Given the limitations of Web 1.0, this was understandable…and until recently, Wells Fargo was the only major FI still offering federated identity solutions to a retail market. This week, however, it was reported that Citi will introduce a service enabling it to verify the digital identities of customers to third parties. While designed for commercial clients only at present, its’ clear that increasing utilization of the Internet for financial services (both retail and commercial) have brought into focus the Trust Gap that exists online. Even with advances in authentication on bank sites, “something the customer knows” remains the dominant way through which trusted access is verified. Other options—“something the customer has” (such as a smart card/ token) and “something the customer is” (a biometric identifier), are certainly seeing early, but generally less-well-established, adoption in the US.

Citi’s Managed Identity Services, will use PKI encryption to help secure payment and other sensitive files while on clients’ computer system, andto enhance after-the-fact auditability of data so encrypted. While designed for corporate clients, recent JupiterResearch reports (including LINK )
have touched on this Trust Gap from the e-commerce consumer’s perspective. Way too early to address the multi-sided buildout requirements necessary to declare success, but worth noting from my perspective as a step back into the complex digital identity management space.

We're closed on Friday for the 4th of July...have a happy and enjoyable Independence Day weekend.

The current figure is the lowest percentage representation of bank stocks within the Index in 8 years. As of this writing, the market has clawed back some in the last day of a holiday-shortened week, bank stock activity early this week likely took that number down even more. After the last two weeks, a long weekend can't come soon enough.

And if any additional perspective is needed, the average price of gas eight years ago stood at about $1.50 a gallon. Ah, the good old days.

Also this week, BofA’s Strategic Investments Corp. completed a strategic investment in mobile banking and payments provider mFoundry, continuing attention and activity in the space. Other mFoundry investors include Motorola, PayPal and NCR, as well as VC backers Ignition Partners, Apax Partners and others. mFoundry customers include Citi and BB&T, and the firm also has a strategic partnership with ClairMail. As recently noted, overall customer interest in mobile payments remains modest in the U.S., but recent numbers show that consumers are warming to the real-time, always-available nature of mobile banking, services. And as an account-to-account transfer is very similar to a mobile payment, well…you get the rest. LINK

Yet more than a quarter of young affluents (online users 25-34, who make more than $75,000 a year) rely on the advice of friends or acquaintances for such information, and it is clear that the emergence of targeted, corporate social networks (such as LinkedIn and Plaxo) offer an important platform from which to reach, and learn through the experiences of, one’s peers.

Of note, then, is Visa’s launch of the Visa Business Network on Facebook (LINK) earlier this week. Visa bills the network as the “first ever application dedicated to connect businesses on Facebook,” and promotes the service as a way to share business ideas and ambitions via virtual networking among the 80,000 small business owners already on Facebook.

The service is a centralized portal for connections and support, both from peers and experts, through:
• Partnerships with Google, Wall Street Journal marketing, Entrepreneur, Forbes.com, and other news and commentary services.
• Connection opportunities with other relevant businesses.
• The chance to reach more than 80 million active users worldwide

Certainly, other attempts to leverage social networking have occurred in the cards space. Chase's relationship with Facebook, of course, was an early example, and American Express maintains its own small business blog and resources page via the Open network at LINK/. While the dimensions of effective social marketing of cards or financial services products are still evolving, both Visa's and AmEx's efforts attest to the opportunities that exist in becoming the trusted problem-solver, particularly for startups, whose resources and experiences are generally less-extensive than for their larger business brethren. And with CBS news recently highlighting the growing impact of the credit crunch on small businesses' access to credit, I expect the number of small business owners who fund aspects of their operations via small business card will continue to increase. Read the views of JR colleague Sonal Gandhi on the topic of marketing FS to small businesses at LINK

Note--This report appears in our SMB practice, so may not be accessible without a subscription to that service.

In another corner of the cards industry, MasterCard and AmEx have announced a settlement in AmEx’s antitrust lawsuit against its rival, in which AmEx charged that MasterCard blocked it from issuing its cards through banks. In the settlement, MasterCard will pay 12 quarterly payments of $150 million to AmEx, beginning in Q3 2008, and expects to book a $1 billion charge related to the settlement in the current fiscal quarter.

The case will now be dismissed, and neither party admitted to liability. Those with long memories will note that this is just the latest legal chapter in the cards space, and originated in 2004 after the US Supreme Court left intact a ruling which allowed Visa and MasterCard member banks to issue rival networks’ credit cards.

AmEx CEO Ken Chenault noted in a statement that the funds would be a buffer at a time of slowing economic activity, the effects of which we've noted in recent presentations, and which I blogged about in a recent entry ("While Retail Overall Struggles, Online Makes up the Distance"). LINK

--MasterCard has partnered with Obopay, Inc. to offer a fully integrated on-demand person-to-person mobile payment service to United States consumers. The service, offered via MasterCard MoneySend, will give new and existing MasterCard issuing customers the ability to provide an innovative mobile payments service to their MasterCard cardholders on all credit, debit and prepaid MasterCard branded products. The service is similar in structure to, but separate from, the operation which Citi has been working on with Obopay since late 2007, and will use text messages to conduct payments across any MasterCard branded card (credit, debit and prepaid).

