The use of mobile phones for banking and payments is growing worldwide, nowhere more so than in the rural areas of countries untouched by traditional banking channels. Stephen Timewell and Wendy Atkins report.
Not so long ago, people walked around the City of London with telephones the size of bricks pressed against their ears; the mobiles were considered to be at the cutting edge of technology. While they were shouting into these cumbersome devices with very poor reception, their colleagues in emerging economies were still struggling to use even more limited telecoms technology. Since then, mobile phones have become smaller, more powerful and more feature rich.
But much more than that, this decade mobile phones are fast becoming ubiquitous and their impact is being felt even more dramatically in emerging economies that are not necessarily accustomed to technologies that work easily and can perform a variety of functions. The use of mobiles for banking and payments is transforming lives and economies, especially in the unbanked and rural areas of many countries without branches and other traditional banking channels, such as ATMs, fixed line telephones and the internet.
The World Bank noted last year that, with three billion mobile handsets worldwide, there are now more mobile than fixed phones and about 70% of the developing world’s population – more than 50% in sub-Saharan Africa – live within the footprint of mobile phone services. Mobiles are dramatically changing what can be done and who can do it.
Payments issues
While mobile numbers have been growing exponentially, mobile payments have had a chequered history. Simpay, a mobile payments company established by a consortium of European mobile operators in 2003, closed down in 2005. “Despite the patchy and limited success of the various mobile payments initiatives of recent years, mobile still has a significant potential as a delivery channel for payments and banking services,” says Francesco Burelli, principal consultant at London-based Capco. “The lack of interoperability across mobile operators and lack of critical mass beyond small defined geographical markets or specific value propositions has limited the development of mobile payments to date.”
Nevertheless, Mr Burelli is optimistic about the prospects. “Recent developments from the international payment schemes, migration to EMV [a standard for interoperation of chip cards, for authenticating credit and debit card payments. The name comes from the initial letters of Europay, MasterCard and Visa], growth of pre-paid, early developments of proximity payments are all factors that will enable wider adoption and growth in the next few years. The future of mobile payments is yet to be defined but the recent changes in the market should be sufficient to push this channel beyond the tipping point of development, with potential and appeal to the wider public.”
Mobile banking and payments are starting to take off, with emerging markets often taking the lead. “The advantage of mobile banking is that you can get to scale quickly,” says Michael J Redding, director of development, Accenture Technology Labs. “As a critical mass of phones is achieved in every market, so you can have a more rapid uptake. However, in the developed world most of the population is already happy with using standard retail outlets and internet banks, which means there’s only a limited need in these markets for mobile banking to cover the very small part of the day when a consumer isn’t near a computer or close to a bank in a town centre.”
In place of cash
Management consultancy Booz Allen Hamilton has found that in countries where most retail sales are conducted on a cash rather than card basis, but have high mobile phone usage, phone-based payment systems have a strong possibility of success.
“The Middle East has a high mobile phone usage,” says a vice-president Karim Sabbagh. “A phone-based payment system that simply replaces paying by cash and other electronic means could be popular in this region.”
Banks, credit card companies, handset manufacturers and telecommunications companies in the Middle East could achieve sweeping success with the right innovative co-operation model. All stakeholders have a vested interest but concerns exist over creating the right co-operation model. Although some individual models have failed, some in Japan are showing that co-operative ventures can succeed.
In a short period Japan’s NTT DoCoMo and Sony have established a simple device-based mobile payment solution. Sony FeliCa contactless chips have been integrated into mobile phones, enabling payments to be made by phone in the many shops fitted out with a FeliCa chip reader. At the end of 2004, only five months after the start of the service, the providers already had a million service users. By the end of 2005, it was more than 10 million.
Several business models for mobile banking deployment are now emerging, driven by regulatory and competitive pressures around the world. While banks are strongly promoting cashless payment transactions using technologies such as mobile phones, others are also seeing the advantages. “A mobile phone-based payment system, if successfully implemented, gives credit card companies, and telecom carriers another possible revenue stream,” says Ghassan Hashani, principal at Booz Allen Hamilton. “And it is a revenue stream that could be highly lucrative.”
In the Philippines, the two big mobile phone companies, Smart Telecom and Globe, offer mobile banking. “Between Smart’s Money and Globe’s GCash, around five million registered users have been signed up, allowing them to make transfers and payments. A certain chunk of those are lower income people,” says Mark Pickens, microfinance analyst with the Consultative Group to Assist the Poor (CGAP) at the World Bank.
“The market here has benefited from consumers being very technically savvy. A large percentage of Filipinos have a mobile phone – even in the low-income customer segment – and text messaging is popular. Filipinos send more texts per day, per user than in any other country. The estimates we’ve received are as high as 15 per day, so Filipinos are very familiar with manipulating their handsets, and the interface with mobile phone banking draws on this familiarity.”
Joint ventures
In South Africa, only banks are permitted to take deposits, so mobile phone companies that want to be in the mobile banking space need to enter into joint ventures. One such venture is MTN banking, which is operated by mobile telecoms firm MTN and Standard Bank.
Banks can also do it themselves, as First National Bank (FNB) decided when it launched FNB Cellphone Banking in March 2005. FNB says it surpassed 160,000 registered users and broke even within 10 months. It says it has posted 1.8 million transactions valued at R200m ($28m) since inception, with transfers dominating transaction values at 46%, followed by prepaid purchases at 28% and payments at 26%.
