Monday, October 1, 2012
TMG is a credit union service organization offering card processing and payment solution services to credit unions and other financial institutions (FIs) in North America. In the TMG-sponsored webinar, Payments – the Road Ahead, Scott said it is hard to predict precisely what payments technology will overthrow the card companies because the technology may not even be available today.
"FIs do not have a God-given right to control the payment arena, and there are many alternative payment providers that will be fighting to take pieces of it – and may have an advantage today," Scott said.
Though Scott said he isn't precisely sure how technology will change the payments industry, he was bold in predicting the impact technology will have on the banking industry.
He expects Visa and MasterCard to face challenges from payment systems built on top of the ACH network and offered by telecommunications companies. He believes the cost of transactions will continue to decline as new players compete for merchants' business by offering new value and services. He said to compete profitably, FIs will very soon have to bundle services in packages for which customers are willing to pay $9.95 per month.
He also predicted:
Payment technology executives have told Scott that future regulations governing new technologies, as well as regulations that force out old technologies like magnetic stripe cards, could possibly be "the biggest game changers" in the industry's future. For companies to prevail, they will have to be both adaptable and nimble.
This means credit unions and FIs must adopt a different way of thinking about payments. The key is learning how to use data and information associated with payments to drive success. Companies new to payments are introducing social and gaming aspects to payments as ways to acquire and use payment data and information, Scott noted.
Scott said companies like Facebook Inc., Scvngr and Venmo Inc. are having an impact on payments. In the future, "how you pay could be as important as any of the other keys around marketing a product or service," he said. This should lead banks to think about whether consumers really want a credit card – along with its fees and security concerns – or if they want "the stuff it buys," he added.
According to Scott, the answer is being demonstrated in Kenya where mobile technology is transforming payments. Because mobile phones have been adopted widely, bypassing wired telephone and cable services, Kenyans are making approximately 200 transactions per second, accounting for 24 percent of the gross domestic product, he noted.
Scott said that since the telecoms in Kenya are already doing payments, there is nothing to stop them from taking the next step to becoming banks and issuing loans. He noted that small loans would be secured by access to what is becoming central to the economic and social life of the customer: the phone. If the loan isn't paid, the customer loses phone services. He called that possibility a "compelling case" for mobile payments.
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