LINK

-- Mobile Money Ventures LLC (MMV), a joint venture of Citi and SK Telecom, has just announced that its mobile financial services solution is compatible with Android (the Google/ Open Handset Alliance-developed open software and applications stack for mobile devices. The firms indicated that the offering help financial institutions and carriers offer customers a comprehensive set of mobile financial services applications on Android-powered mobile devices.

The goals of the service, are enhanced customer loyalty and a fuller customer experience, and MMV’s applications will enable customers to pay, track and manage financial transactions, with an embedded rewards management function for wireless users. Other features include receipt tracking and expense management, a variety of payment functions and brokerage / stock tracking services, among others.

LINK

--In a recent conversation, the head of First Data Corp.'s Mobile Commerce Solutions unit indicated that FDC intends to use its GoTag contactless NFC antenna-equipped stickers as a tool to jump-start use of contactless payments. While NFC handset availability is a hurdle in the deployment of mobile proximity payments, GoTag (using an NFC antenna backed with adhesive, which can be attached to a user’s device) would help to overcome this issue, allowing consumers to quickly turn any mobile device into an NFC handset(albeit without the integration promised, in terms of device access to web sites or other internal content, called up via a device with an integrated, internal NFC chip).

As mentioned in my recent report on the topic, the level of activity around mobile payments has increased significantly in the last 18 months. While this activity has been global in nature – Kenya’s mPesa service being just one example—this activity has been extremely visible in (and emanated, in significant part, from) the U.S. as well.

I was recently asked if all of this mobile payments activity isn’t another climb up a mountain of hype. I explained that, given the fundamental market shifts that we’re seeing, I don’t believe it is. Still, that doesn’t mean automatic success. Expect a multi-year journey before you see U.S. consumers turning in significant numbers to pay-by-mobile solutions.

Given the history of U.S. mobile and financial service technology innovation, this isn’t a surprise. Yet institutions and others must keep in mind that the promise of these developments has yet to be matched, in the U.S., by strong consumer demand for mobile payments services. Yes, mobile banking is emerging as a bright spot. But the habit shift involved is substantial…and the vast majority of these technologies will take several years to truly have an impact, at least for those which make it thru to consumers as must- have innovations. Education will make all the difference...and while consumers' payment habits do shift, they shift for a reason (generally, the perceived delivery of tangible value). This is true for mobile as well as debit or any other product, and will be a fundamental benchmark of success.

And while it may seem counterintuitive, making reasonable investments in loyalty is even more important during tight economic times, as consumers who will shop a brand when times are tight can generally be counted on to maintain a relationship with that brand in flush times, all else remaining equal.

On another note, Video is coming into its own on the web. IRNEwsLink Top 500 Watch also reports in today's issue that 59% of Web users view at least one video a week, according to a ShopNBC.com speaker at last week’s Internet Retailer conference in Chicago. Interest in online video is certainly clear among online financial services customers. The keys are effective marketing, content and presentation format, as outlined in my recent JupiterResearch report on the topic.
LINK

As JR analyst and esteemed colleague Michael Gartenberg pointed out in April, converged devices are taking hold, as multi-function/ multi-feature handsets change what was (not that long ago) a single-device/ single feature world. Lower data plan prices, enhanced offerings and features, and consumers ‘use of the mobile Internet are all factors in this.

This is positive when it comes to the re-launch of mobile payments services, at least long-term. Mobile habits are also evolving to embrace more data, which is also a positive. Still, and inspite of the vibrant activity that has taken place within the US mobile payments arena for the last 2 years,significant inhibitors to the rise of mobile remote, P2P/ remittance and particularly NFC / proximity payments do remain. My recent research report: US Mobile Payments: Interim Steps for Driving Interest and Uptake, looks at these trends in the context of the broader habit shift required to drive widespread, handset-based transactional usage among US consumers.

LINK

In sum, mastering the interim steps—mobile marketing and search, two-way interaction (in the form of mobile banking) and engaging applications that overcome the remaining limitations of the interface will be essential in driving transactional usage. This is particularly true given the fact that, and in a divergence from other markets, most U.S. consumers do not yet express an interest in paying by cell.

Upcoming research will take a look at the role mobile banking is playing in the evolution of the mobile ecosystem.

