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Mobilisation - The Art of War in Transaction Space

I look around and see a lot of money in the payments business, both to be made and being invested. It's obvious we aren't seeing the killer application out there yet but the market is heating up. I see KKR's move into payments through First Data and Western Union as having some potentially big upside. It may be the hedge against any potential loss in their card based transaction business.

First Data's payment guru, ETA Distinguished Payments Professional Award winner Ed Labry has said "Cards are going to be there. If anything is a threat to cards, it’s the mobile phone."
He's right about the threat of course, and if anything is a threat to KKR's $29 billion 'Tech Deal of the Year' - it's that someone else will come up with the penultimate mobile transaction system first. Cards may not cut it in 5 years. Some banks are looking at ways to retain/regain the transaction.  Banks setting their sights on proprietary systems may be left behind in the battle for ubiquity.
Ed was heard to say "Now, mobile commerce means a lot of things to a lot of people, but it could be loyalty marketing, it can be prepaid, it can be money transfer, it can be transaction processing and it can be your wallet. So it is not a matter of 'if' mobile commerce will take off, it is a matter of 'when'.”

It might also be prudent to consider whether consumers want to deal with a different provider for every action. There's a limit to what you can run on a phone and the more you install the more chance of something going horribly wrong for example - see Windows.

The lowest cost, easiest and safest for the largest number of mobile users will attract the most consumers, it’s only a matter of time.

Privacy And Safety Are Essential For Longterm Success

98% of customers are used to a pin based system and any mobile processor is forced to either provide that or provide something easier. This is why the mobile phone companies are sticking 'smart chips' into phones and coming up with terms like 'near field communications', which translates to ‘not quite smart enough cards’ strapped to phone with disguised smart card readers.

Looks like and smells like 'smart cards' and Ed points out "We have had several attempts— —several failed attempts—in the industry with the smart card; however, the lack of readers on the retail level combined with the costs of replacing cards makes for a significant barrier to entry.”

The reason some mobile manufacturers have made the chip move is because the predominant phone system isn't really secure enough to be sending a PIN and to get even a little bit secure, you have to use java in the phone and encrypt all data. Encryption is fat and uses a lot of Telco's network traffic with little gain for them in an area they once dreamed of owning. Java isn't always secure and hackers can get into phone operating systems and software that people download and install on their phone.

The mobile phone as a transaction mechanism must not become another PC fiasco where we all lost our data, privacy, ID and money in the first two decades. The Telco's don't want that, the transaction processors don't want it to happen either, yet we see several strolling down the same path to immeasurable risk. At the moment there are not enough mobile banking users to attract serious criminal attention as has happened with PC based banking. We can substitute 'get attacked' in Ed's expression  - So it's not a matter of 'if' mobile banking get's attacked it's 'when'.

'Smart Cards' and 'Smart Phones' are marketing department 'inventions' not technical terms or IQ  test results - remember that. Don't just 'cross your fingers' and hope for the best along with the rest.

Make very sure that you understand the importance of the risks to your business and  reputation as you step onto the mobilisation money train, it could always end in a wreck.

Technological Approaches to Mobile Banking

We were looking for something different out there as most of these techniques have been around for years and don't make any more sense than they did when they first appeared. The main 'solutions' use one or a combination of these approaches:

