobile POS that are becoming increasingly visible.

Some of the alternatives are work-arounds to the carrier control of secure data on the phone – these approaches include the use of SD cards, USB sticks, and stickers (especially, “super-stickers” with secure and NFC chip outside the phone – and therefore outside of carrier control).

I’ve also been thinking a lot about what’s going on with payments in eCommerce, and how it may apply at the point of sale.  All merchants – eCommerce and POS merchants alike – have been struggling with the enormous costs and difficulties of PCI compliance in recent years.  In a nutshell, the problem is securing card data.  eCommerce payments providers, taking advantage of the remote environment, have been increasingly focusing on tokenization – a scheme which keeps card data away from a merchant entirely.

Why can’t this approach work for mobile payments?  Instead of going through huge contortions to store data securely on the phone – and possibly paying through the nose for it – why not simply avoid putting the card data on the phone?

Mocapay

One company that is taking this approach is Denver-based Mocapay.  I spoke recently with CEO Kevin Grieve and VP Product Doug Hurst.  Mocapay has a tokenization scheme that keeps the card data away from the merchant. Currently, they are using this for gift cards.  But the approach could easily be applied to open-loop payment schemes as well.  Here’s how it works:

1. A consumer registers a card with Mocapay online or with their mobile phone
2. The merchant signs up for Mocapay and installs software for its POS system. (According to Mocapay, the software, which is delivered on a software-as-a-service  model, is simple and easy for merchants to install.)
3. The consumer, when ready to pay, opens an application on the phone, chooses the card, and pushes a button “get payment code”.  (If the consumer has a simple phone, they do this with an SMS message.)
4. The Mocapay server immediately returns a code to the consumer’s phone.  The code is good for a limited amount of time (e.g. 20 minutes).  The code is six digits, in two blocks of three easy-to-remember numbers. (The scheme also supports 2d barcodes as an alternative, but Kevin seems to think this is an unnecessary complication – the short, grouped number code works so well you don’t need new barcode-reading hardware.)
5. The consumer then reads the code to the cashier, or shows the cashier the phone.  (Mocapay recounts that cashiers are often picking up the code from the phone laying on the counter – reading it upside down!)
6. The cashier enters the code, which is transmitted to Mocapay, which passes the transaction – now authenticated – into the payment processing stream, for authorization and clearing like any other payment card.

What works:  This is an incredibly simple scheme.  No one has to buy any new hardware (works with any phone, any terminal).  Card data is secure, as the merchant never sees it.

What will be debated:  Mocapay claims that the end-to-end card payment time (counting getting your card out, and swiping it) is tied with their approach in a no-signature environment, and that their approach is faster if signatures are required.  Common sense would tend to question this (cards are really fast) – but it is true that many people have their phones easily at hand, and their cards tucked away in wallets and purses.

Where this may go: the gift card scenario is intriguing, but the real payoff here is the potential to expand this to open loop cards and/or ACH payments.  Mocapay isn’t there yet, although they are clearly thinking about it.  The big question for open-loop cards isn’t whether or not it would work (it seems pretty clear that it could), but whether or not the card networks will support the technology – and grant the all-important “card present” status: if not, increased interchange rates would kill the approach with current merchants. Visa and MasterCard are pretty far down the road with NFC – it’s hard to read how they might evaluate this opportunity.  It is also interesting to note that the PIN debit networks have been increasingly flexible with rules lately – and this may be just the opportunity for them. (It is also useful to remember that a refusal by the card networks to grant “card present” status  was, famously, one of the problems the late Pay By Touch encountered.  Some speculated that the underlying reason that the card networks withheld the status was not a concern about security, but rather one about issuer and network branding.  The branding issue goes away in the Mocapay scenario – at least for smart phone and WAP users.)

Another consideration is that this scheme is easily extended to an eCommerce or unattended POS environment.  For eCommerce in the U.S. market, it would be interesting if this could be used to create “card-present” transactions – making use of the inherent authentication value of the phone.  Far simpler, it seems to me, than pushing the 3D Secure rock up the hill.  And it is a very neat trick to have the same system work in the various environments, rather than requiring consumers to keep track of different protocols for different places.  Again, this is, of course, nothing but idle speculation without the blessing of the networks.