LINK

Bonnaroo has hooked up with our new friends Facecard (http://bonnaroo.facecard.com/). Facecard is a debit card, gift card, and cash all rolled into one. In true Bonnaroo spirit, they have agreed to make a charity donation for everyone from the Bonnaroo community who signs up for a Facecard with a donation of $10,000 to various Bonnaroo charities! Also the 1st 10,000 people to sign up for the card will automatically get $5 loaded on their card to purchase Bonnaroo merchandise - both at the festival and after the event online! No minimum purchase necessary! Click here to sign up for your Facecard now to raise money for great causes. And make sure you come visit the Facecard tent at Roo to learn more, relax and get some cool give a-ways.”

For those who may not be into the concert scene, Bonnaroo is an outdoor rock festival-cum-concert that takes place in Tennessee each June.

Not for some years yet, at least. But the pace of the shift away from paper has been visible for years (if check volume numbers weren’t enough to drive it home, the reduction in the number of Fed check processing centers should be). No serious observer of the payments space can suggest that, all else being equal, check volumes would likely be anything more than a dead cat bounce (we’re not talking about Wall Street, but the metaphor should be clear). And, of course, the evidence mounts.

To wit—The U.S. Dept of the Treasury’s Financial Management Service announced this week that it was introducing a prepaid MasterCard for recipients of Social Security and other federal benefit payments. The product, the DirectExpress Debit MasterCard card, is being marketed as a safe, convenient alternative to paper checks, particularly for the unbanked.

See a list of FAQs describing the card at LINK

LINK

The product is being introduced in 10 states, and will be expanded nationally this summer. More than 4 million Social Security and Supplemental Security Income recipients who do not have bank accounts will be able to select the option, and will be able to circumvent the fees associated with check cashing facilities and the theft/ loss aspect of cash. In addition, the card provides a centralized access for key monthly payments, functioning along the same general lines as direct deposit to a bank account. Linking multiple payments (payroll deposits, SSI and tax rebates) on to a single card enables a de - facto direct deposit relationship, creating a bank-account in the pocket for those who haven't often had one before.

I’ve spoken often at conferences and to clients about prepaid payment products over the years, and have watched the introduction of Visa Buxx for youth, the Rush Card (and fee-addled knockoffs like the Usher Card) aimed at urban consumers, and subsequent types of prepaid products targeting every possible segment (a NetSpend card and a Visa Gift Card are both prepaid products, but targeting very different consumers).

While prepaid can be a harder business model to justify—with credit and debit now commonplace, the remaining stakes are across a number of pools—some attractive and large (the unbanked), and some less-well defined and arguably smaller (campus cards, which unless branded or linked may only be useful to a few thousand individuals), converting unbanked consumers from paper to plastic payments will reach a significant market, increasing security and reducing costs on both sides. While a number of states and other government entities have deployed similar products, this announcement is noteworthy because of its scope. And while not the first of its kind, neither is it going to be the last.

While the impact of ORC is at core a multi-channel issue and concern, it’s worth noting again how fraud, like commerce, is evolving into a multi-channel vehicle. The report reinforces the role online auction and for-sale sites have (along with traditional channels, like pawn shops and swap meets among others) as ways to reintroduce stolen goods back into the supply chain. Steal at the POS, then list the goods online for resale...It also highlights retailer views on the topic, and select legislative and law-enforcement-partnerships as ongoing efforts to address. Given consumers' trust issues regarding the safety of their data online, efforts to increase trust from both angles (through education and efforts to increase data security, and through efforts to reduce the amount of stolen goods that are fenced online) offer important, overlapping strategies through which "trust" can be increased.

LINK

Citibank’s Extra Cash program shows the trend (the latest, among innovations such as Keep the Change and Chase Freedom, to give the customer more control, more back, or both). ExtraCash from Citi is available on Platinum Select, Diamond Preferred and AT&T Universal Platinum cards, among others, and cardholders are automatically enrolled (site registration may be required). Extra Cash accumulates when consumers use their participating Citi cards, and can be used to make purchases (emphasizing the Instant Savings aspect) on the ExtraCash program website.

Driving consumers to an additional, particular website is never easy, but the program is intriguing…offering discounts on name-brand hotels, travel, entertainment and other purchases made thru the site.

Link

While visiting a small college town (sub-5000 population, including students) in the Midwest the other week, I stopped by a Dairy Queen … my first time in at least two decades.

There at the drive-thru was a Vivotech contactless card reader, hot with the major card brands and the universal contactless acceptance symbol. Regular readers know my belief that, in a multi-sided market, adequate merchant acceptance is key to new product success. Based on my experience, this IS happening. But perhaps not surprisingly…and reflected in informal polling in other cities I visit…reports of usage remain modest. To overcome its visibility hurdles, contactless must have more marketing support to cross the Rubicon of consumer awareness and usage. But in a sign of progress, kudos to DQ for employee training…the staffer knew the product, the purpose, and the process like a pro. Good shakes, as well.

Also on contactless, the Boston Fed’s Emerging Payments Research Group (EPRG) has just released a new pub – The Contactless Wave- A Case Study in Transit Payments, looking at contactless transit fare collection technologies, successes overseas, and impact on the U.S.

LINK