Future Mobile Banking and Mobile Payments: impact on retail banking, telcos

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Video and article on future of mobile banking payments and retail - Article written in 2012, Video recorded early 2011.

* Patrick Dixon has worked with many of the worlds largest banks, telcos and technology companies, and has been ranked one of the 20 most influential business thinkers alive today (Thinkers50 2005). Clients include Google, Microsoft, IBM, HSBC, UBS, Credit Suisse, RBS, Barclays, BNP Paribas, Deutsche Bank, Lloyds TSB, Skandia Bank, ABSA bank, Bank of Ireland, Fortis, SEB, Skandia, Allianz, Aviva, Prudential, Munich Re, Swiss Re, AT&T, Nokia, Vodafone, SingTel, O2, STC, Belgacom, BT, Mobilcom, MTN, Toshiba, HP, Phillips and Symantec.

"I am really interested in your thoughts about mobile banking.  Do you trust smartphones? What should banks and telcos be offering?  Post me a message on the form below..."  Patrick Dixon

Mobile Banking Boom

Retail financial services are in for a radical shakeup, which will dwarf anything we have seen so far in online innovation, driven mainly by use of mobile devices.

The speed of innovation is astonishing:  tens of thousands of startups are trying to make money from mobile money.  Only a handful will make it to global scale.  This is a new gold-rush or dot-com like boom, that is happening a somewhat chaotic way, leaving regulators far behind.

33% of smartphone users in America will use mobile banking in 2013.  90% to check balances, 40% to transfer money between bank accounts. 25% to pay their bills.  Expect half of all smartphone users to download banking Apps in 2013.

Africa leads the world. The real excitement with mobile payment systems is not in America or Europe or Australia or Japan (which has led the way with many payment innovations), but in emerging nations amongst people with no bank accounts, who are dominating mobile payments growth.

Here are a few big issues to think about – together they point to a very different kind of future:

Speed and impatient customers

Hundreds of millions of dollars have been lost over the last decade, developing clever technical solutions which few people actually use. The future is not just about innovation but about emotion: are you meeting a real customer need, making a real difference?

You can lose up to 80% of customers if a web page takes more than 10 seconds to respond – that’s today, think about tomorrow.  Most customers get annoyed if a call centre fails to answer the phone in 15 seconds, and even more annoyed if their time is wasted pressing option buttons. 

Online payments still take too long.  Just the process of signing in to your personal bank account can be frustrating if it involves a card reader, and having to enter specially generated numbers on an external device.

Convergence or Divergence?

While techno-geeks talk a lot about convergence – everything available on every device – the fact is that all real innovation is about divergence.  Doing things differently to amaze and delight your customers. 

Magic, a touch of genius, transforming people’s lives in simple, elegant ways, saving time, hassle and money. That’s where the big successes will be in mobile finance over the next 5 years.

Keep close to your customers

Just look how banking customers are changing:

* 33% in the UK have stopped watching TV
* 70% of UK bandwidth is now just 2 sites:  YouTube and BBC
* 25% of all US bandwidth is consumed by just 27 million NetFlix users
* Some smartphone users in France consume >30 gigabytes every few day
* Young people on escalators in Singapore think that a 40 second journey is a good length of time to open a device and watch part of a movie
* Payments using PayPal soared from $141 to $4bn from 2009 to 2011

Mobile payments taking off globally – especially in Africa

* 200 million payments using mobile devices in 2012
* 80% of these mobile payments were in East Africa
* Total value of all mobile payments was around $170bn in 2012
* Expect total value of mobile transactions to exceed $700bn by 2016
* 100 new mobile payment platforms launched in last 5 years

mPesa shows that emerging nations can lead the world

mPesa is a mobile payment system run by Safaricom and Vodacom – the largest telephone companies in Kenya and Tanzania.  Launched in 2007, mPesa already has 17 million customers in Kenya who make over $9bn a year in payments – equivalent to an astonishing 33% of the nation’s entire GDP.  Tanzania has 9 million users and the service has now expanded to link 33 nations via Vodafone’s HomeSend Hub.

Video to Femsa / Oxxo in Mexico

So why has mPesa been so successful? mPesa allows people to go to a local phone dealer and depost some cash into an mPesa account.  This can be sent to anyone else using an SMS, which they can convert back to cash in another phone outlet elsewhere in the country or in another part of the world.  If they have their own mPesa account, they can store the cash and use it to pay other people.

So it has become a banking system of its own. Expect the range of mPesa services to grow rapidly, so that people can access loans, invest money or fix up insurance and other things.

Most people using mPesa were previously completely unbanked: people who have no access to traditional banking and who live in a cash society.

