Although mobile banking services might appear to hold significant promise as an e-payment method, their development has so far failed to live up to expectations. Wendy Atkins reports.

If you type the phrase ‘mobile banking’ into the Google internet search engine, you get around 64,000 hits. And if you type in ‘mobile payment,’ more than 37,000 hits come up. With numbers like that, you would think that payment and banking via mobile channels was a major function of the remote-banking experience. So why is the industry divided into those on the one hand who expect the next year to be big, and those on the other hand who are considerably more cautious about the potential offered by the technology?

The good news is that industry forums are actively developing specifications and projects aimed at providing payments or banking services via mobile technology. The Mobey Forum operated a joint stand with Visa International at September’s Mobile Content World Exhibition. During the show, visitors witnessed how high-value payments could be made securely with existing mechanisms such as Verified by Visa. Other demonstrations focused on content in a bid to highlight not only what could be done but also what the new technologies enable.

In another move, industry group Simpay looks set to launch a new mobile payment product in a selection of Western European countries early next year.

Tim Jones, CEO of Simpay, says: “Our offering is ideally matched to the current m-payments market, allowing customers to make low-price point purchases using their mobile phone. The cost of the goods or services, which include buying an MP3 music file, downloading a game or obtaining sports results, is debited from the mobile user’s account by his or her mobile operator. After initial roll-out, more functionality will be involved, and more countries will come on board.”

A global perspective?

Several country markets have made interesting announcements on the subject of mobile banking and payments. In banking, most activity is concentrated on basic services such as SMS text alerts to tell individual customers what their bank balance is, or letting them know when their account has reached a certain level. In the payments arena meanwhile, ticketing, parking, copy shops and ring tones appear to be the applications that are most frequently piloted.

In South-east Asia, Japan, South Korea and Singapore, mobile banking has made headlines. In Japan, operators are strong players and are driving the use of the mobile channel in the financial sector. South Korea, meanwhile, is seen as a technically savvy market and has adopted several mobile financial services. By way of example, the Bank of Korea has seen its mobile banking services customer subscriber base grow significantly over the past two years or so. Singapore has been used as a test bed for many mobile banking applications because the country has reached an advanced state of development but is small enough to be flexible.

Europe is also seeing a growing level of interest for basic services. Here, the Nordic region is probably the most advanced, with Finland’s Mobile Cash project operating successfully. “The Nordic countries have plenty of experience because they started early,” explains Liisa Kanniainen, Workgroup executive at Mobey Forum and vice-president, mobile banking, at Nordea. “Players in this area are small, so more flexible. Mobile banking development has been integrated to fixed internet service development and it has not required significant additional costs. Elsewhere in Europe, however, expense has kept some banks back, especially those that have spent too much on technologies such as WAP. But now is the time to re-start the investments in any case. After the WAP-depression, the real technologies with which the services really can be offered, are now in place.”

North America is also catching up, as Simpay’s Mr Jones says: “Consumers in North America understand the more sophisticated handsets now being marketed as being like miniature PCs. Because they’re familiar with and understand PCs, Americans see that they can do all their web activity via a mobile phone. However, North America will be behind Europe for a while, as mobile technology is a bigger thing in the psyche of Europeans.”

Team effort required

There seems to be a general recognition throughout the industry that banks and service providers should work together to produce mobile banking and payment solutions. This is in evidence in some of the major industry groups that have been established by leading telecoms operators and major players in the financial sector.

One example of this approach is the Mobile Cash system, a solution targeted for low-value payments, and which has been operational in Finland for about six months. “This is an open-market solution which draws on cooperation between operators and banks,” explains Ms Kanniainen. “The advantage of an open market solution is that the framework allows consumers to select and change operator, bank and handset, independent of each other, allowing free competition. In the case of Mobile Cash, payment services are provided by the banks.

Meanwhile, payment information intermediation and related systems are provided by operators and other players. This enables competition to exist throughout every layer of the process.”

There also seems to be a growing acceptance of mobile payments in the Finnish market, as she explains: “The Helsinki transport company has been using SMS ticketing for some time. Now it is starting to support the Mobile Cash approach, where the payment product is provided by the participating banks. This has created the habit of paying for public transport via a mobile phone. The movement to a mobile payment approach has a significant cost advantage as well. SMS ticketing was subject to 22% VAT. By separating ticket payments to a bank’s payment system from the rest of the phone bill, payments are subject to just 8% VAT – a major saving.”

Merchants also benefit from the system: instead of waiting one-and-a-half months for payment to arrive through the initial SMS-based solution, they now receive payment the next day with Mobile Cash. “For a company with big volumes, this is a big saving in terms of cash reserve.”

With wireless technology becoming pervasive, mobile phones can now be used for many services other than voice. “Lots of things are now happening in the area of mobile financial services – and this is being driven by the development of internet-capable (TCP/IP) phones, which are becoming more widespread,” says Ms Kanniainen. These provide the opportunity to make mobile payments via internet tools. They also enable more user-friendly interfaces, not to mention colour screens. Furthermore, the new Java and Symbian tools offer the prospect of more user-friendly services. Of course, it takes a while for consumers to develop new habits, but this approach is encouraging consumers to use their phones for more complex transactions.

Game, set and match?

With all the developments taking place worldwide, is it game, set and match for mobile banking and payment? Unfortunately not. The bad news is that mobile banking and payments have not taken off to the degree that many people thought they would during the dotcom boom. Closed-business models are still in place in some areas, making it difficult for a habit to be created. And without the habit, consumers are less likely to adopt mobile banking or payment channels.

Moreover, although there is still a good level of enthusiasm for mobile banking and payments from some insiders, others believe that customers have no desire to avail themselves of complex or hard-to-use mobile banking services, let alone base their choice of handset on what is required for mobile banking.

Forrester Research’s latest Consumer Technographics primary research shows that only 0.9% of consumers in Europe are interested in any kind of mobile banking (defined as “accessing your bank account using SMS or your mobile”). “According to our research, most SMS activity is in France, where banks like SocGen not only offer SMS alerting or balance services, but actually charge for the use of online banking,” says Martha Bennett, vice president and research director, Financial Services Europe, at Forrester Research.

An area where interest could grow is the facility for customer to check if their salary has been paid. However, this scenario is already catered for via technologies such as SMS, which customers are using more readily than fully fledged mobile banking. Another area where potential demand could be met through mobile channels is where a customer has forgotten to pay a bill but doesn’t have access to online banking. However, as Ms Bennett points out: “These instances are too few and far between to be cost-effective. This is seen in one European bank’s findings that only 5% of its online banking users had signed up for mobile banking. And of that 5%, a maximum of 2% actually used it, so you’re talking of a very small number of people. Added to this, the bank found that of those who used the service, 97% of uses were purely information-based.”

Future development

The key to future development seems to reside in SMS text alerts as a means of communicating with a bank or financial institution. However, as Ms Bennett says: “Although banks are using text alerts more, real mobile banking still isn’t taking place because technology inhibitors still haven’t been resolved. We’re now seeing that what people thought would happen during the dotcom boom was unrealistic. There was an assumption that because customers always have a phone with them, they would want to use it for a financial service. But the reality is that most interfaces are unsuited for more than the most basic display: the screen isn’t large enough to provide meaningful information, and – although you could theoretically use SMS text – would anyone really want to go through the process for a banking transaction?”

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