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Sai Kumar Jayanty Product Strategy, Finacle Infosys writes of the need to mobilize financial services
Amidst Yankee Group’s estimate of 500 million mobile banking users by 2015 and other even more optimistic projections, mobile banking is one of the hottest subjects in the financial services world. But now there’s another talking point, namely, mobile financial services.
This is not a brand new idea. For some time now, the mobile has been much more than a device of communication; for many industries it is variously, a marketing channel, a gaming device, a locational tool, and a purchasing mechanism, among other things. It is high time that the financial sector caught up by embracing the mobile channel not just for banking but rather in all transactions including wealth, investments and financial products & services. That is where the future of banking lies.
Favorable trends
The good news is that there is a mobility tailwind to help banks along. It has been estimated that by the middle of 2011, there were nearly 6 billion users of mobile devices, including feature phones, smartphones and tablets. 2G mobile connections are now accessible to 90% of the world’s population, and 3G to about half that number. Today, mobile broadband subscriptions are twice as many as those on fixed broadband and have, in fact, replaced fixed line broadband in developing countries to become the sole mode of broadband connectivity.
All these statistics point to the widespread usage of mobile phones and other mobility-enabled devices for purposes other than voice calls. This trend is also visible in financial services where, globally, purchase and payment habits have changed to open the doors to mobility. Another opportunity for mobility can be found in the usage of the mobile to promote micro lending and financial inclusion among the underbanked.
In preparation for Banking Next, large banks are responding to these trends by investing in next-generation mobile solutions and consolidating their mobile technology platform for enterprise capability. The others are following their lead, focusing particularly on providing their customers the ultimate mobile experience built on triple play, back end integration and turnkey offerings.
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With mobile banking fast maturing, the industry’s focus has turned towards mobile payments and commerce, which are estimated to reach $1 trillion and $119 billion respectively by 2015. These numbers appear to be borne out by the higher incidence of mobile commerce at Points of Sale, the mobilization of even traditionally branch dependent services, such as Wealth Management, and the growth of Mobile Remote Deposit Capture (to deposit checks via mobile) and Mobile P2P (Person to Person). Further, the following forces are changing the game for Banking Next.
- The mainstreaming of the mobile: According to Berg Insight’s Marcus Persson, “Mobile handsets are in an excellent position to become the primary digital channel for providers of banking and related financial services in emerging markets.” As the mobile continues its march towards becoming a mainstream channel of banking, it will marginalize others, compelling banks to reevaluate their channel strategies and business models.
- Location awareness: Banks intent on reaching their customers’ doorstep can gain a valuable ally in the locational capability of mobile technology. For instance, if they track down a customer’s mobile to an car dealer’s showroom, they can immediately send him a text message with a proposal for a car loan.
- The mobile as a wallet: Thanks to the mobile wallet, banks can even participate in transactions performed outside bank accounts, for example, by enabling a mobile phone-using non-customer to withdraw funds stored in his mobile account from an ATM or branch network, or acting as an intermediary in his mobile purchase and payment transactions. Or they can collaborate with a service like Google Wallet to include their credit cards in that application, or tie up with various merchants running coupon campaigns over it.
- The mobile as a means to customer authentication: With an increase in transfer of funds and remittances using the mobile via wallet accounts, banks and financial institutions can consider mobile as a means to authenticate customers who are doing financial transactions. For example, a customer sending funds to a non-customer who would withdraw these funds via ATM or agency network or a branch network can provide his mobile number as a means to authenticate himself, given that this mobile number would have to be registered by the customer at their bank.
Mobility and Banking Next
With so many factors in favor of mobilization of financial services well beyond banking, banks are on the threshold of the next stage of banking. Their first goal: to serve the niche segment of customers willing to conduct a majority if not all of their financial business over the mobile, with only a rare visit to any other channel. However, in order to get there, the banks need a unified secure and scalable enterprise-wide platform capable of supporting the whole gamut of financial services including but not limited to retail and corporate banking, payments and commerce, wealth management, CRM, microfinance and value-added services, such as ticketing and air time top up. With the emerging trend of banking at the customer’s door step, banks can conveniently avail the facility of mobility-based financial services to distribute financial products and deliver financial services at the doorstep of the customer.
These is a tall order, which comes with several challenges:
- Realization of synergies between partners: In many countries where mobile payments have succeeded, the line between the financial and telecom player have been blurred. In Africa, for instance, it is the mobile carriers who have taken the lead in offering mobile wallet services to customers, stepping into banking territory, so to speak. On the other hand, when financial institutions attempt to influence mobile usage by treating it as a channel of delivery, they are transgressing the telecom preserve. The truth is that mobility in financial services works best when all the participants—banks, mobile carriers and merchants—operate in close collaboration.
- Co-operation is a win-win for all: Banks gain a low cost channel of reach and delivery; mobile operators benefit from higher network usage and revenue sharing opportunities; and merchants profit through business growth.
- Arrive at the right positioning: Financial institutions also face an internal challenge in how to position their mobile financial services offering. Should they treat it as a profit center or a customer retention tool? At the same time, they should explore how the mobile can improve overall resource utilization by reducing/substituting some of the resources dedicated to other channels.
- Improve consumer adoption: Despite the high penetration of mobile and mobility devices, the growth of mobile banking/financial services continues to be slow. The major reasons for this are concern regarding the security of mobile transactions, and the inconvenience of performing lengthy operations over a small screen. While the emergence of tablets has addressed the latter to a great extent, banks need to continuously educate their customers about their security mechanisms, and the overall benefit of switching more transactions to the mobile channel.
- Improve customer connect: While customers from developed markets would rather use the mobile financial service offering from their bank than one from a mobile operator, it isn’t necessarily the case with those from the underbanked world. In fact, in countries with a large financially excluded population, many people have no banking relationship to speak of, but do have a mobile subscription; therefore, they are quite willing to try a financial services offering from their carrier. This poses a dual challenge to banks; firstly, to convince customers to use their services and secondly, to compete with mobile operators while collaborating with them.
Taking banking to the workplace as in “workplace banking”, mobility driven financial service offering would only narrow the distance between the customer and their bank. Imagine the convenience of banks operating at the workplace of their customers in delivery financial services.
What Next
Banks which are hoping to successfully employ mobility in their march towards Banking Next must first adopt the right strategy. In the past, many have mistaken mobile banking as the next version of Internet banking, and consequently, applied the same strategy to both. It is now clear that the two are distinct channels with very different usage expectations among banking customers and, hence, need to be approached differently. As part of this strategy, banks must identify those customer segments that are most receptive to mobile financial services, and target them first with their mobilized offerings. This has potentially two benefits: the banks can test the waters and correct course if required, and the experience of early adopters might encourage other customers to follow suit.
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