  • Old fashioned 'talk to the operator' banking - just ask Barclay's Chairman Marcus Agius how well that works and he'll give you 10,000 reasons not to rely on that. Here are a few more:- potential for ID fraud, insider fraud, spoofing, eavesdropping, social engineering.....and just too expensive to be competetive.
  • Voice recognition IVR and Tone PIN entry - slowest, expensive for both processor and consumer, unpopular, varies from totally insecure or not very secure, limited application and not ubiquitous.
  • SMS - Slower and more expensive for transaction processor and consumer, insecure, not compatible with customers with less than perfect vision or dexterity, and with limited applications. Ubiquitous.
  • SIM Card - the application code is written into the SIM card by the Mobile Operator and it's their 'real estate' to quote the GSMA. There'll be rent to pay and you'll never own it. Proprietary, and usually restricted to that Mobile Network Operator , Security is totally dependent on the operators efforts. Popular in India where every Telco is trying to be a 'banker' - not ubiquitous.
  • Java - Slow for user, more expensive for the consumer, insecure, varies among phone manufacturers, uses PIN, must use encryption, software issues including hackers, viruses, updates, fixes - not ubiquitous.
  • USSD (Unstructured Supplementary Service Data)- Simple, ltext based low cost and functional but insecure and needs co-operative Telco's and uses PIN, total dependence on the goodwill, security and expertise of your mobile network operator partner(s) and renting MNO 'real estate' - not ubiquitous.
  • Strap-on 'Smart Card' - needs special readers, not exactly secure, proprietary, often carrier or bank specific and uses PIN. What happened last time you let someone near you with a strap-on solution? Restricted to low value transactions in test deployments, you can guess why. Not ubiquitous.
  • Mobile phone internet banking - expensive, limited service and coverage, poor security (ala internet banking), and requires premium mobile internet access . Vulnerable to attack on both the mobile network and the internet and higher risk- not ubiquitous.
  • Ubiquitous - Only one unique approach offers easier, faster, security and improves privacy by incorporating a 'trusted third party' to enable anonymous trusted relationships and prevent insider fraud and ID theft even without using a PIN. The basic service is compatible with every mobile phone model and carrier at low cost, suitable for more transactions and integrating into more interaction processes. No dependence on Telco 'real estate', handset manufacturer or software on the phone, while being able to take advantage of advanced features and services if available to the subscriber. Merchants may be keen to adopt this transaction system because it relieves them of the risk of storing consumer card or personal data. Consumers find it attractive too. Ubiquity of purpose and application. Patent issues preclude saying more.

Ask Telco's the Right Questions

If the Telco's have such secure networks then why do they block subscribers from roaming to prevent mobile phone fraud?

They don't even trust each other, otherwise we would have had global roaming that actually worked long ago. 

Consider carefully any Telco intial low rent 'real estate' deals that might not last for ever. Remember that most Telco networks provided 'free' SMS until it was popular and now charge their 'hooked' subscribers up to 25c per message giving a new meaning to 'user pays'.
Telco's are unlikely to recommend any solution which does not require dependence on special features of their networks or renting their 'real estate'.

Where have Telco's been on internet security? Buy this 'addon security' for your customers is not what you want to hear in a few months time, when you've spent millions in a competitive market.

Examine the risks of making every Telco a 'trusted third party' in your transactions. 

Potential Surprise Winners

The Telco’s will get a bonus through another un-involved winner - the broadcasters and cable networks.

Why? - because we'll see the mobile phone transaction morph quickly into the easy way to buy or order and ask for information, straight off the TV or Radio. Consumers will decide the way they want it delivered, and privacy will be paramount.
Mobilisation means a whole lot more than Ed mentioned.

Advertisers will smile as they pay to have their product sold, payment collected, and their messages exposed to willing consumers, uncluttered with competitors in search listings. Telco's will benefit when advertisers pay to transmit their personalized message in response to consumer requests.

Broadcasters have squabbled for too long, like the record companies did in the nineties, and now it's going to be done ‘to them’, not with them. Unlike the record companies the broadcast networks will still get major benefits through demand for advertising which provides advertisers with measurable return, but broadcasters will remain in their present role, out of the transaction.

Telco's could equally end up like the record companies and that is why they are getting together, but are they capable of coming up with the most appealing solution? They've been around for a while and they haven't been too promising so far.

The Battle

KKR investment Western Union has formed an alliance with 700 Telco's who don't quite have the answer yet on how to deliver a truly ubiquitous mobile payment system to their client base of 82% of global mobile subscribers. If they get it right, look out!

The race is definitely on to be the dominant payment mechanism for the next century. Paypal is driving hard as an early player. They have a large virtually captive customer base in Ebay, but Ebay's competitors are unlikely to fall in love with Paypal's solution. Google and Amazon are at it doing their own limited thing at the moment. Maybe there's even a place for 'Cloud Computing’ in the mix. I predict limited results with high risk of failure.

Will Citi create a mobile presence with a mobile present? Free phones are a viable option already. In developed countries they have become disposable fashion items so reliance on a particular handset or free giveaway is not an option - except for the underbanked!  Developing nations are a great place to start giving away $20 mobile phones and build loyalty.

Many banks are moving on mobile transactions generally aimed squarely at their existing customer base. 

Merchants want one ubiquitous method for all their sales, virtual and real, and it has to reduce fraud losses and reduce exposure to data loss and data security obligations. The lowest cost will get their support, but the lowest risk of loss will get their business. Transaction costs are fairly low, and larger online merchants can best increase net by experiencing lower losses, more effectively than lower transaction fees. Bricks and mortar merchants will embrace both.

