Community

When I last checked, Visa was a for-profit company, had to beat its competitors and needed to maximize ROI from its London Olympics sponsorship investment. No company can have a healthy bottomline without customers - proud and loyal or otherwise. Addison Lee who? 

In other news, "Three quarters of NFC-based mobile wallets will shut down by 2014". 

"The popularity of mobile wallets will help drive the move to NFC terminals". This must be news for mobile wallet providers who grumble that lack of NFC terminals is the biggest hurdle for their mainstream adoption.

While NFC might arguably improve the customer experience marginally, it absolutely won't provide "unprecedented opportunity for retailers to interact with consumers in real-time". Hasn't Berg Insight heard that realtime offers have been facilitated by non-NFC technologies for several years now? 

"...the shift to handsets is hitting advertising revenue."

This is consistent with my findings with the mobile version of a couple of blogs, including Finextra's, compared to their PC versions. More details can be found by Google searching for "Will Mobile Blogs Impoverish Bloggers?".

As I'd written about in these two Finextra blog posts, ICICI Bank has a Facebook app and many more banks provide customer service via social media. 

Pushing The Envelope On Technology - Part 1

Gain Social Media And Lose The Call Center Hold Music

The moment politicians get in on the act, tough times begin, as brick-and-mortar Wonga equivalents - called MFIs or Microfinance Institutions in India - learned the hard way. The problem with frictionless onboarding of the variety provided by Wonga is that people tend to forget that Wonga literally saved their bacon a few days after they've gotten onboarded. I doubt if politicians ever give any credit for it. When it comes time to repay their loans, they only think about the heavy interest costs and start appealing to consumer protection agencies and / or politicians to bail them out. Keeps happening in so many areas of financial services, hope Wonga is preparing itself to face it in its own space by budgeting for a high enough loan loss rate. 

@BrettK:

Thank you for clarifying. I fully agree re. problems of friction in various banking processes including application / onboarding. 

However, I think overall friction with nonbanks will only increase as they come under greater regulatory scrutiny. When it comes to deflecting blame for friction to regulations, I don't expect nonbanks to be any better than banks. In fact, since they're new to dealing with banking regulations, nonbanks could be worse than banks. I can cite PayPal's frequent freezes of merchant accounts as an example for this tendency. 

Talking specifically of application / onboarding, I hope the recent launch of Airtel Money (mobile wallet from the leading MNO in India and Africa) is not an indication of the extreme degree of friction we can expect to see from nonbanks going forward. Within one week of launch, there were three different product reconfigurations, sudden introduction of KYC, cooling period of 7 days before service activation, etc. Let me refer you to this FT article for more insights. 

Mobile money: Kenya good, India bad

Much as I personally hate friction in the onboarding process, my personal experience tells me that people have a short memory. Six months down the line, when high costs start eroding their prepaid card credit balances, I don't expect cardholders to forgive program managers for having given them such a wonderful onboarding experience a half year previously. Instead, I expect them to go and complain about their hidden fees and dodgy fineprint to some consumer protection agency - as they've already started doing.

@BrettK:

I can partially accept the simple-easy-fast value proposition only for PayPal. With PayPal coming under regulatory scrutiny, it remains to be seen how long it can retain this differentiator. While on this subject, let's not forget a less acknowledged fact that only the beneficiary of a PayPal payment needs a PayPal account. A sizable chunk of PayPal volumes comes from payors who don't even have a PayPal account and who make payments with their regular bank-issued credit / debit cards.

I fail to see how paying with a nonbank-issued GPR prepaid card is any simpler, easier and faster than paying with a bank-issued credit / debit card. According to the research I've come across, GPR is coming under regulator scrutiny only because its customers feel increasingly cheated by its hidden fees and fine print.

Currently, all security mechanisms cause inconvenience. Against that backdrop, I'd actually argue the opposite: Increased security raises friction and drives people to branches, checks and other traditional forms of banking. 

To paraphrase the famous quote by Samuel Johnson, "Security is the last resort of bankers who can't think of too many use cases other than account balance inquiry in their mobile banking offering". 

As Mint has proved, when you give people a great use case, they literally handover the keys to their Internet Banking accounts to rank startups. Per contra, as the Indian e-commerce experience has shown, when you make it painful for people to make ePayments thanks to 2FA and other security measures, they literally use cash even for online purchases (via 'cash on delivery' method of payment).

While PayPal is not likely to turn away any new customers, several reports suggest that its push into instore payments is not to acquire additional customers. Instead, it is to increase wallet share from its existing customers who otherwise use other methods of payments - cash or credit cards - to pay for their purchases at physical stores. So, incenting people to sign up for its service might not find a place at the top of PayPal's agenda at this point.

Regulators have already started jumping into the fray to regulate nonbank financial services providers. PayPal became regulated in India around two years ago. It has recently come under the provisions of Durbin Amendment in the USA. Mobile prepaid wallets like Airtel Money are already subject to painful KYC rules in India. According to this Fed article, GPR prepaid cards have recently come under the radar of the new consumer protection agency CFPB in the US.

While prepaid programs have an underlying FDIC-insured bank, cardholders' prepaid accounts are not mapped into bank accounts. As a result, cardholders' credit balances are not always protected by the underlying bank's FDIC insurance.  

As people begin to understand the hidden costs and terms involved in nonbank prepaid cards - aided by initiatives like "Ask CFPB: Prepaid Cards", no doubt - they might realize that the average bank account is cheaper and safer than the average prepaid card. When that happens, the market share of prepaid cards, which even now is only a "relatively small piece of the overall pie of preferred retail payment types", is likely to drop even further. Add to that the friction that will inevitably follow regulation, prepaid cards and mobile wallets are in for a rough ride.