Mocapay announced today that they have been issued a U.S. patent on the process.  If I were a card issuer, I’d be looking at this approach closely – and leaning on my card networks to do the same.   Remember – the first principle of process improvement is to eliminate tasks, rather than automate them.  Eliminating the storage of card data on hundreds of millions of hard-to-control devices seems like a concept worth considering.

Related articles:

1. The Phone is the Wallet: A Look at mFoundry
2. Getting the Garden Ready: First Data and Mobile Payments at the Point of Sale
3. Google’s Phone Ambitions

A few weeks ago, Glenbrook issued a challenge to Payments Views readers: “What Are the Best Ways for Banks to Replace Lost Overdraft Fee Income?“ Given how significant the financial hit will be (JPMorgan Chase estimates a 2010 impact of $500 million after-tax), we thought we’d at least get some good ideas. Well, we got very few ideas at all, and none from bankers! The no-news-from-banks could, of course, be because banks are keeping their well-laid plans a deep and dark secret. Or it could be …. there are just no good ideas?

What was interesting was that some of the ideas that did come in seem to be more likely to reduce, rather than increase bank revenue – or at least are challenging, to put it mildly.

The ideas that did come in included:

• A suggestion that all banks sell low-balance accounts to non-banks, who would convert them to open loop prepaid cards, and pay banks a revenue share
• A suggestion that banks aggressively pursue decoupled debit, in order to capture interchange revenue from the underlying account bank
• A suggest that banks begin charging fees for basic account services
• A suggestion that banks cross-sell with retailers and/or offer financial planning services
• A suggestion that banks allow contextual advertising within online banking, and charge customers fees if they don’t want to see the advertisements.

Thanks to the people who did contribute. But given the dearth of contributions, and (may I be frank?) the not-so-innovative ideas proposed, we’ve dropped the idea of ranking the ideas or publishing them in full. I did ask my fellow bank-watchers for comments:

Jim Bruene (Online Banking Report, Netbanker.com)

“Speaking from the experience of someone who’s first significant contribution to his employer’s bottom line in 1989 was increasing NSF/OD fees from $8 to $10 per item – here’s what I would recommend 20 years later:

• Take as many OD/NSF transactions as possible and move them to an OD credit line. Charge a small trans fee for each item (under $5 each) and a reasonable, but relatively high, rate of interest on the line of credit (APR in mid-to-high teens for good credit). You might even be able to charge an annual fee (under $35) for the OD line. While this only works for credit qualified customers, it puts the fee hit more back in the ATM-ish “convenience fee” rather than the $30+ penalty fee…an important distinction for holding on to the relationship.
• For those that can’t or won’t go with an OD credit line, drive them to a similarly-priced OD-protection “prepaid” account, perhaps starting them with an initial bonus for the first deposit.
• For the rest, use “value-based” OD pricing with a fee no more than 50% of the transaction value (25% would be better) with a minimum under $5 and a maximum no more than $50. Process items in chronological order.
• Finally, encourage everyone to sign up for alerts via multiple email, and especially text-message, low-balance alerts and transaction confirmations.

While this won’t replace the revenue from unlimited $35 OD/NSFs, those fee levels were never going to be sustainable.”

Steve Williams (Cornerstone Advisors, Gonzo Banker)

“I think most financial institutions are in the Petri dish phase of their ideas for replacing OD income. This issue is also illuminating the important “where do we truly add value” that financial institutions will be forced to answer in the decade ahead where payment innovations are bound to happen.

I think an important variable in the ultimate “opt in” percentage for POS/ATM overdraft will come down to price. Sure, most will opt out of $27 OD fees at the cash register, but they might opt into a program where the fee is $5. I think we will see the emergence of accepted micropayment OD structures that are more like ATM surcharging or overnight mail costs. Additionally, I think systems that track the value of retail customer relationships will grow more sophisticated. Retail banks will be adding certain behavioral based fees (e.g. bill pay fee if you don’t keep adequate balances) but they will create relationship packages to make sure “A” clients do not get ticked off.

Retail product strategy will continue to reward broader financial relationships and the use of cheaper electronic channels while attempting to levy fees on the “unbundlers” more heavily.”

