In my previous post, I briefly covered the MNO led mobile payment methodology. While the ecosystem is quite complex, there are but three players (MNO, Payment Network, Banks) each of whom have the potential to be a dominant player in this arena. Let’s now look at the scenario wherein the financial institutions or banks would be leading the way in the mobile payments space – Paradigm #2.
The financial institutions have been active in this space and for obvious reasons. But it’s not mobile payments that they have been active in – they have been active in mobile banking. There’s a difference between these two terms. Mobile banking allows customers to essentially access their bank accounts, check balances, transfer funds and essentially mimic (in a rather truncated manner) what a customer would do while banking via the internet. For the more complex transactions such as taking out a loan or adding say a family member to an existing account, one would need to visit the bank. Access to customers bank accounts could be performed by either using a mobile browser or a bank supplied app.
Mobile banking is not yet prevalent even though many banks, financial institutions and even credit unions offer this feature. While the mobile phone is great for games, entertainment content, browsing, apps etc, customers in the US are still not very comfortable in using the mobile phone to access their bank accounts. On the other hand, mobile banking has achieved remarkable success in parts of the world such as Asia and Africa especially with the unbanked (this deserves a separate post – coming soon!). That said, banks in the developed world don’t want to caught in a situation wherein, if demand for such features were to surge, they don’t want to be scrambling to get an app out of the door. So, most banks worth their salt are investing in extending their IT presence beyond their lockers.
But are these banks interested in mobile payments? There are multiple reasons as to why banks are interested in mobile payments.
Mobile banking is currently enabled by either SMS, the mobile browser or a by a custom app. Mobile payments on the other hand is enabled by technologies such as NFC (companion or embedded), SMS, maybe BlueTooth, Infrared, dongles, or Voice (niche technology). For a bank to get into the payments sphere, it is obvious that there needs to be an intersection of the mobile-banking and mobile-payments spheres from a technology standpoint. And that is certainly a challenge for the financial institutions whose core competency is in managing our monies (or so we hope) and not in driving technology revolutions.
There is another angle that I would like to introduce (to circumvent the technological hurdles among others that the banks face in this paradigm), which is M&A or JV’s with MNO’s or Payment Processors. In Japan for example, a MNO has successfully entered into a JV with a bank. Case in point, is mobile operator KDDI’s partnership with Bank of Tokyo-Mitsubishi in 2008. Other MNO’s viz. SoftBank and NTT DoCoMo joined this partnership and this ‘bank’ is now called the Jibun (“My Friend”) bank. Jibun bank offers a full suite of banking (account opening, fund-transfers, loans, insurance products, financial planning tools etc) and payment services (fund-transfers, bill payments, e-money etc). In addition mobile based banking functions are also offered by this consortium.
Along the similar lines (This is actually MNO led – Paradigm #1), in South Korea SK Telecom purchased a 49% stake in Hana Financial Group for around $350 Million and as a consequence the Hana SK Card Company was formed. The new company has integrated credit card issuances and card management with the MNO to provide a NFC based mobile payments system. The goal of this strategic partnership is to essentially provide customers with a mobile phone based credit card system using NFC. In South Korea, mobile phone have achieved close to 100% market penetration and SK Telecom is the share leader with more than 50% of the MNO market. So, here we have a situation where an MNO and Payment Processor has joined hands to provide value to the end-user.
In the U.S, a MNO acquiring a bank or vice-versa is probably not going to happen due to regulatory issues, customer perceptions and the like. However, JV’s with multiple financial institutions could certainly happen. Such deals will allow banks more flexibility in launching their apps over MNO networks. While I do bring up this angle, I don’t see this scenario playing out any time soon.
Banks have other challenges as well. With apps, they are essentially extending their IT edge to the mobile world. This has a lot of risks.
- Banks will need keep up with various operator networks (4G, LTE, CDMA, GSM etc etc)
- Their apps will need to refreshed as new OS’s are released while at the same token be backward compatible.
- Integrating their apps with NFC, Infrared or Bluetooth technologies – one of which may prevail in the end. It is quite conceivable that some of these technologies may co-exist for some time – creating additional headaches for the banks.
- Security ! One adverse incident could be a PR nightmare. And once customers realize or even perceive that these apps are insecure, they are going to vanish into the woodwork.
Banks or Financial Institutions certainly have their work cut out for them, should they decide to take a dip into the mobile-payments waters. While, I do bring this up as a potential mobile-payments paradigm, I don’t see this taking root.
Do you see this differently? Feel free to join the conversation.