Mobile banking also opens opportunities for some entrepreneurs. WIZZIT is a mobile banking service that targets the low-income, unbanked market. It was conceived by a group of entrepreneurs and now operates as a division of the South African Bank of Athens. According to a recent survey by CGAP, nine out of 10 WIZZIT customers said the service it offers is inexpensive, and three-quarters said mobile banking is closest to their ideal way of doing banking because it is cheaper, faster and safer than branch or ATM channels. The study also confirmed that WIZZIT’s transaction banking service is on average one third cheaper than a comparable account offered by one of South Africa’s big four banks.
In the Democratic Republic of Congo, the mobile phone based service CelPay records 500,000 transactions per month. “We’ve been told that the amount of money in these CelPay accounts is more than all deposits in the entire banking sector. Perhaps this isn’t too surprising: there are just 30,000 bank accounts in the entire country, but more than three million mobile subscriptions. Mobile phone banking looks very promising in countries like Congo where the banking sector is very underdeveloped,” says Mr Pickens.
Africa sets the pace
Africa has the fastest growing mobile market in the world. The continent’s subscriber base grew by 66% in 2005 to 135 million users, compared with growth of just 11% in western Europe during the same period, according to African Mobile Handset Market Analysis. In Kenya, mobile provider Vodafone has developed the M-PESA mobile banking system in partnership with local network provider Safaricom, Commercial Bank of Africa and Faula, a local microfinance organisation. M-PESA allows customers to borrow money, check accounts and transfer money using their mobile phone.
Vodafone CEO Arun Sarin notes: “M-PESA, if successfully managed, could provide banking services to millions of people who otherwise have no access to conventional retail banking.
“It is also of benefit to the banking industry as it offers a cost-effective mechanism to access a new marketplace.”
In the developed world, the conflict between mobile operators and the banks led to failures such as Simpay, but lessons have been learnt and a welcome resurgence of fruitful co-operation is now taking place.
While developments are moving fast in Japan and Austria, in the UK, three banks, HSBC, First Direct and Alliance & Leicester, are now live with a new mobile banking platform, Monilink. This service, developed by Monitise, claims to be the first cross-operator/cross-bank mobile platform in the world and has a mobile interface to the UK’s Link ATM network.
Monitise’s CEO, Alastair Lukies, believes that more major banks are committed to getting on board in the next six months and expects all large banks in the UK to have a mobile offering by the end of 2008. Monilink allows bank customers to perform transactions, commencing with balance enquiries, mini statements and mobile phone top-up directly from the mobile handset.
“By leveraging the existing national ATM switching network and bringing all mobile operators on board, Monilink has the potential of reaching a broader audience than previous attempts at introducing mobile financial services,” says Martha Bennett, vice-president of Forrester Research.
The fifth channel
Monitise also has significant international developments in several countries including the US, South Africa, Singapore, Hong Kong, India, Germany and Turkey. Extremely bullish about its potential, Mr Lukies views the mobile as the fifth banking channel (after the branch, ATM, telephone and internet) emphasising its flexibility and functionality when linked to an ATM network. “We are positioning the mobile as the remote control for your finances.”
Unlike Africa and rather unsophisticated banking markets, growth in mobile banking and payments in developed markets is likely to be relatively slow. According to recent IDC forecasts, 4.6% of the total population of western Europe will access financial services and information, including banking, investing and insurance, via a mobile connection by the end of this year. However, IDC believes that about 11% of online banking users will access online services by mobile this year, a big improvement on 1% in 2001.
While mobile banking in developed economies could become much more than just another channel with a marginal role in a broader multi-channel strategy, especially when remittances are considered, the boom area for mobile technology is elsewhere.
In Africa and other developing economies, necessity is the mother of invention. As such, mobile banking can fulfil fundamental needs very quickly, help to leapfrog technologies and provide major transformational change.
UK TAXIS LEAD THE WAY IN MOBILE PAYMENT SOLUTIONS
How can London’s Heathrow improve its efficiency in the run-up to the 2012 Olympics when the eyes of the world are on the UK capital and its beleaguered transport system. One of the answers lies in making the taxi service work more effectively: last month a pilot of a powerful new mobile payment solution for the taxi industry began at London’s biggest airport.
The service, called JourneyPay BuyVoice, enables taxi drivers to accept credit cards using their current mobile phones, giving taxi passengers the convenience of paying their fare with a card but without the need of a card terminal.
Devised by Planet Payment, a US-based global payment and data processor, and JourneyPay, a UK transport payments specialist, the service has been designed as a fully managed, turnkey solution that combines a user-friendly, natural speech application with a robust payment platform to create a simple, secure and quick mobile payments solution.
Drivers’ ability to use their mobiles, along with voice authentication, to complete a transaction provides convenience and more payment options.
The new mobile-only solution, incorporating a stand alone mobile chip-and-pin payment terminal, is supported by JourneyPay, which pays the driver once the passenger’s details have been authenticated on the driver’s mobile.
The solution is supported by Lloyds TSB. Kevin Coles, head of business enterprises at Lloyds TSB Cardnet, believes the scheme will expand fast, from the present pilot of 30 drivers to 10,000 drivers across the UK by the end of this year. He notes that the solution represents a significant development in individual payments. Another area in which it is likely to be used is in stadium access and related contactless payments leading to a cashless stadium, he says.
The London taxi is driving change not only in the transport sector but in other areas as well.
