This is going to be more entertaining than watching Bobo Brazil take on Andre the Giant. Some of the world's largest and richest companies are going mano a mano for control of online and mobile payments. No expense, lobbyist or press release will be spared.
While it is amusing to contemplate the prospect of bank, phone and tech behemoths going after each other like overweight pro wrestlers in a steroidal rage, the outcome will be serious. Depending on who wins - or what combination of allies wins, more likely - the cost implications for consumers could differ dramatically. The banks probably offer the least sympathetic case since their behavior on credit and debit card fees has been a national scandal. Their victory would be a consumers' and regulators' nightmare, with 'deals' luring gullible customers into arrangements that could land them in bankruptcy. One need only remember the pre-crash mortgage mania to understand the implications for bankers controlling mobile payments, for instance.
The phone companies are a less toxic proposition. They have learned through the brutal mobile market share wars what it takes to win customer allegiance. Their pricing has reflected the consumer-oriented mentality and the universal spread of mobile technology is a good indication of how they will approach the strategic goal setting.
The tech giants come out of the Moore's Law tradtion of gradually reduced costs. They will use their technological expertise to seek pricing advantage which they can turn into greater market share and margin growth. For consumers, this could be the happiest arrangement of all, but they are unlikely to prevail alone given the phone companies control of the digital nets.
A tech-telco alliance probably makes the most sense, but there will lots of mud-wrestling before anyone is willing to concede. Grab some nachos, pop open a beer and get ready to cheer the sheer spectacle of muscle-bound capitalism gone wild. JL
Robin Sidel and Amir Efrati report in the Wall Street Journal:
"Three of the nation's largest banks are racing into the growing battle over how consumers move money and make payments, launching a service Wednesday that lets people use their checking accounts to send each other money with an email address or cellphone number.
Banks are looking to hold onto their influence over consumers, who are increasingly shunning checks and cash, turning instead to new nonbank technologies to spend their money. The new service from Bank of America Corp., Wells Fargo & Co. and J.P. Morgan Chase & Co. takes aim at the popular PayPal offering. At stake are billions of dollars in credit-card, overdraft and checking fees each year.
"Customers want to move payments from paper to electronic methods, so if we can meet our customers' financial needs, they will be better customers with us," said Mike Kennedy, who develops payment strategies at San Francisco-based Wells Fargo and is chairman of the new venture.
Google Inc. has its own designs on the payments business, hoping to facilitate payments as well as special offers that local merchants can send directly to customers' smartphones. Consumers are expected to spend more than $1.2 billion this year on local-merchant deals provided through Internet companies such as Groupon Inc., according to BIA/Kelsey, an advisory firm.
On Thursday, Google, which declined to comment, will announce details about a service that will allow consumers to make store purchases and redeem coupons by waving Google-powered smartphones in front of a small reader at checkout counters, said people familiar with the matter.
The moves mean that Americans will soon have an unprecedented number of payment options that could further reduce the use of traditional methods. The services from both Google and the banks will rely on the cellphone, which could soon become the digital wallet promised for more than a decade.
The banks are trying to encroach on the dominance of eBay Inc.'s PayPal unit, the market leader for electronic-based payments. Revenues of the unit have tripled since 2005 and now account for one-third of Ebay's operating profit.
The banks' new service, which other financial institutions will be able to join later, carries some financial risk for them. Although it is being aimed at person-to-person payments, owners of small or medium-size businesses could potentially ask customers to pay for goods and services by sending money directly from their online accounts. That could let merchants skirt the fees they now pay banks for processing debit and credit cards.
Google has already stumbled in its efforts to get online merchants to use its Google Checkout payment system. Its latest plan, in which Google isn't expected to take a cut of transaction fees, requires that real-world merchants upgrade or buy and install new equipment from companies like ViVOtech Inc. that costs $100 to $350 and enables payments using a technology called "near field communication," or NFC.
Businesses participating in the new initiatives include Macy's Inc., American Eagle Outfitters Inc. and the Subway fast-food chain, said a person familiar with the matter. The businesses didn't respond to requests for comment.
Phones powered by Google's Android software will also include NFC technology in the hardware that would enable a person to wave the phone in front of a special credit-card reader to facilitate the transaction.
In the new banking joint venture, dubbed clearXchange, customers of the three banks will be able to use their computers or smartphones to access their online checking accounts and move money into another customer's checking account at another bank.
Online banking customers won't have to set up a new account outside of their primary financial institution, as customers currently must do with PayPal, which also allows person-to-person payments via email.
U.S. households made more than $865 billion of payments between individuals through 11 billion transactions last year, according to a survey from consulting firm Aite Group LLC. That amounts to roughly $7,500 and 96 transactions per household.
For the banks, which face a raft of new financial regulation expected to slow revenue growth, the move to more electronic payment formats could help reduce costs, in part because cash and checks are expensive to process. Cash is a low-tech way to pay, but transporting and collecting paper money carries costs for financial institutions.
The program is also a way to retain customers who could be tempted to start using one of a slew of alternative payment programs that already exist or are being developed.
The banks, which are testing the service free of charge, will ultimately decide whether they want to charge their customers for it. Some banks already provide customers with a service to send money to other institutions, but that process usually requires more detailed information, such as checking account and routing numbers.
The fight for consumer attention and dominance is particularly important for banks, which are scrambling to attract customers with new services. Banks often don't make money on checking accounts, but they use them to reel in customers in the hope they will eventually sign up for profitable bank products such as credit cards and mortgages.
For Google, the new system will help promote its new business of helping local merchants make deals and special offers to potential customers, a market being exploited by Groupon and other Internet companies. Google would take a cut from deals redeemed by consumers via Android-powered devices. Google would thus obtain valuable data about consumer-spending behavior and be able to help merchants to better target advertising and deal-offerings to customers through their mobile devices.
Rival Apple Inc., which doesn't currently include similar mobile-payments technology on the iPhone, hasn't indicated whether it plans to introduce any and has previously declined to comment on the matter.
Users could also manage credit-card accounts and track spending, loyalty points and other things through smartphone apps. But the Web search giant will have to persuade retailers to install card readers embedded with the new technology.
In addition, Google will face competition from players such as Square Inc., which lets businesses accept credit-card payments just by attaching a small reader to a smartphone or computer tablet, and an initiative called Isis led by wireless carriers Verizon Wireless, AT&T Inc. and T-Mobile USA. Isis will enable customers to pay for goods with their smartphones, while Discover Financial Services Inc. and other companies process the payments.
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