Focus on the unbanked

Most people in the world have no bank account. And the costs of providing them with traditional banking are impossibly high – because their deposits and withdrawals are usually small, they are likely to have very small balances, and (many) live in rural areas.  For people on low incomes, safe-keeping is more important than saving money.

Most of those with no bank account, own mobile phones (or can use one belonging to a member of the family).  At least 1.7 billion mobile phone owners have no bank account. For hundreds of millions of the poorest people on earth today, paying a mobile phone bill is their biggest priority after paying for food.

Phones save time, money, save lives and summon help when cars break down in remote areas.  Phones mean users can get instant market prices before they start a 250 mile journey from farm to city.
And now phone payments mean that family members in a big city can send money home safely at the speed of light.

More people in Africa have access to a mobile than they do to mains electricity.   There are 700 million SIM cards registered in Africa, amongst 1 billion people.

Smartphones are becoming much more widely used across Africa.  Take South Africa where 65% of all search queries on Google at weekends are now on mobile devices (35% during the week).

India is a vast market for mobile payments

India has 700 million phone users, and use of credit cards is growing by 26% a year.  80% of smartphone users in India are interested in using their phones for banking.

Need for speed and scale

Most mobile payment systems will fail to take off.  It’s all about global standards and scale.  Look at the dominance of Visa, Mastercard and American Express as card issuers.  In the same way, there is room probably for only 2-3 mobile payment systems of any significance, in any nation or region.

The investments are too great for retailers to cope with more than one dominant payment method in addition to cash.  It is not just capital, but also time for staff to keep all the systems running.

Square startup has a $3bn valuation

Square is just one of many companies around the world who are rushing to give small retailers a free card reader that they can plug instantly into any smartphone, so they can take payments from credit or debit cards.

2 million retailers have already signed up for Square across the US.

It costs nothing to order one or to register, but retailers get charged a percentage of each transaction.  Expect fierce competition to reduce these charges from a typical 2.75% today to less than 1.5% for heavy users.

Amex and Mastercard have launched a similar external card reader called iZettle.

Expect rapid proliferation of smartphone add-ons to use with Apps. Take for example iCache Geode – which clones credit cards, stores the data on a smartphone, sends it to a single credit card which can be converted into any other credit card wirelessly in a second.  The device also has fingerprint biometrics built in.

Barclays launches PingIt – 1.3 million users in 10 months

The Barclays PingIt mobile payments system is just another example of mobile payments innovation.  Unlike many other similar offerings, this one really took off in 2012 with 1.2 million downloads.  The simple App allows money to be moved from your personal account to any other bank account, with a couple of clicks.  Just select a contact on your phone, and Ping them £10 or £100 or £750.

The recipient needs to register, and 80% of recipients end up using the system themselves – so it spreads virally.  The service is free and take-up has been strong amongst small business owners.  15-20% of all users do not have a Barclays Bank Account.

PingIt has now extended to allow remittances to people in Africa – cheaper than Western Union because there is no fee, just a commission on currency. 

All these new cross-border mobile payment systems are a fundamental threat to companies like Western Union.

Four Models for Mobile Payments – but who cares?

There are four main models for new mobile payment systems, but customers don’t understand or care. They just want simple things that work - save time, hassle and money.

1) Premium SMS

One of the first mobile payment methods to take off on large scale.  Simple to use but risks that payments can get lost if signals drop out or messages are corrupted.  Many technical challenges have been solved.  Telcos can benefit by creaming off  commissions and using a wide range of charges, for example to view a statement.

2) Direct Mobile Billing

This has also taken off, especially in countries like Japan, where all kinds of goods and services are charged direct to the phone bill of the user.  It means the Telco has to accept the risk – for example that a plane ticket might be bought and used before the monthly bill is paid by the customer.  It means telcos have to get smart when it comes to managing financial risks, charging interest on late payments and so on.  Welcome to the world of credit card companies.  It is a similar model.

3) Mobile Web Payments

Nothing smart about this.  Customers use mobiles to go online, find what they want and pay for it.  Step beyond for many retailers, is giving the customer a dedicated website which is optimized for mobile screens, or a simlple App to guide them to rapid decisions.

4) Near Field Communication

Near Field Communication or NFC is really an old technology with a new wrapper.  For years, retailers have been using hundreds of millions of wireless barcodes, called RFIDs or Radio Frequency Identification Devices.  Each is the size of a grain of sand:  with memory, software, hardware and wireless capability.  These devices need no battery and will last 100 years.

RFIDS are being used to track components, warehouse items, logistics and distribution, retail goods, for every large manufacturer.  RFIDs have become a normal part of credit cards in many nations, or built into staff security passes, or used in ticketing cards – for example on the metro.

Tap and Pay card readers can sense what card you have in your hand, and authorize payment automatically.

