Over the past two decades, the mobile phone has expanded its appeal from high end niche to mass market. In doing so, mobile technology now supports a rich ecosystem of mass market mobile services, with financial services among these. Finally, after many years of anticipated development, it would appear that mobile payment (m-payment) and banking (m-banking) services are well on the way to establishing themselves as mainstream propositions within the financial services landscape. Together they are estimated to generate transaction revenues of over US$1.6bn1(2011) out of US$45bn2 (2009).
The mobile financial services market is enjoying strong growth rates, however it still shows many characteristics typical of any early stage industry. Despite over 20 years in development, there are high levels of market fragmentation as well as challenges related to limited interoperability and an increasing number of market players. Within the mobile services segment, the pace of development has rapidly accelerated in line with the deployment of more sophisticated devices and new infrastructure technology.
In particular, network evolution has greatly improved bandwidth. The first m-banking services in Europe were deployed over slower 2G networks (i.e. 9.6 Kbit/s), whereas the latest 3G networks can now reach speeds of up to 7.2Mb/s. On the devices front, the iPhone, launched in 2007, combined technology improvements with an innovative interface to create an entirely new segment – the smartphone. In doing so, the iPhone has driven the development of purpose-built apps and geo-powered functionality. Moreover, by keeping consumers permanently ‘connected’ through the integration of personalised apps, the smartphone has permanently shifted consumer behaviour in favour of increased mobile engagement.
Mobile service penetration and technological evolution are the two main drivers of adoption but they could not work in isolation. They form part of a virtuous circle that includes a third component – the mobile financial value propositions themselves. As part of this, consumer awareness, experience and completeness, as well as value to the customer, are all important factors that combine to improve the reach and quality of the overall consumer interaction.
Different parts of the banking industry are leveraging the mobile channel in different ways, depending on their target market and particular services offered through the mobile channel. Table 1 illustrates the applications of mobile banking by type of device within the private, corporate and retail banking space.
To date m-banking appears to be far less developed within the corporate banking segment than other parts of the banking industry. Only a handful of banks currently offer corporate mobile and/or tablet solutions which differ from their retail offering (i.e. those propositions tailored to meet the requirements of corporate decision-makers, such as treasurers). Yet, given the high penetration of last generation mobile devices among corporate representatives, it would be a natural next step for banks to develop their m-banking propositions to enhance the customer experience and explore the possibilities of new revenue generating products.
Corporate m-banking solutions aim to assist corporate treasuries in performing their duties, i.e. by giving them ready access to key information in the most appropriate format. Information is made available ‘remotely’ from the office. Other solutions include developing alternative channels for initiating or authorising transactions remotely. In general, corporate solutions aim to adapt to client-specific requirements: typically achieved by offering a degree of customisation that allows the corporate treasurer to operate differently according to company policies and structure.
Corporate mobile applications have been deployed at Wells Fargo and RBS Citizens. These applications provide traditional account and reporting information and also extend business functionality to include activities such as wire release and fund transfer approvals, as well as facilitating payment decisions.
As opposed to corporate m-banking solutions, developments are more rapid within the m-payments segment as both new entrants and incumbents launch payment value propositions at an unprecedented pace. New propositions also leverage a broad range of mobile handset features. Products typically integrate functionality such as networking, SMS and in-built photography to help redefine methods of transaction capture, transaction authorisation, settlement and clearing, as well as transaction confirmation.
Within the m-payments market, the proliferation of different business models (bank-centric, mobile-centric, third-party centric, or bank-led partnership) is accompanied by a lack of standardisation and may prevent many propositions reaching sufficient critical mass. This is fast becoming one of the primary limits to growth in this space.
In order to avoid, or at least limit, such market fragmentation in the future, industry associations and stakeholders are therefore collaborating to help set common standards. For example, the European Payment Council (EPC) has recently published its second whitepaper on m-payments for public consultation and stakeholder review in February 2012. The EPC is also working with GlobalPlatform, GSMA, and Mobey Forum to agree and establish standards and business rules for the mobile payments channel within the context of the single euro payments area (SEPA).
The definition of m-payments is by nature relatively broad and can be confusing since it encompasses a wide range of applications enabling very different type of transactions:
- Pre-paid credit top up.
- Digital content purchase.
- Remote purchase of physical products and services, e.g. m-commerce, bill settling.
- Local contactless purchases.
- Person-to-person (P2P) payments.
Overall mobile-based payments are experiencing growth, with near field communication (NFC) and prepaid-based value propositions increasingly dominant within the market. The number of announcements by new entrants and incumbents at the GSMA-organises World Mobile Congress show in February 2012 illustrates the very speed and intensity of development in this space.
There is a continual flow of similar announcements and product launches at all times of the year, all fuelled by the expectation that the mobile platform will help displace small cash transactions or traditional payment methods. Just to demonstrate this point, the following series of new initiatives were announced in February 2012 alone (not an exhaustive list):
- “Monitise and Visa launch ground-breaking new mobile payments platform in India”.
- “Visa and Samsung Reveal Mobile Payments Application for the London 2012 Olympic and Paralympic Games”.
- “Banca Intesa Sanpaolo to conduct mobile payment trials”.
- “Sybase 365 and Telefonica Expand Mobile Financial Services With Innovative Mobile Wallet”.
- “WorldPay offers BOKU as a mobile payment method to its global merchant network”
- “Orange teams up with Visa to enhance mobile payment options in the Middle East and north Africa”.
- “Vodafone, Visa in global m-payment strategy”.
New propositions typically involve partnerships, collaborations or standalone projects launched by established operators – such as financial services, mobile network operators (MNOs), etc – and third parties such as Google Wallet, PayPal, or start-ups like iZettle.
Corporate m-banking and m-payments are currently developing at very different rates. However, we expect the speed of development to accelerate in the corporate space. Based on our experience, corporate key decision-makers are now showing noticeable interest in accessing mobile corporate banking services themselves and we would expect a surge in activity and investment accordingly.
Interoperability may become a challenge in this respect. However, more than being a relatively minor barrier to development as in the case of m-payments, interoperability will become an explicit requirement for corporate customers. Large corporations in particular often hold multiple accounts and products that are spread across various financial institutions. Therefore, to be truly effective, a corporate m-banking solution needs to offer a deep degree of interoperability between competing financial institutions.
M-payments, as a segment, have rightly attracted significant attention and investment. However, despite significant advances, there are a number of challenges remaining. Chief among these are the issues of ability to reach critical mass, promoting standardisation, security, interoperability, and avoiding excess fragmentation within the marketplace. In particular, unless the fragmentation challenge is addressed, critical mass will be hard to achieve and will affect the sustainability of the business case.
1 Source: Informa, Press clippings, Value Partners Analysis.
2 Source: Informa, Press clippings, Value Partners Analysis.
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