Value Creation in Mobile Banking

Achraf Ayadi Business Administration Department – MINT Lab. GET/Institut National des Telecommunications E-mail: [email protected]

Abstract [11]. The traditional income of telecom operators -initially based on The convergence of the Internet and relatively constant subscription mobile networks creates new fees- will yield more place to opportunities and applications. economic models based on Mobile Treating mobile business as simply an Internet. Then, new incomes could emerge from subscriptions to services extension to the traditional web like data and contents, mCommerce1, could result in missing out unique advertising and advanced networks differentiated qualities for new services like Virtual Private value-added possibilities. Mobile Networks (VPN) and Quality of Service Banking is considered to be one of (QoS) guarantees. This modification the most value-added and important of competition basis in the mobile mobile service available. The current market is accentuated by deep changes research examined technological in consumer’s behaviour: Internet changes in mobile networks and caused a quick evolution of needs innovative attributes of Mobile moving from social communication to Internet. It has advanced the electronic commerce. So, convergence theoretical framework of innovation of mobile communications and Internet in service to develop a customer requires a new analysis on the centric analysis of mBanking value current model of value creation. proposition. The article goes on to Mobile Banking (mBanking) is discuss critical factors in the considered as one of the most diffusion of mBanking and explores important emerging services implying reasons of failure and further actors from different economic prospects of success. sectors in the mCommerce value chain [13][7][1]. “mBanking” consists in 1. Introduction managing a bank account through a wireless Internet-enabled device. The mobile communications market is On the basis of the innovation changing dramatically and the next diffusion theory in service sectors, generation of customers will require we study the technological tendencies more than vocal services. The in the Mobile Internet. Then, we technological and commercial analyze the development factors of convergence of mobile networks and mobile services in the banking Internet puts the telecom operators industry and their impact on the in front of new challenges and value chain. Finally, we conclude in enormous opportunities [6]. Thus, in term of strategic perspectives of spite of the growth of user’s number Mobile Banking and its future and the growing traffic on mobile evolutions. networks, the rise of competition led to a strong fall in prices and margins. Differentiating products will be realized less on vocal 1 “mCommerce” is defined as any transaction communications than data exchanges with monetary value that is conducted via a mobile network [8] 2. Technological changes in narrow niches customers. For example, mobile French operator “SFR” offers mobile networks only one tariff formula: 349 euros for acquiring a wireless PC access Mobile technologies are shared card and a subscription of 75 euros between many standards. Indeed, the per month for a 10 hours connection first generation of mobile networks limited to a maximum of 500 Mo of (1G) was based on voice exchange via data exchange volume. analogic radio frequencies. The second generation (2G) is fragmented Figure 1. Evolution of data between IS-54 and IS-95 US’ standards exchange capabilities in mobile and GSM (Global System for Mobile) networks (in bps) which is the most expanded standard (50% of market share in the world [11]). However, the 2G standards in 2500 general suffer from low capacities in data transmission. Thus, they were 2000 quickly supplanted by standards known as 2.5G (HSCSD, GPRS and EDGE) which 1500 improve data transfer significantly.