For years I have predicted that every mobile phone will have an RFID inside the case, so that mobiles can be used instead of credit cards for click and pay transactions.  And the first phones are being issued with them now. Sadly not the iPhone 5.

But these RFID devices can be retrofitted onto phones – stuck on the side or back, and only cost a few cents each.

We can go far beyond click and pay with this.  Imagine a world where phones can transfer money to each other by clicking one against the other.  Or paying for a food item by picking it up, clicking the item with your smartphone and placing it in your bag before walking out of the store.  Or buying cinema tickets by clicking your phone on an advert in the street.

What will Google do with Google Wallet?

Techno giants like Google, Microsoft, IBM and Apple have all had the potential to compete directly with banks.  Each until now has resisted the temptation, because of the risk of alienating some of their most valuable customers.  But the question is how long that resistance can hold.

Google Wallet is an interesting experiment which could transform mobile payments. Google Wallet is a virtual wallet that securely stores credit and debit cards, offers, and rewards cards. You can tap your phone to pay in-store using Google Wallet anywhere contactless payments are accepted, or pay online by signing into your Google Wallet account.

Google Wallet can be used anywhere contactless payments are accepted, at over 200,000 merchants across the United States, and is free to the person paying.

Biometrics is the key to next-generation mobile payments

Imagine a world where every touch screen can recognize a fingerprint to authorize secure transactions instantly.

More to mobile financial services than payments but payments matter

Just look at the revenues available to mobile phone operators from commissions on payments.  In the UK alone, around $1 billion is spent using plastic card each year, with around $100 billion of credit card debt, at average interest rates of 16%.

Just 2% commissions on UK card payments is worth $20 billion a year, if you could capture all those transactions using mobile payment systems.

The big question is this:  how much revenue does a telco have to generate from each account holder, to be able to offer a wide variety of devices for free, plus free calls, free data, free movies and so on.

Most audiences of telcos and bankers that I have polled over the last 5 years think it is only a matter of time before some company or group starts to do this.  On a limited scale it is happening already.

Keep money safe - cyberattacks growing

And finally….. growing worries about security

While security fears have been one reason why many customers have held back from serious use of mobiles for banking, many people find it easier to trust payments using Mobile Apps than payments using a PC.

The biggest risks however are not to an individual, whose losses will be repaid by the bank, but to the bank itself.

In 2011, Symantec detected 5.5 billion attacks on corporations.  Aramco had 30,000 computers attacked in a single event.   A report by Ponemon Institute suggests that  corporations are experiencing an average of over 100 attacks a week.  Organisations hit by successful attacks are losing around $9m each time.

What about the future of cash and cheques and cards?

CASH will continue to be used – informal, untaxed, representing up to 20% of the economy of some nations.  80% of all transactions today in America and Europe are cash.

CHEQUES will decline hugely to become a premium offering – for those that are willing to pay the extra.

CARDS will see huge growth in emerging markets, where they are seen as an aspirational item by hundreds of millions of middle class consumers.  We will see slow decline in use of cards in developed nations as people move gradually to chip and pin, click and pay, and then to using their mobiles as virtual cards.  Card acceptance by smaller retailers in emerging nations will be accelerated by smartphone card readers.

Beyond mobile payments – CLOUD FINANCE

In the longer term, all financial transactions will move to the Cloud.  Mobile, instant, intuitive, painless, biometric, deviceless.

Pay as you go for life – everything we do will be metered, whether insurance based on how many miles you drive and at what time of day, or what you read or what you watch.

This will be a world where any biometric-enabled device becomes your own secure, personal world within a couple of seconds of stroking the screen.  You can bank using anyone’s smartphone, watch your own movie selections on any large screen.

"I am really interested in your thoughts about mobile banking.  Do you trust smartphones? What should banks and telcos be offering?  Post me a message on the form below..."  Patrick Dixon


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Thanks for promoting with Facebook LIKE or Tweet. Really interested to hear your views. Post below.

Otabek Saydikaharov
November 12, 2012 - 17:52

Very interesting article, covering many topics and facts in one place. Here are some facts I am going to add for the European customers’ mobile usage. Recent Bankfutura e-Finance Research’s survey shows that getting access to online banking through mobile devices are more popular among the younger generations.
About 25% of the Germans who are below 40 years old get access to their online banking through their mobile devices. Moreover, the study says that those who use mobile devices to manage their finances are more conscious of their financial conditions and always in financial tracking.

Reply to Otabek Saydikaharov
Patrick Dixon
November 12, 2012 - 17:56

Thanks. Interesting.

Patrick Dixon
November 08, 2012 - 17:38

Mobile banking - what do you think? What are your worst and best experiences? What should banks be doing? If you had a dream App - what would it be to make your life easier?

Join the Debate! What are your own views?


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