Bank of America, Citigroup and U.S. Bank executives do not see a compelling business case, for them, in mobile payments, in large part because mobile payments simply represent a way to defend their existing business.
"There’s just not a business case right now," says Dodd Roberts, Merchant Advisory Group CEO. That perspective is not limited to credit and debit card issuers. Telcos found there was no business case for digital subscriber line, allowing competitors to gain a market foothold. Telcos found there was no business case for widespread deployment of consumer VoIP. Cable companies, on the other hand, easily could justify VoIP as their way to attack the consumer and small business voice business.
Credit card issuers, in other words, might find that mobile payment systems actually represent new cost, but little, if any, incremental revenue. Attackers will find mobile payments a business platform for taking market share away from established players. In fact, a likely early approach for many credit card issuers is simply to tolerate some loss of market share, until a defensive response becomes absolutely necessary.
The reason is simple revenue economics. If one assumes that new mobile payments systems promise retailers lower transaction costs, then a major shift to mobile payments by credit card and debit card issuers will simply lower profit margins across the board. As telcos early found out, revenue is higher if established players simply allow competitors to take some amount of market share, while maintaining higher gross revenue and profit margins as the remaining business that does not shift.
There are limits to the strategy, though. At some point, so much business is lost that a competitive response, even at the cost of lower gross revenue and profit margin, is necessary.
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