This step was accompanied by two 1000 forms of Mobile Internet: WAP and I- mode. The WAP (Wireless Application Protocol) is a protocol without 500 licence which was very quickly 0 adopted by telecom operators and 1G 1G 2G 2G IS- 2G IS- 2.5G 2.5G 2.5G 3G 1G DCS equipment industry of mobile phones AMPS CDPD GSM 54 95 HSCSD GPRS EDGE UMTS as the access bridge to Web pages 4,8 19,2 9,6 14,4 9,6 14,4 57,6 115 384 2000 throughout a mobile telephone. I-mode was launched in February 1999 by NTT DoCoMo which counts more than 36.7 Admittedly, the tests carried out million subscribers in Japan [2]. Its appear satisfactory including popularity is due to the similarity connection quality, but such offers between development language I-mode, are limited by a fundamental aspect: the C-HTML (Compact Hypertext Markup the difficulty to convince the broad Language), and Internet’s HTML. This market of millions of individual resemblance makes possible for users by 3G services in a context subscribers to have an easy access to where the compatible apparatuses with Internet services and facilitates use UMTS standard are rare and expensive. of e-mail and access to thousands of This technological context in Web pages. Today, NTT DoCoMo has transition affects the development of several participations in mobile trade via mobile networks, delays operators in Germany, in the United access to rich multimedia contents Kingdom and in France to settle in and accentuates the interrogations Europe where I-mode is emerging as a around "the value proposition" to benchmarking standard. This offer via Mobile Internet. intermediate stage of 2.5G standards allowed to the operators and various 3. Innovation and value other actors in content creation to come near a dubious prospects market. creation in Mobile Internet The heavy investment in 3G licences services for Universal Mobile Telecommunication System (UMTS) 3.1. Innovation in services standard was then a brake for a Mobile Internet growth (Figure 1). In the literature, we identify UMTS networks boost data exchange three principal processes in carrying flow to comparable levels known in out innovation projects: decision traditional PC Internet connection. process (innovation strategies), Also, the services considered as executing process (organizing pioneers are expensive and focus on innovation) and diffusion process (confronting innovation and important determinant of success in market)[14]. Rogers’s innovation the adoption of Mobile Internet theory presented diffusion as a [5][7][11]. However, uncertainties process of progressive communication about the prospective growth of between members of a social system mobile services in general, [18]. Referring to an epidemiologic customer’s response and time needed model, the propagation of an by 3G networks to replace 2G and 2.5G innovation depends on the number of networks are very important [21]. adopters and the importance of their These uncertainties are strongly communication with the rest of the related to technologies life cycle population. The perception of costs replacement and breaking technologies and advantages of the innovations by [14]. In fact, a performing potential adopters determines this technology can fail to replace process of diffusion [14]. Thus, another because of long time-to- Rogers showed that this perception is market processes or the existence of closely related to intrinsic a largely diffused and established characteristics of innovation on the old technology [20]. This failure can basis of which the product will be be related to cultural facts. Large appreciated. Some authors define differences are observed in the innovation by the existence of penetration rates of Mobile Internet "creative attributes of value" [9]. in the world (72.3% in Japan, 59.1% In service innovation literature, in Korea against 16.5% in Finland and innovation is considered as a 5.6% in France [4]). The success of customer-oriented value creation I-mode in Japan, for example, is process. Then, concepts like related to particular socio-cultural “innovation” and “value proposition” factors which affect the are dependent, interrelated and interpersonal communication [12]. inseparable in analysing and prospecting success factors in Table 1. Value proposition and introducing a new product [9]. applications in mCommerce Su g g e s te d v a lu e A p p lic a tio n s 3.2. Value creation in Mobile U b iq u ity A v a ila b le N e w s , s p o rts Internet p ro d u c ts e v e ry s c o re s , s to c k w h e re , e v e ry p ric e s , tra v e l & “Value propositions define the tim e w e a th e r in fo relationship between supplier C o n v e n ie n c e E lim in a tin g P C E n te rta in m e n t, offerings and consumer purchases by c o n n e c tio n g a m in g , identifying how the supplier fulfills c o n s tra in ts re ta ilin g , the customer’s needs across different b a n k in g , customer roles” [8]. Thus, a p a y m e n ts purchasing behaviour via Mobile L o c a liz a tio n O ffe r p ro d u c t & D is p a tc h , Internet is different from that via s e rv ic e s s c h e d u lin g , PC because the customer doesn’t will d e p e n d in