A Battle for Deposits Helps Fuel Bank Interest in P2P Payments

Mercantile Bank of Michigan has an answer for observers who want to know why financial institutions are starting to show an interest in person-to-person payments. It comes down to competition for deposits, says John Schulte, senior vice president and chief information officer at the bank, which will introduce a commercial service in the first quarter that will let customers with smart phones transfer funds to other individuals. “We're putting the perception out there that we're a technology leader and hoping that draws more customers to the bank,” he tells Digital Transactions News. “We want to increase deposits.” The rise of mobile devices like Apple Inc.'s 2-year-old iPhone, which combine PC-like computing power with big screens and sophisticated graphics, has also driven demand from customers, Schulte adds. “The last two years have been transformative in terms of the iPhone,” he says. “With our client base, everyone has these devices. Definitely the demand is there.” So much so that the bank, which serves the Grand Rapids, Holland, and Lansing markets, now sees that it could lose out on deposits if it doesn't introduce a P2P product. “It's about beating our competitors to this,” says Schulte. Bank processors and software vendors are looking to help their clients move quickly. Last week, no fewer than three processors introduced P2P services for their clients (Digital Transactions News, Nov. 6). Fiserv Inc. said its service will become available in the first half of next year to the 3,100 institutions in its bill-payment network. Meanwhile, Fidelity National Information Services Inc. and S1 Corp. have both adopted an application programming interface (API) introduced last week by PayPal Inc. to develop P2P services for their clients. The S1 product, which is geared to mobile phones with Web browsers, is the one Mercantile Bank is using. Also last week, CashEdge Inc. announced it planned to work with Qualcomm's Firethorn Holdings LLC to develop a mobile P2P product based on CashEdge's POPMoney P2P product and Firethorn's mobile-banking application. Banks and other payments players have long struggled with P2P payments, contending there was too little revenue potential in the service to make it worthwhile. But Mercantile Bank sees the value lying elsewhere. Indeed, it is willing to offer P2P at no charge to its customers, even though the bank's cost is 25 cents per transaction, says Schulte. “It's cheaper than a check and [automated clearing house transaction],” he says. “I'll do that all day long.” Meanwhile, he says, levying no fee for the service “is the key to adoption.” About 300 customers, or 10% of Mercantile's online-banking base, are already using a mobile-banking product the bank introduced in April. That number is growing about 10% a month, Schulte says. As for plugging into PayPal, a company often seen by bankers and bank associations as a rival for bank business, Schulte says he never hesitated. “It's a network, it doesn't scare me at all,” he says. “They're never going to steal significant deposits out of our bank and keep [them] in PayPal accounts.” He draws a distinction between bank interests and those of the publicly held card associations banks once owned. “Visa and MasterCard probably look at PayPal as the enemy, and they probably should, but that's their problem, not mine,” he says.