The era of mobile banking and mobile payments is dawning. Around the world and across the banking value chain, everyone is waking up to the huge potential of a market that is changing the way customers interact with financial institutions, writes Richard Warren-Tangney, partner: bank audit at KPMG.
Banks are responding to this mobile evolution in a number of ways. Some are getting ahead of customer demands by developing and deploying innovative mobile solutions with an eye towards gaining market share and driving new sources of revenue. Others are waiting for standards to be set and for customer demand to hit critical mass.
In the midst of this fragmented global approach, KPMG International conducted a set of complimentary studies to develop a clearer picture of the current – and more importantly, the future – mobile banking landscape.
KPMG spoke with executives and mobile channel leaders at more than 20 retail and commercial banks, as well as a number of payment processors, acquirers and card services providers. Their interviews were conducted with industry leaders around the world including respondents from Asia, Australia, Africa, the US and Europe.
They augmented their research with an online survey of more than 150 banks and other participants in the payment value chain.
Consumers (and a fair number of bankers) often make the mistake of using two terms interchangeably. However, “mobile banking” refers to platforms that enable customers to access financial services such as transfers, bill payments, balance information and investment options.
A “mobile payment”, on the other hand, is generally defined as the process of using a hand-held device to pay for a product or service, either remotely or at a point of sale.
In large part, the global uptake of mobile phones is driving this new market. At the same time, consumers are becoming increasingly comfortable with using mobile devices to support highly secure and mission-critical tasks.
Indeed, for both retail and commercial banks, the question is no longer whether mobile banking and payments will be important to their business (84% of respondents to the survey say that it will). It is how best to approach a rapidly changing and nascent channel to deliver better customer service, retain market share and protect or enhance revenues.
One of the more daunting challenges is systemic and largely outside of the control of individual banks. But not entirely: banks will be an important partner in the development of standards, the rollout of technologies and the adoption of services.
They will also need to work with new and emerging value chain partners and endorse new revenue-sharing models that properly acknowledge each player’s role in delivering mobile services.
Another key technology challenge relates to security. Recent large-scale security breaches in other industries have heightened public concern and scrutiny on company security policies. While banks and financial institutions are no strangers to security and privacy issues, almost three-quarters of respondents to the online poll suggested that security was their leading concern as they develop their mobile payment strategies.
One trend that repeated itself across the value chain and in every geography surveyed, was the emergence of a core group of ‘innovators’ who, having already deployed robust mobile banking services into the market, were now making aggressive forays into the mobile payments world. However, there is no right or wrong path to creating a mobile solution.
Based on the survey, it would be safe to say that most large banks and many mid-sized banks already offer some form of mobile banking service. In fact, almost two-thirds of respondents to the survey indicated that mobile banking was either already mainstream or on the verge of gaining major traction in their market.
For bankers, there is significant difference between launching mobile services in the developed world and the developing one. According to the UK Department for International Development, more than 2,7-billion people in the developing world have no access to financial services. What’s more, the same study suggests that by 2012, 1,7-billion people will have access to mobile phones but not bank accounts.
For banks that are able to develop easy-to-use and low-technology solutions, mobile banking in the developing world offers massive opportunities and rewards.
“We know there is a lot of money outside of the formal banking sector,” says an executive at one pan-African bank. “We believe that the amount of money involved is huge and any retail bank would be foolish to not play in this area.”
As mobile phone penetration soars across Africa and the pressure increases on banks to “bank the unbanked”, emerging market institutions that embrace mobile banking platforms may have a significant competitive advantage in the drive to increase stakeholder returns.
Views from some respondents included:
* “The step from Internet banking to mobile banking is a relatively small one.”- Western European bank executive.
* “Banks will have to quickly get into mobile banking if they haven’t already.” – Australian banking executive.
* “If you want to distinguish yourself, you need to come up with innovative solutions and mobile is the name of that game.” – Euro zone banking executive.
* “Mobile phone/smart phone applications give us the opportunity to give a very rich customer experience no matter where the customer is.” – Australian banking executive.
* “Everyone on the chain is trying to grab as much of the process as possible.” – Australian banking executive.
* “You don’t want to create something that can’t be used outside of your region.” – European bank executive.
* “Something has to bring players to agree to common criteria.” – UK bank executive.
* “We are locked in a constant battle against those that try to breach our system.” – European bank executive.
* “It’s a challenge to put together a firm business case that doesn’t show revenues until later down the road.” – European bank executive.
* “All mobile banking solutions must be created with the customer in mind. Banks cannot lose sight of their targeted end user segments as they develop their strategy.” – Fred Schneidereit, KPMG in Germany.
* “Once a large number of retailers start to take on mobile payments for retail shopping, you’ll see a mass move to mobile payments.” – European retail banker
* “Mobile services are a great way for banks to grow their middle market and corporate customer offerings, while also expanding their global footprint.” – Mitch Siegel, KPMG in the US