Mobile payment innovation is creating new strategic questions for banks as technology companies and major retailers move deeper into financial services. The emergence of digital wallets from Apple, Google, Samsung, and now Walmart demonstrates how quickly the competitive landscape is expanding beyond traditional financial institutions.
For banks, the challenge is determining which capabilities should be developed internally and which can be delivered more efficiently through partnerships. As mobile payments become a larger part of the customer relationship, those decisions could influence how effectively banks compete while controlling development costs and bringing new services to market.
Mobile payment schemes and digital wallets have been a major topic of discussion in tech circles this year. In early December, Walmart became the first American retailer to announce its own mobile payment system that will be rolled out next year. According to Walmart executives, it will be compatible with both the Android and iOS platforms as well as major credit and debit card providers. This announcement bucks the trend of tech companies getting involved with digital wallets, including Apple, Google, and Samsung Electronics.
We’ve been profiling the growing mobile payment trend here on IPWatchdog this year and have noticed a growing amount of intellectual property being held by those companies in that field. This is interesting because software based payment systems, specifically for financial services, have been the target of much derision in recent months since the Supreme Court’s decision in Alice Corp. v. CLS Bank found a financial service implemented in software to be unpatentable. As our readers will see in more detail below, we noted an interesting increase in the amount of patent filing activity for mobile payment systems from each of the three largest banks as valued by assets. This is a peculiar about-face from a sector that, until tech companies started encroaching on financial services, had rallied against strong patent rights for software for quite some time.
Banks Weigh In-House Development Against Partnerships
With financial institutions embracing various forms of digital banking and payments, many — particularly larger FIs — are evaluating how much innovation should be driven internally, and how much through partnering. The latter route seems to make sense for make sense for many FIs, as it can offer a faster time to market and reduced development and QA costs. Still, some are evaluating whether certain key capabilities should be developed and managed in-house, and made the foundation for their proprietary offerings that may be part of a larger, white-labeled solution.
The growing number of companies developing mobile payment technologies underscores the importance of having a clear innovation strategy. Banks possess significant technology resources and intellectual property of their own, but building every new capability internally may not always provide the fastest or most economical route to market.
A combination of proprietary development, fintech partnerships, and white-labeled technology could allow financial institutions to maintain control over strategically important capabilities while taking advantage of outside expertise. As competition increases, successful mobile payment innovation may depend as much on choosing the right development model as on the technology itself.
Overview by Ed O’Brien, Director, Banking Channel Advisory Service at Mercator Advisory Group
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