Despite concerns about security, mobile banking and payments look set to take off, as Tom Groenfeldt discovers
Smartphones are changing the way people around the world get paid, make payments, send money to family, research agricultural or fish prices before taking their goods to nearby markets, decide where to put their savings, compare financial services providers, manage their budgets and save for the future.
Mobile banking’s rapid global growth threatens traditional banks with a reduction of income, loss of information about their customers and lower margins as banks with expensive branch networks compete against all-electronic providers with few overheads.
“If banks sit on the sidelines they are going to lose their audience,” says Mary Monahan, research director for mobile at Javelin Strategy & Research in California. The firm’s annual survey of the 25 largest US banks found that for the first time all offered mobile solutions.
Mobile payments is a very fluid business. O2 recently announced it would stop offering a mobile wallet about 18 months after launching it, but the carrier has also unveiled an alliance with Monitise, a global mobile payments system vendor. In addition, Zapp and VocaLink are introducing a service that will provide a way for 18 million UK bank account holders to pay for goods and services with their mobiles, as Barclays’ Pingit already does.
Banks are on a second or third generation of mobile banking software. Monitise sales reps are revisiting banks they called on five years ago, offering a polite “we told you so” about the complexities of developing their own proprietary software for mobile.
While the first generation of mobile built on the foundations of banks’ online banking systems, the newest versions are all-mobile and allow banks to reach new customers who can do everything, including enrol in mobile banking, through their phone or tablet.
Smartphone adoption is moving faster than anticipated and not just in the developed world
Competition is coming from players new to financial services. The 4,200 people attending Money2020 in Las Vegas last autumn heard presentations from the usual suspects, MasterCard, PayPal, Visa, First Direct and Amex, which have launched innovative smartphone banking services that bypass bank branches entirely. But presentations also came from Square, the innovator in card processing, Amazon which lets customers pay for wi-fi on planes from their Amazon account, and Facebook which helps users buy items they see on the site with just a click or two in 55 currencies with 80 payment options, at the rate of one million transactions a day.
Mobile payments is a global business. Ex-pats from emerging markets can send payments to their families in remote villages by mobile, while in London RBS says that it gets mobile log-ins from 287 countries, including 4,800 from the United States, in one day
The leading innovator in mobile banking innovation is probably in Africa where Vodafone and partners have expanded M-Pesa, originally launched in Kenya with Safaricom. Now 70 per cent of adults in Kenya use M-Pesa and it is live in nine other countries – Tanzania, Mozambique, India, South Africa, Lesotho, Democratic Republic of the Congo, Egypt (where it is called Vodafone Cash), Fiji and Qatar.
Indian banking regulations required Vodafone to work with ICICI Bank to launch a mobile banking service there, but the Reserve Bank of India appears to be on the verge of issuing new rules that will allow Vodafone and other carriers to set up their own banks.
Javelin Research divides mobile banking between transformative, the introduction of mobile banking services in areas without bank branches, and additive, where branch networks exist, but banks want to increase the frequency of engagement and provide new services.
Spreading use of mobile phones in payments in emerging markets coincides with major campaigns by MasterCard and Visa, often with substantial support from national governments, to make more payments, including salaries, pensions and welfare benefits, electronic through stored value cards. The Egyptian civil service, South African welfare recipients and more than 60 million Russian government employees now receive their payments through such cards. The cards can be used at ATMs, some point-of-sales terminals or linked to phones for payments.
Smartphone adoption is moving faster than anticipated and not just in the developed world. eMarketer says that 4.55 billion people around the world will use a mobile phone in 2014 and smartphones will count for 1.75 billion of those as penetration reaches 50 per cent during the year. Forrester Research projects global mobile commerce revenues will reach $119 billion by 2015.
At the Cards and Payments Conference in Dubai last spring, Brett King, co-founder of Moven, said the Gulf has 227 per cent mobile penetration as residents carry more than one mobile device each.
“Gen Y [people born between 1982 and 2002] will turn to mobile banking first; you don’t have five or ten years to get it right,” he adds. “This is happening right now. It is the fastest growing segment in retail banking and payments today.”
Adoption is fastest among young urban dwellers who use their phones frequently, especially for low-value payments such as travel or coffee. The Aité Group has a name for the enthusiasts – smartphonatics.
Some 36 per cent of Gen Yers are smartphonatics as are nearly one third of Gen Xers (people born between 1962 and 1982), says the analyst group.
“Seventy per cent of smartphonatics have used their mobile device to make a payment and 80 per cent have used their device for banking purposes in the past six months,” according to a 2012 Aité survey with ACI Worldwide. Smartphonatics place high value on mobile payments and are interested in replacing payment cards with a mobile device.
Apps include Moven which links a debit card to a mobile so clients can track those small expenses that can add up, pay friends, transfer funds and plan savings.
Bloomberg Businessweek reports that Chinese savers can move funds from a bank account to a money market mutual fund by tapping an icon on their smartphones.
Monitise is behind an RBS service that allows a customer to send her daughter at university, for example, a mobile code she can use to obtain cash from a nearby RBS ATM without using a bank card.
US Bank and Monitise are working on ways to take a picture of a print ad with an invisible watermark and go directly to that product on a company’s website, then order it with a few clicks for size and colour; a big improvement over QR codes which often just dump a user on the company’s home page.
Hana Bank in Korea has eliminated paperwork for many loans which can now be obtained through a smartphone. At the EFMA-Accenture conference in Paris, Hana said it lent $4 billion in credit through mobile without requiring a bank visit from applicants.
Emirates NBD has launched Shake n’ Save, an app where customers can select, with just a shake of their mobile phone, a range of savings between AED 50 and AED 2,000. The amount displayed is random and the customer shakes the phone until they are happy with the sum, which is then transferred to savings.
Imaging has made a major impact on finance with innovations such as Mitek’s app which allows bank customers to deposit a cheque by taking a picture of it with a smartphone. Users will also be able to make an image of a credit card or bank statement and shop around for better rates with little or no typing.