g o n d is c o u n tin g , to carry out a long navigation to g e o g ra p h ic e m e rg e n c y lo c a liz a tio n s e rv ic e s , s u p p ly search for a product or service. In c h a in mCommerce, customer is waiting for a m a n a g e m e n t personalized offer, targeted on P e rs o n a liz a tio n M o b ile p h o n e s A d v e rtis in g , products in immediate vicinity and a re in d iv id u a l d a ta b a s e accessible services beyond time and d e v ic e s d e v e lo p m e n t, space. Estimations evaluate that e n a b lin g o n e -to - k n o w le d g e every additional click on a mobile o n e M a rk e tin g m a n a g e m e n t terminal reduce the probability of s y s te m s the transaction by 50% [8]. Four value propositions in mCommerce Thus, with the growing implication applications are identified: of non-telecom actors in the ubiquity, convenience, localization innovation process, Mobile Internet and personalization (see Table 1). value chain is changing dramatically Many analyses focused on the [5][1][6][21]. In this context, the diffusion process as the most analysis of value proposition needs to integer multiple value systems and but, it is impossible to carry out different value chains. A recent SMS-based transactions. study of Van de Kar and Van der Duin [21] showed that the only certainties • WAP-Banking: Wireless Application around the future of Mobile Internet Protocol offer an access to micro- are only three: the mobile payments websites managed by a bank’s will profit from a large server. Customer access process accessibility, mobile services will looks like via Internet. Also, be "multimedia" and will tend to transactions safety via WAP is privilege the data exchanges as much guaranteed by Internet as voice communication. cryptography systems. The customer authentification is made via his 4. Developing mBanking: a PIN code (Personal Identification customer centric value Number) and the transaction authorisation is given by a customer validation (TAN: Number 4.1. Confronting customer needs Transaction). WAP-Banking and mBanking applications experience is considered as a failure for multiple reasons [19]: Pousttchi and Schurig [16] identify the WAP requires 30-40 seconds of four use cases of mBanking: request connection login, an important of account balance, control of number of "clicks" before account movements, instant payment accessing to useful information or and account administration. These use carrying out a full transaction. cases corresponds to specific customer needs and depends as well on Admittedly, several financial the wireless device available as on institutions like Nordea, Sampo- the telecommunication network Leonia, SEB, Egg and Credit Suisse performance. We can distinguish exploited the WAP experience to test between two principal applications the market and to develop a broad for the mBanking: pallet of functionalities [17]. Waiting for a generalization of 3G • SMS-Banking: Short Message Service networks that allow new technical is particularly adapted to 2G possibilities in term of flow networks because they require low capabilities and content richness, capabilities for data exchange the current availabilities are too (160 characters for 7 bit by much limited, unsecured and unstable message). For example, SMS make for banks [13]. The fast development possible to answer quickly a of technologies and announcement of customer request to consult the new powerful applications cause the account balance. The sensitivity prudence of bank’s leaders and of this information requires that increase uncertainties around the the bank lodges and manages its future of mBanking [16]. The Key own SMS server since the telecom element for choosing the better operators are not authorized to moment of adoption (by banks) and the treat them. In the United Kingdom, opportunity to invest in mBanking is First Direct attracted 138.000 to anticipate value proposition subscribers with its "SMS alerts" awaited by customers. which represented 25% of its online customers [19]. “The main 4.2. Value proposition as problem with this kind of developing factor of mBanking transmission is the missing encryption of the data during the In the banking industry, distant on-the-air transmission between channels of distribution are the service center and the mobile increasing (ATM, Internet, mobile phone” [16]. Thus, banks are just phones, PDA, etc.) but they don’t satisfied to deliver a limited seem to meet the same needs. Every information service to customers; channel offers different value creation opportunities to customers. For example, there are very strong differences between Internet via PC 5. Conclusions and via mobile. The mBanking, compared with the Internet Banking The potential of mobile phones to (eBanking), requires more create new types of value is very personalization because the profile important in banking services. of the customer and his localization However, the current penetration of are easily detectable. However, it is mBanking remains very mitigated. An necessary to establish a fast access investigation of Benchmark group to information since the customer is realized with 1187 Net surfers (95% not interested by a long navigation of them use eBanking) showed that 65% via his mobile phone [17][8][19]. do not use mBanking and 35% are not Figure 2 offers a comparison of the satisfied by offered services [4]. plausible value curves for eBanking Also, Wells Fargo, one of the first and mBanking [8]. banks having set up an eBanking service in the world intends to stop Figure 2. Comparative value curves its mBanking services after that only for eBanking and mBanking 2500 customers subscribed to them in one year [4]. This relative failure is quasi unanimous in the literature h

