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SIBOS - have banks missed the mobile payments boat?

With a session being held at Sibos today on whether it is too late for banks to compete in mobile payments, I thought I’d revisit a theme I’ve blogged about in the past; banks and their mobile payments’ strategy.

Having spoken to a number of banks about their mobile money and payments strategy recently, it is clear that there is no one standardised approach. Whilst some may be rolling out services, quite a number are lagging behind, waiting for demand to hit critical mass. In these early days of industry fragmentation, the lack of universally accepted standards is scaring some banks into observing developments from the sidelines. However, this also means that those that act now are best placed to benefit from first mover advantage.

The lack of action by some banks is particularly evident in emerging markets. Many banks see mobile money and payments as a developed-market-only play. A frequent comment I hear, particularly from international banks, is that the unbanked aren’t for them. But are they correct in that thinking? From a developing market perspective, what’s in mobile money for the banks?

Of course the emerging markets aren’t just about the unbanked - there are millions of existing banked customers too. However, considering the unbanked segment for a moment, the first thing to say is that unbanked doesn’t equate to unbankable. Just because today someone is not being reached financially by existing banking infrastructure doesn’t mean that they aren’t in need of affordable financial services, or that they won’t be reliable customers.  It should be noted that the cost of commercial and financial transactions for the unbanked is far greater than it is for the banked, which implies that more can afford formal financial services than is generally accepted.

If we examine the forecasts predicted for mobile money within developing markets -  4.5bn mobile subscriptions within five years, 80% unbanked and one in four using mobile money – that equates to almost one billion potential new customers moving billions of dollars every year. Even if we say only a percentage of them are bankable that is still a significant opportunity. For local banks especially, the lower cost of delivery through mobile will make a whole new customer segment profitable to serve.

Existing banked customers will also demand that mobile payments are offered to them as a service. If they aren’t then those customers will gravitate towards those financial service companies that will offer them. As per the unbanked, delivery of financial services over the mobile channel also makes existing customers more profitable to serve.

Banks needn’t rush headlong into offering all services via mobile at once. Basic person to person (P2P) transfer and bill payments, as are commonplace in some developing countries today, could be first to be rolled attract a critical mass of customers to use the service. Then banks can quickly move up the curve to offer more value added products, such as savings accounts, loans, insurance etc.

The technical solutions between developing and developed markets will be different. In developed markets, the solutions will be smart phone and NFC-based linked to existing bank accounts, whereas in developing markets it is more likely to be mobile-wallet based. For the bigger economies in Asia with a marked division between urban (developed) and rural (developing) areas, you are likely to see hybrid solutions, with NFC in urban areas and wallets in rural areas. Banks will need to have complementary strategies for both. As NFC technologies become cheaper and more ubiquitous in the years to come we will see these solutions beginning to merge.

In short, it is not too late for banks and financial institutions to make a play in mobile payments. The card payment companies are much further advanced with their strategies, as blogged about last week. It is still early days for the industry and there is no standard operating model - if the banks act fast and play to their core strengths they can make a big contribution to this nascent industry. With the financial crisis, ongoing economic slowdown and stringent new capital requirements eating into their profit margins, mobile payments offer banks one of the few revenue growth opportunities out there at the moment.

Killian Clifford
Mobile Money Consulting



Comments: (5)

John Dring
John Dring - Intel Network Services - Swindon 23 September, 2011, 09:28Be the first to give this comment the thumbs up 0 likes

Killian, I like this clear blog.  But you don't mention the Mobile Operators who are similarly scrambling to establish their position in the mobile payments value chain.  Some are collaborating to set regional (or global) wallet standards and many are cooperating with those Card Payments companies you mention - notably Orange/Barclaycard/Quicktap.

NFC is still the domain of the POS terminal owners (Banks/Card companies) - replacing millions of those things takes time and investment.  PayPal have their ideas about competing in the retail outlet, but my guess is it will take ages and adoption will take time.

When Google moves (Google Wallet) then everyone sits up, but this also has a long way to evolve - it'll still be a long time before you leave your physical wallet at home until more cards can be virtualised.

I think the Banks lack of innovation stems from the long issue of dominance and the high barrier to entry to change that.  They still believe the castle is secure and can defend it.  Until someone decides to simply walk around them and take over the landscape instead.

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 23 September, 2011, 16:37Be the first to give this comment the thumbs up 0 likes

Banks who've missed the mobile payments bus / boat should probably count themselves the smart ones, going by this recent American Banker article titled "Mobile Payments Very Unimportant to Consumers' according to which:

  1. Banks and their partners could be wasting money developing mobile wallets...
  2. ... the convenience of traditional credit or debit cards is hard to beat.
  3. It's not easier, faster, better, more helpful to pay with your phone than to take your wallet out.

Ah, what relief to know that I belong to the majority! Zong, Boku and other MNO-billing based mobile payments are truly disruptive but they're far from mainstream. The myriad m-wallets hogging the limelight use the same bank-issued cards and I honestly fail to see how adopting them is so different from chucking one leather wallet and moving my cards to another leather wallet. 

Killian Clifford
Killian Clifford - Mobile Money Consulting - London 26 September, 2011, 15:58Be the first to give this comment the thumbs up 0 likes

For the billions of unbanked, using credit or debit cards just isn't an option. Mobile is the only feasible delivery channel for payments here. And in the developed world increasing numbers of customers will demand it, especially more youthful segments

Ketharaman Swaminathan
Ketharaman Swaminathan - GTM360 Marketing Solutions - Pune 27 September, 2011, 11:09Be the first to give this comment the thumbs up 0 likes

Somewhere along its hype cycle, we've seen mobile payments getting linked to the unbanked. If the situation in India - home to at least one of the 3-4 unbanked billions in the world - is any indication, this link simply doesn't exist. According to current regulations in India, mobile payments can only work off of bank-issued credit / debit cards, and are, therefore, not available to the unbanked who have no bank accounts. While things may change in future, this is the current situation in the mainstream. 

Killian Clifford
Killian Clifford - Mobile Money Consulting - London 03 October, 2011, 15:37Be the first to give this comment the thumbs up 0 likes

CGAP make these points, plus a few more, in their interesting study here

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