Friday, June 8, 2012

Will Google, Apple, PayPal Ever Want to be Banks?

Will Google, Apple, PayPal and others ever decide there is a reason to become "banks?" The question might seem far fetched, except that once application and device firms decide payments and loyalty are businesses with direct implications for their existing businesses, it isn't so clear what other functions associated with "banks" might then seem reasonable as well. 

Rogers Communications in Canada already has applied to become a formal bank. To be sure, that appears to be primarily for the purpose of providing credit, payment and charge card services. In one sense, the move is similar to any other large retail brand creating a branded charge card.

"We have no plans to become a full-service deposit-taking financial institution," Rogers Public Affairs Manager Carly Suppa said. "The license, if granted, would give us the flexibility to pursue a niche credit card opportunity to our customers should this make sense at a future date."

In other words, Rogers doesn't want to become a full-fledged retail bank. But becoming a credit card issuer does set Rogers up for a smooth transition to becoming a mobile payments provider in the future.

Credit cards present a distinct opportunity for Rogers to expand its reach, as the media, cable and wireless giant also owns the Toronto Blue Jays and has direct relationships with millions of customers, including many who pay bills using credit or direct-deposit accounts. So there is an incremental opportunity to capture some of the current transaction revenue, at the very least.

Beyond that, analysts say the company can build a broader card business by leveraging those relationships to market its brand of cards, especially by reaching out to customers who have good credit standing in its database. That would create a new revenue stream for the broader number of retail transactions for which its customers use credit cards.

"People have already slowed their use of cash and checks in favor of credit and debit cards. Within five years, half of today’s smart phone users will be using their phones and mobile wallets as their preferred method for payments," argues Peter Olynick, Carlisle & Gallagher's Card & Payments Practice leader.

Keep in mind, he isn't saying Google, Apple, PayPal and many others immediately threaten the core banking function, just the parts of their business associated with payment operations. 

A survey of 605 U.S. consumers found high receptivity, at least in principle, to use of mobile wallets for loyalty purposes. The same survey also found consumers conceptually also willing to use entities such as PayPal for core banking functions as well. 

Once can be skeptical, without being dismissive, about the degree to which such sentiments might eventually become actual behavior. One might remain skeptical that the core banking function actually is attractive for application and device suppliers, or mobile service providers. 

But in many African markets, mobile service providers have already in droves become authorized payment providers. You might not consider that banking so much as money transfer. But bill paying has become a more-important banking feature, at the very least, and money transfer is bleeding over broadly into bill paying, in Africa. 

What seems unlikely or improbable today might not always seem outlandish. But a reasonable person might still bet against the likes of Google and Apple becoming banks in the common sense of the term, even if payments will be contested terrain. 

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