And from me: (Carol Coye Benson – Glenbrook Partners, Payments News, Payments Views)

Banks should recognize – and take advantage – of the fact that consumers at a gut level think the bank is “making money on them somehow”. Rather than pretending that this isn’t the case, banks should be more transparent and more “deal-oriented” to the consumer. Some ideas under this umbrella would include:

• Offer (in the manner of wireless “hotspots”) prepaid packages of “tickets” for OD coverage – buy 10 for $5 each, for example.
• Offer multiple-day OD coverage to help consumers with tough times of the month: a two day pass up to $X for a fee of $Y; five day coverage for $Z, etc.
• Tie reduced overdraft fee rates to paper turn off for statements
• Offer “account analysis” on retail accounts – similar to what is done for corporate accounts – showing consumers exactly the value of their balances for the previous month, and relating this to fee schedules.

And finally – this situation reminds me – painfully – of what happened in the late 1970’s when corporations woke up to the value of the balances in their bank accounts. At the time, I was a lending officer for global multinationals at a top three bank. Our largest clients had historically left millions of dollars in interest free balances at the bank – as a rough form of compensation for all the many things (including payments services) the bank did for them. Once rates spiked, companies started pulling those free balances out – and never returned them. Believe me, there were many strategy tasks forces around replacing this revenue. But at the end of the day the lesson was: ”windfalls are nice, but when they go away, they’re gone!”

We’d still love to hear from any bankers on this topic! Post your views below.

Related articles:

1. Payments Views Challenge: What Are the Best Ways for Banks to Replace Lost Overdraft Fee Income?
2. Watch Out! Big Changes in Retail Bank Pricing Are Coming
3. A New Model for Retail Banking?

For the last several months, Glenbrook’s Carol Coye Benson has been interviewing a number of companies involved in mobile payments in the U.S. and Canada. The companies included are Billing Revolution, Blaze Mobile, Bling Nation, Boku, CashEdge, First Data Corp., mFoundry, mPayy, Obopay, Payfone, Zong, and Zoompass.

To make it easy to access all of Carol’s analyses in a form that you can download, print out and take with you, we’ve created a PDF booklet titled “Musings about Mobile Payments 2009” that includes each of Carol’s commentaries. You can download a copy of the PDF e-Book for US$19.95. 

As always, Carol welcomes your comments and suggestions – either here on PaymentsViews.com or via email to her: carol@glenbrook.com. If you’d like to learn more, the new 2010 editions of our Glenbrook Payments Boot Camps include an expanded and updated focus on emerging payments – based on Carol’s on-going mobile payments research, new options now available for online payment for digital content, and the uses of ACH-based payments across both online ecommerce and physical POS domains.

Related articles:

1. Mobile Payments at the Point of Sale [ATM, Debit & Prepaid Forum 2009]
2. Payments Views 2009: Most Popular Posts and Recurring Themes
3. Latest research on mobile banking and payments

Bank income from debit card overdraft fees is variously estimated as $25 billion to $38 billion annually. The recently announced Federal Reserve Bank regulations requiring opt-in procedures will result in a gigantic hit to retail bank P&Ls, as we wrote about recently. JPMorgan Chase, for example, in a recent investor presentation, estimated the impact of their implementation of the new rules at $500MM after-tax.

So what’s a bank to do? Glenbrook is inviting its Payments News and Payments Views readers to submit their ideas.

Here are the requirements:

1. Keep it short! a paragraph would be nice
2. Explain what a bank would need to do and how it would capture revenue
3. Let us know who you are – but also tell us if you want a published piece to be signed either anonymously (“debitgirl”) or not (jdimon@jpmorganchase.com)
4. Get it to us by December 15th.

Payments Views will publish the top ideas. We’ve invited fellow bank-watchers Jim Breune of NetBanker and The Online Banking Report, and Steve Williams of Gonzo Banker and Cornerstone Advisors to help us rank the submissions. The criteria will include a) potential revenue impact b) feasibility (from “slam dunk” to “never gonna happen”) and c) innovation!

Have fun and let us know what your ideas are!

You can either complete the form below, or follow this link to complete the submission form.

