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Mobile Payments Three Winning Strategies for Banks

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Mobile Payments Three Winning Strategies for Banks White paper Mobile payments Three winning strategies for banks Executive summary technology is evolving with a need for partnerships, and where banks may Mobile payments are a hot topic in the feel they lack the expertise. financial industry and a top priority for This competitive and fast evolving banks, because: landscape creates doubt. Many banks — The ever growing ubiquity of the wonder what to do: just stand by and Seize the opportunity mobile phone: on a world population watch or respond more pro-actively? of 7 billion, there are 5 billion mobile What is our bank’s mobile payments phones, but only 2 billion people have strategy? a bank account; Our recommendation to banks regarding — Consumers are using their mobile mobile payments is two-fold: phones to make payments in over 130 1. Play to your strengths. Double- deployments with a 100 more planned guessing under these circumstances and several new initiatives announced can be costly. The path to success each week; Highlights is to use clear criteria: respond to Mobile payments are a top — It is a growing market predicted to an obvious customer demand, use priority increase to 900 million users and USD technologies that satisfy that need, and There is competition from non- 1 trillion in transaction value by 2015. decide based on a clear business case. banks Many banks have launched a mobile 2. Use mobile payments to bring your Banks can use mobile payments payments service or wallet, but this customers closer to your bank, in a to get closer to customers opportunity also brings specific new “experience banking model” (cf. challenges: SWIFT’s white paper on Correspondent In particular for mobile money 1 transfers, banks should — There are many new entrants investing Banking 3.0). collaborate to develop a global heavily in mobile payments: mobile We see three areas of strategic service network operators like Vodafone, opportunity for banks: e-commerce companies like Google, — Mobile banking: using a mobile retailers like Carrefour, payment phone to access a bank account service providers like PayPal, as well and make payments - can provide as money transfer operators and card more convenience to customers. companies; Banks should actively invest — It is still an immature business where and expand this channel now, in only a few initiatives have succeeded in particular for corporate treasurers; attracting a significant user base; — Mobile commerce: using a mobile — It is an unclear business case for many phone to buy products. This is banks who wonder what is the up-sell driven by e-commerce companies when a payment becomes mobile and looking to uplift their product who may see little value in a telco-led sales and generate revenue from model; advertising. This is more a 3-5 year — It is a complex matter where legal play as the customer/retailer value frameworks are not yet harmonised, still needs to mature. Banks should — 1 partner with these companies to learn and offer their financial services as part of that shopping experience; — Mobile money transfers: using a mobile phone to send money to someone. This can provide a basic payments service to the un/under- banked in a developing country by converting cash to electronic transactions. Such services are currently often run on a domestic basis by mobile network operators, but they are now interconnecting to capture the higher margin international person-to-person remittances. Here, banks should consider bolder moves, individually set up a joint venture with a telco, Figure 1: Non-banks leading innovation in mobile payments as well as collaborate to launch their own global mobile money transfer This is a growing market. Mobile is the in India) have ended altogether. payment technology that will have the service. Unclear business case greatest growth over the next five years.4 Each area may present opportunities for For many banks the business case to Growth predictions for mobile payments collaborative solutions: offer a serviced do mobile payments is not clear. Mobile vary from 350 to 900 million users platform for mobile banking connectivity, payments and linked commerce will generating USD 430 billion to 1 trillion in provide a hosted application to distribute represent USD 20-25 billion in revenue by transaction value by 2015.5 payments services onto a mobile 2016 from new revenue opportunities and commerce wallet or develop a mobile Specific challenges for banks potential loss mitigation.6 But this a very payments service for international money different kind of payments opportunity for Many banks have launched a mobile transfers. banks to pursue as most of the revenue payment service or wallet. may be advertising related. Banks will need In conclusion, mobile payments are a This is a very competitive and fast evolving to compete for these new mobile value- strategic opportunity for banks, both as battlefield with specific challenges for added services and revenue streams. In a defensive play against new