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[19]. Harmonisation of security Internet and Internet-enabled standards is underlined by many wireless devices could function as studies as being an accelerator complementary channels of element of mBanking adoption and distribution [17]. They probably diffusion [13]. direct to the same customer, but they However, some interesting do not direct to the same needs. initiatives are emerging to federate Thus, it seems natural that a technological visions and to successful bank as Barclays (United reorganise competition in a “win-win” Kingdom) which has 1.9 million of global approach. It’s the case of the eBanking customers invests in "Mobey Forum", a think tank founded developing mobile channels of in May 2000 by leading financial distribution [19]. The adoption institutions and actors of telecom factors of mBanking development are industry and joined by technology not only related to the commercial operators and consultants (20 client relationship. Many actors members). In a recent study, this affect the value chain of mCommerce group underlines the importance of whose diffusion depends on their several factors in promoting a true coordination and consensus around market of financial services at the common technological standards and international level: develop their commitment in a coordinated compatible and interoperable step of market preparation [15]. standards to keep an open market for customers and actors, guarantees the [9] Flipo J.P. (2000), L’innovation dans independence between actors and les activités de service, Ed. standards to let customers choose the d’Organisation best combination “operator-financial [10] Gallouj F. (1998), “Innovating in institutions” and, integrate already reverse: services and the reverse product existing technologies into the new cycle”, European Journal of Innovation platforms and standards under Management, 1(3), pp. 123-138 development to avoid reinvesting more [11] IDATE (2003), Le marché mondial des services mobiles money and time –especially for banks- [12] Ishii K. (2004), “Internet use via to install new electronic channels of mobile phone in Japan”, distribution [15]. Telecommunications Policy, Vol.28 The challenge which remain open for [13] Lee M.S.Y., McGoldrick P.J., Keeling all actors is to build adapted K.A. & Doherty J. (2003), “Using ZMET to products and services with customer explore barriers to the adoption of 3G needs, to shorten the time-to-market mobile banking services”, International of new technologies and to guarantee Journal of Retail & Distribution that the access cost wouldn’t be Management, Vol. 31(6) perceived by the market as a barrier [14] Loilier T. & Tellier A. (1999), to entry. Gestion de l’innovation, Ed. Management & Société [15] MobeyForum (2003), MobeyForum Mobile 6. References Financial Services, http://www.mobeyforum.org [1] Barnes S.J. (2002), “The mobile [16] Pousttchi K. & Schurig M. (2004), commerce value chain: analysis and future “Assessment of today’s Mobile Banking developments”, International Journal of applications from the view of customer Information Management, Vol.22 requirements”, Proceedings 37th Hawaii [2] Benchmark Group (2002), “Japon: le ICSS marché de l’Internet mobile”, [17] Research and Markets (2001), Banking www.journaldunet.com on wireless- European banks blaze the [3] Benchmark Group (2003a), “Monde: mBanking trail, marché de l’Internet mobile”, http://www.researchandmarkets.com www.journaldunet.com [18] Rogers E.M.(1983), Diffusion of [4] Benchmark Group (2003b), “Les Innovations, New York, Free Press, 3éme internautes et leur banque : services edition mobiles, mention passable”, [19] Sangani K. (2002), “Mobile banking”, www.journaldunet.com Financial World, March [5] Booz Allen & Hamilton (2000), “The [20] Shapiro C. & Varian H.R. (1999), wireless internet revolution”, Insights, Economie de l’information: guide Vol.6 (2) stratégique de l’économie des réseaux, [6] Buellingen F. & Woerter M. (2004), Ed. De Boek Université “Development perspectives, firm [21] Van de Kar E. & Van der Duin P. strategies and applications in mobile (2004), “Dealing with uncertainties in commerce”, Journal of Business Research, building scenarios for the development of en publication mobile services”, Proceedings 37th Hawaii [7] Celent Communications (2002), Open ICSS Finance in the US and Europe: a perfect storm in retail Banking, June [8] Clarke I. III (2001), “Emerging value propositions for m-commerce”, Journal of Business Strategies, Vol.18(2)