Related articles:

1. Banks Still Have A Ways to Go in Addressing Small Biz Needs
2. No News is Bad News?
3. The New Banks

I think it’s fair to say that the success of remote deposit capture (which allows the recipient of a check to scan and deposit it electronically) took the payments industry somewhat by surprise. The early take on this offering seemed to be “hey, why not just change to electronic payments”?

The answer, of course, was that from the check recipient’s point of view, that’s too much work.  Easier to take a check-in-hand and figure out how to collect it quickly, than to contact each check-sender and ask for a process change.

For several years, I’ve been thinking about whether or not the industry could just back this up one step further.  Instead of the check recipient creating an image and depositing it, why not have the check writer create an image and send it to the recipient?

I spoke with David Walker at the Fed’s payment conference in Kansas City a few weeks ago.  David is the CEO of ECCHO, and has for many years had an industry-leading role in check imaging.

So I was delighted to hear that work is underway – that people at ECCHO and their member banks have been thinking about just this topic.  They are still figuring out what to call it – one idea is “Electronic Payment Order”.

But why, you ask?  If you want to send someone money electronically, why not just send an ACH, or pay them by credit card?  The answer is similar to the answer on remote deposit capture, and illustrates one of the great strengths of the checking system.  With a check, you don’t need to know any account information about the payee.  To send an ACH, you need to know the bank routing number and the account number: paying by credit card is arguably even more difficult – in those situations where you might be paying by check.

So it’s very appealing to think that I (as the payer/customer) could just email a check to someone, and that it would then clear back through my bank, without any further involvement on my part – and particularly without the need for me to collect and store account information for the company – or person – that I am paying.

Another attractive part of the concept, David notes, is that the EPO would look – on a computer or phone screen, or printed out in paper – pretty much like a paper check.  An EPO, as he said, “would contain all of the information normally on paper checks, including the actual payee name.  It would be human friendly -a strong attribute of the check.”

Now, the banks and organizations like ECCHO are going to have to figure out rules around this – such minor considerations as thinking through the liability that various parties will take with respect to potential fraud. But I have great confidence that this is a solvable problem.

The real competition for this idea is not so much the ACH and card solutions, but the payments services being introduced by companies like Intuit and PayPal.  Both have products that allow a company to pay another company – with attached documents – knowing only the email address of the recipient.  Both are fine services – but someone (payer or payee) will pay the service provider for the payment.

The EPO concept is a way for banks to leverage their existing investment in checking – and check imaging – and enhance the somewhat surprising success of remote deposit capture.

Related articles:

1. From Check to Electronic Payments: The B2B Outlook [NACHA Payments]
2. Prepaid for 20% of social security payments still via check
3. Fiserv Will Fill the Gap as Fed Sunsets Paper Check Services

The Fed’s announcement on Thursday of a new rule prohibiting overdraft fees on debit card and ATM transactions without consumer opt-in is an economic earthquake for retail banks.

The Center for Responsible Lending has estimated that banks make $23.7 billion in overdraft fees annually; the New York Times said this morning that Fed officials had put the total at $25 to $38 billion, including check overdraft fees (which are not covered by the new rules).  In either case, it’s a large amount.  Perhaps of more concern, the CRL’s analysis also indicates that the burden falls disproportionately on the less affluent – just 23% of adults with bank accounts suffer more than five overdrafts per year, and probably account for the lion’s share of the total revenue.  That means that the few (possibly irresponsible, certainly less affluent) are subsidizing the cost of checking for the many.

Retail banks have three principle sources of revenue for checking accounts – net interest income (the value of the balances), debit card interchange, and fees.  Consumers haven’t tolerated much in the way of direct fees, so overdraft fees have been the bulk of fee income.  We calculate debit card interchange as about $22 billion a year – in the same ballpark as overdraft fees.

It will be exceptionally interesting to watch what banks do about this.  Some things to expect:

• Aggressive attempts to get consumers to “opt-in” for the “convenience” of overdraft facilities – with heavy emphasis on the importance of avoiding bounces on mortgage payments and the like.  Don’t expect banks to point out that the rules don’t apply to standing debit card transactions (recurring payments).
• A reduction in the overdraft fees charged.  After all, if you are asking a consumer to “just say yes” to a service, it will have to be priced reasonably.
• An increase in the balance requirements for “free checking” – with hefty fees if the balances aren’t met.
• More pressure on card networks to keep debit interchange high.