entrants, as banks. addition, banks need to determine which well as a growth prospect to convert cash role to play in these new value chains. In a into electronic transactions. telco-centric model for example, the bank’s New entrants revenue share from providing the trust Many non-banks have entered the mobile account function may be limited to 10% A top priority payments market, often with innovative whilst 55% goes to the mobile network Mobile payments are a top investment solutions. Mobile network operators like operator and 35% to the distributor.7 priority for banks. Vodafone, MTN, Orange and airtel have deployed mobile payments services in In fact, the world’s biggest banks continue several countries or have set up joint A complex matter to focus most of their announced IT ventures between them, like Isis in the Deploying a mobile payments service is not initiatives on mobile financial services US or project Oscar in the UK. Money straightforward as legal frameworks across (including payments) and online banking.2 transfer operators like Western Union and countries are not harmonised, technology This is not surprising given the ever- MoneyGram, as well as card companies is still evolving, there is a need for multiple growing ubiquity of the mobile phone. like Visa, MasterCard and Amex all have partnerships, and in general banks may Out of a world population of 7 billion, over multiple mobile payments initiatives. feel they lack the expertise. 5 billion or 70% have a mobile phone, Payment service providers like PayPal whereas only 2 billion or 30% have a bank are throwing their full weight into mobile. account. Take India: on a population of E-commerce companies like Google are Three strategic opportunities 1.2 billion over 800 million have a mobile deploying wallets for contactless payments For many banks this competitive and fast phone and only 250 million have a bank using NFC (Near Field Communications). evolving landscape creates doubt. They account. wonder what to do: just stand by and watch or respond more pro-actively? Consumers are increasingly using their An immature business mobile phones to make payments. A Only a handful of these mobile payments We see three strategic areas of opportunity global inventory lists over 130 live mobile services have succeeded in attracting a and actions for banks to use the mobile money deployments and nearly 100 more significant user base (over 1 million users). phone to forge closer relationships with are planned.3 Several new initiatives are New initiatives may fail to go beyond pilot their customers in a new “experience announced every week. trials and some services (like Nokia Money banking model” (cf SWIFT’s white paper on — 2 Correspondent Banking 3.0)1: — Mobile banking: using a mobile phone to access a bank account and make — Access bank account(s) — Receive debit/credit alerts payments; Mobile banking — Check balance, receive statements — Mobile commerce: using a mobile — Conduct bank transactions phone to buy products; — Mobile money transfers: using a mobile phone to send money to someone. — Remote payments (web site) Mobile commerce — Proximity payments (NFC) Let’s examine this in more detail as each — Physical/digital goods and services area comes with its own opportunities and challenges. — Airtime top-up Mobile banking Mobile money — Person-to-person remittances transfers Mobile banking is using your mobile — Cash-in/cash-out phone to access your bank account; receive debit/credit alerts and statements via SMS; check balances and recent Figure 2: Three strategic opportunities for banks in mobile payments transactions by browsing a simple mobile-enabled website; conduct basic The good thing here is that the bank is that bill is paid by a traditional payment operations via a menu; or transfer funds in total control: the mobile phone purely method like credit transfer or direct and pay bills using an application on a acts as a channel to access the financial debit. This practice is very successful smart phone (see box 1). Many banks application that is owned by and runs at however. Examples of companies that offer one or more of these options, like the bank. facilitate this are boku, Zong, mopay ICICI for example. and PaymentOne, each servicing 200 Our recommendation: Banks should million to 3 billion customers for 250- actively expand their mobile banking 300 carriers in 60-80 countries; offering, which today is often still Box 1: Technology options underdeveloped particularly toward 2. Mobile point of sale, where a card — SMS: communicate with payments corporates. A unique value proposition reader is attached to a mobile phone services via short messages; can can turn mobile banking into a cost saving or tablet to swipe a credit card. Whilst work with short codes. If a menu is (instead of contacting a call centre) and it has the potential to significantly required, access from a SIM card revenue generating channel (increase increase the number of points of sale, (after replacement) or an application loyalty, target marketing to cross-sell core the resulting payment is a traditional folder (loaded from Micro SD card).
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