The choice of mobilisation interface will ultimately be made by the customers. It will be global.

The First World Consumer

Western Union needs a winning mobile transaction system for their international money transfer and payment system. KKR have a very smart woman at the helm of WU and if you want your service to transact the wallets of families you better cater your system to mum - because she does most of the buying. If WU want to get their message to women they have former president of Avon North America, Christina A. Gold.. Women also run the purse in many third world cultures.

Keen mobile phone users, women are generally more conservative about their identity outside familiar circles and that circle seldom includes the guy at the convenience store, service station or supermarket. For many purchases women would be quite happy to remain anonymous, especially in unfamiliar territory. Women are unlikely to happily spend their time twiddling gadgets and fishing for doo-dad's in their handbags while standing in bright lights in a line of strangers. A surreptitious press or two on their mobile phone could be all that is required. No EFTPOS keyboard under the glaring eyes of the cashier, and camera, no photo ID or germ spreading finger scanner - just a press of her own phone. Perfect - if you had it.

Men are generally lazy and hate too many things in their pockets and will happily accept any reliable, easy and fast transaction service especially if it means they can forget their wallet on purpose. They love gadgets and personalisation and of course it won't be long before they want 'enhancements' which provide further opportunities for both transaction processor and Telco. Men invariably carry their mobiles – especially single men.

Health Care 

Health care providers will benefit from streamlined ID and payment, better secure record sharing and save time. Patients will get better care.

Government - Infrastructure or User Pays

After a few attempts at foisting their own misguided ID solutions on unwilling citizens, governments will benefit from cost savings in every area through mobilisation. Government ID management and verification must be easy, ubiquitous, preserve privacy and be fast. It has to be scalable to include biometric data like pictures, voice print, etc. where required, rather than as a matter of course.

The right solution will deliver happier, safer citizens, increased uptake of on-line interaction with government, more compliance, less fraud and provide a better customer experience.

Be imaginative - there's no need to carry your license, just carry your phone and you can prove who you are, and that you are licensed driver, in seconds.  Even Bill Gates has pushed the idea of the mobile number as ID , but sorry Bill, you won’t be known by your phone number, it's a little more complicated than that and we're not impressed with your company's performance so far with security.


You can prove to the merchant that you're someone who can pay even if the merchant never knows who you are, or any information about you and not leave a trail of ID accross the countryside.

All consumers will enjoy the experience of an easier, safer interface to buy on the internet and in the street. A ‘friend’ who’ll remember information for them, or add something to their shopping list or cart, and they'll be rewarded with talk time or chat - or education.
Everyone will benefit from having their identity safely in their own hands and 'sharing' it less intrusively.

The Race Is On And The Transactions Aren't Just Financial
The banks could end up having it ‘done for’ them, not quite like the record companies at the onslaught of the internet, but mobilisation might leave a few feeling the same.

Loyalty is worth a lot, how do you reward your customers for mobilisation beyond giving free minutes and SMS?

At the end of the day any real bank has to have some real depositor's funds.

The winner stands to command a service platform which underpins most financial and information transactions in the 21st century. The right structure and approach might even reach the great unbanked and really take the flag by adding trillions of dollars to the banking pool.

Isn't that enough incentive to provide the other benefits mobilisation can bring to the billions without education, information or any financial infrastructure? Loyalty- there's an opportunity here folks. The more it means to people the more loyal they'll be.

The rewards can be endless and include peace, trade, profit and if I can ID myself to banks, merchants and governments with my phone can I use it to vote too?

The Finish Line 

Will it be 'WU and the Telco tribe' mobilizing the world’s wallets, immigrant money transfer and the unbanked or  'Paypal and the Powersellers', the 'Google clique' or the 'itty CITI phone' ? Other options could be an aspiring global like Santander, an AsiaPac team or could it possibly be a union of banks? I haven't mentioned the Amex's, Visa and Mastercards because cards will soon be 'passe' and they're not really trying anything visionary yet.

'Ownership' of the consumer's mobile will take more then free phones, funky transactions or a well-known brand and could be rewarded with unprecedented loyalty, but only if you do what it takes to really 'own' it.

The decisions banks make will determine the field in the next decade, a global approach has the only possible chance of success in the long term and may reduce the number of players on the field, so non-globals will have to be team players. Mobilisation will be the greatest influence on globalisation of the retail banking sector since trade and tourism.

Can private equity and internet upstarts beat the banks to it while they’re hurting? I see a lot of potential for win-win-winners here but who will they be?


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