Finally, I expect that this will be a shot in the arm for open-loop prepaid card issuers (Wal-Mart Moneycard, etc.).  With balance requirements and fees on traditional banking accounts probably increasing, and the utility of the open-loop cards also increasing, I think more consumers will opt for the non-bank alternative.

At a Kansas City Fed conference on the future of retail payments held earlier this week, Harry Leinonen, an advisor to the Bank of Finland, said that hidden pricing is the main problem with the payments market – that if payments pricing were visible, innovation, efficiency and choice would flourish.  The Fed’s actions seem to be a good step towards less hidden pricing.

We’ve been saying for a while that overdraft fees for bankers are like heroin – they know it’s bad for them (particularly in building the trust relationship with customers that they want), but the revenue just feels so good….  The Fed’s new rules are detox – the rehab period will follow.

Related articles:

1. A New Model for Retail Banking?
2. Payments Views Challenge: What Are the Best Ways for Banks to Replace Lost Overdraft Fee Income?
3. Large US Retail Bank To Bet On PKI With Arcot

One of the good things about having a really odd company name is that people do remember it.  We mostly heard skeptical laughs when Bling Nation first emerged from stealth.  But lately we’ve been getting more questions…. I spoke recently to co-CEO and founder Wences Casares.

Wences and co-CEO Meyer Malka have an interesting background, having worked together in a series of successful financial services and telecom investments in Latin America.  They’ve taken venture financing from Lightspeed Venture Partners, added former Bank of America Vice-Chairman Luke Helms to their board of directors and have pulled together some impressive advisors – including John Reed (former CEO of Citicorp), Carl Pascarella (former CEO of Visa USA) and Jeff Stiefler (former President of American Express).

What They Do

Bling has their eyes firmly on the prize – point of sale transactions and the huge payments industry revenues associated with that.  Their approach, however, is quite unique.

Bling is creating a series of community-based local payments networks.  The mobile phone is a piece of the puzzle, but not the defining one – instead, think of the mobile form factor as an enabler of the core payment service.

Bling targets a small community which has a decent population and financial asset size, and which is served primarily by local community banks.  They sign up one or more of the banks, and an assortment of frequently-visited local merchants (movies, pizza, dry cleaners…).  The banks provide customers with a payment sticker (co-branded with Bling and the bank’s brand) and instructions on how to enroll their phone in the service.

The merchants are given a stand-alone device (called a “Blinger”) for payments acceptance.  At time of purchase, the consumer taps the Blinger, the transaction is processed and the consumer and merchant both receive confirmation of payment – the consumer to their mobile phone and the merchant on their Blinger.  Bling also supports a variety of merchant rewards, loyalty, discount, and couponing programs, all tied to mobile phone messaging.

Sounds like any debit card or open loop network-branded prepaid card, right?  Wrong!  There is no network brand on the sticker or the Blinger.  Transactions are authorized by the consumer’s bank – Bling looks like a foreign ATM to the bank.  Settlement in batch is done at night, between Bling and the banks, as a private, not network, settlement.  The merchant doesn’t have to submit any clearing transactions – as long as they got the Blinger confirmation, they know their account will be credited that day.

Bling is finding that the operational management of this is pretty straight forward – and, significantly, that the processors which are serving many of their target banks are willing and able partners.

The Pitch

The pitch to the consumer is “coolness” and convenience – and the ability to access merchant rewards programs.  The pitch to merchants is primarily cost – transactions are about 50% cheaper than traditional card acceptance.

But a secondary, and very strong, part of the pitch is the ability to deliver rewards based on things like the frequency of visits to a merchant – which the consumers can redeem instantly as they pay.  Neither the merchant nor the consumer needs to keep track of anything – and, says Wences, “merchants love that.”

The pitch to the bank is the opportunity to get local merchant POS business – a business that many community banks have given up on as much of that business has migrated to large, national acquirers.  When compared to a transaction where the consumer uses the bank’s own traditional network-branded debit card, the bank’s revenue can be three to five times higher.

