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Editor’s blogFebruary 16 2015

The winners and losers of the mobile revolution

Many predict that banks will be the losers in the race to corner the mobile payments market but, what they may lack in innovation, these established institutions make up for in experience and scale. 
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Who will be the winners and losers of the mobile payments revolution? Will it be banks, telcos, tech heavyweights such as Apple and Google, or fintech start-ups? The favourite view of many tech analysts is that the banks will be the losers. This is based on the idea that they are lumbering giants, burdened by regulation, incapable of innovating due to internal bureaucracy and lacking the market savvy of tech firms.

While some of this may be true it does not tell the whole story, and the outcome is likely to be a lot more complex than the simple idea of ‘bank loses, tech firm wins’. For a start, some of the largest banks are managing to push innovation through their systems. HSBC, for example, has taken great strides in using social media to connect with customers (see this video) as well as with its corporate mobile offering, with firms prepared to pay for improved collection (The Banker’s March issue will include an article on ‘making money from mobile’).

On top of this, there is the reality that the business models of a lot of fintech start-ups and small online banks are a long way away from being viable. Usually fintech entrepreurs wax lyrical about their technology and customer service, but everything gets a bit hazy when they are asked to give a date for making a profit.

Many of these start-ups will fail although their ideas may live on – most likely within big banks. For although banks have limitations in terms of innovation they have the firepower to buy in the ideas from outside. BBVA’s purchase of US digital bank Simple last year is an example.

Or, it may be that the banks work together both among themselves and with tech companies, as is envisioned with mobile payments innovator Zapp in the UK.

The worst scenario for the banks is if companies such as Apple and PayPal manage to corner the customer interface while leaving the banks to do the processing. But the chances of these companies turning themselves into banks and taking them head on seems remote. It would mean getting encumbered with the same regulation as the banks and with obvious risks to their reputation.

So banks have a lot of opportunities to stay relevant and mobile banking provides them with the best opportunity of all as customers with a banking app will literally carry the bank around in their pocket. But here they risk being beaten by telcos if they do not move fast enough. This was the case with Kenya’s M-Pesa scheme, which now serves half the country's population. In Myanmar, Norway’s Telenor plans to work together with a local bank to roll out mobile payments in a country that is underserved in terms of both bank branches and land lines (also in the March issue of The Banker).

So, banks may not be able to win the payments revolution entirely on their own but positioned and partnered correctly there is huge upside for them. Reports of them being made irrelevant by tech and telcos are much exaggerated.

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