This higher revenue is made possible because the middleman – Bling in this case – is taking significantly less from the merchant discount fee than is taken, in aggregate, by the many players in the traditional bank card value chain.  As the community network grows, a bank can also earn money if their consumer shops at a merchant served by another Bling partner bank, but this is not a significant piece of the economics currently.

For both the bank and merchant, the “stay local” aspect of Bling is highly attractive.  In fact, Wences said they were surprised by how strongly the “local” aspect of the pitch resonated with local merchants.  Frankly, I’m not at all surprised – in my small community there is a terrific energy around several community programs promoting support of local merchants – but my community’s banking needs are served primarily by local branches of national banks.  Bling is staying away from those communities – for now.  I asked Wences how they were dealing with the local branches of big banks in the communities they are serving.   “Right now,” he said, “we’re not approaching them.”

So just how big an opportunity is this?  It often amazes people from outside our industry – or outside our country – that the U.S. banking market is as unconcentrated as it is.

Our estimates show that the “big three” banks – Bank of America, Chase, and Wells Fargo, even after recent acquisitions, account for only about 25% of bank deposits (consumer and commercial, bank and credit union) and only about 35% of debit card transactions.  There are over 8,000 credit unions and over 5,000 community banks out there, serving local retail customers.  Bling is betting that a lot of these smaller institutions will be interested in a new payment service that gives them a shot at playing a new role in their community’s merchant business.

Common sense tells us there is a lot of volume in local purchases.  I remember seeing statistics years ago about what percentage of phone calls were made locally – I don’t remember the number, of course – but it was very high!  If anyone has seen an analysis of what percentage of POS transactions are done in the cardholder’s home town, I’d love to know about it – I’m sure it’s very high.  Then just factor in the percent of transactions done in small communities – certainly seems that it is a big enough number for Bling to pursue!

The Future

Bling clearly has its work cut out.  Just pursuing the many small banks and communities that fit its profile will take time and resources.  They are active in four communities right now, and expect to be in ten by year-end 2009.

At Glenbrook, we’re always interested in studying just how these new payments propositions are likely to evolve in the future.  One development, of course, might be the move to NFC-based contactless payments built-in to the mobile phone – rather than the use of contactless stickers.  Wences was pretty philosophical about that.  “We are not,” he said, “waiting for that to happen….I expect non-financial applications will lead the way for NFC”.

Longer term, it is extremely interesting to note that while Bling is taking a community-by-community approach in its initial market development, they are also building a larger infrastructure.  If my community bank issues me a Bling sticker and I travel to your community…. that sticker works when presented to the Blinger of your local merchant!  A new network is born?

Related articles:

1. Finovate2009 – Afternoon Session 1
2. Wallets and Stickers and Phones, Oh My! – a Look at Blaze Mobile
3. Mobile Payment Gateway? – a Look at Billing Revolution

Erin McCune and I attended the Association for Finance Professionals conference in San Francisco on Monday and Tuesday. With 4,000 plus “practitioners” and vendors there, and a robust Payments Track, there was a lot of food for thought. A standout session was “Same Day ACH” with Rich Oliver of the Fed (and the champion of the Fed’s proposed service), Peter Davey of Cap One, and Stephen Ledford of McKinsey.

The same day ACH proposal has most typically been talked about as a service which will apply to check conversion transactions – to enable electronics to clear as fast as paper would (don’t you love that). But I had not realized before that the Fed is also talking about this applying to WEB transactions. This would mean all those alternative-payment schemes for eCommerce could clear faster than card transactions! This won’t be immediately realizable, as long as the service is strictly opt-in, as it is currently being proposed. That would mean that the timing of a merchant settlement would depend on where the consumer banks, and if that bank had opted in. But if it moves into the main stream, as a service that all banks must (by rule or practicality) adopt, it could create a significant advantage for ACH funded purchasing products.

Later that day, we interviewed a senior executive at a top three bank. He said he worried about banks “creating value without return.” I can see why he might be worried.

Related articles:

1. ARC Conversion of Some Corporate Checks
2. The End of Cards as We Knew Them?
3. Why Debit Cards Aren’t a Product