Financial Times Virtual Finance Report Banking on the Move by Dave Birch. Banking on the Move The internet isn’t the only new digital channel by Dave Birch <mailto:[email protected]> Hyperion <http://www.hyperion.co.uk> Public Access The mobile communications sector is currently under–exploited by the virtual finance community, possibly because of its historical focus on the internet in general and the web in particular. This will change in the near term. Across Europe as a whole, mobile phone penetration is now around 25% (ranging from the low teens in Belgium to more than half the population in Finland). Pre–paid packages were the catalyst for record sales for all four UK mobile network operators in the final quarter of 1998. Vodafone, for example, added 933K new customers in this time (of which 755K were pre—paid) and connected its 5 millionth customer on 15th January. Some 2.5 million mobile phones were sold over the Christmas period alone [1]. The number of digital mobile handsets in circulation in the UK is climbing steadily, with penetration expected to exceed 50% by 2004 [2]. Penetration is likely to exceed 100% in some countries by then, because many people will have several mobile phones: a conventional handset in their briefcase, another built in to their car, one in their laptop computer and another in their PDA. PCs, despite their power and functionality, are not necessarily the best platform for the delivery of virtual financial services. According to ICM, 29% of the UK population were online at the start of this year. Of these, less than half (14%) access from home and there is a wide variation in household penetration, ranging from 33% of AB homes to only 2% of DE homes [3]. Therefore, while rising numbers of people are going online, many people access from a shared PC at home, from work, from educational establishments, libraries and so on. The mobile phone by contrast is, generally, a personal device. People carry their phones with them all of the time and don’t share them with others. This makes them a good platform for such things as financial services. Mobile phones are also digital, at least outside the US, and GSM and PCN services dominate. GSM has almost half of the global wireless telephony market and more than two–thirds of the digital wireless telephony market. At the end of 1998 there were some 135 million GSM users around the world. By the time this article was written (March 1999) there were 160 million. By the end of this year there could easily be 250 million, according to the GSM Association which represents 323 operators in 129 countries [4]. Even North America is going digital, with around 3 million GSM subscribers already and commercial GSM services in 2400 cities. Who cares if phones are digital or not? Well, digital mobile services are based on the use of a tamper–resistant smart card (the Subscriber Identification Module, or SIM) that provides a much higher level of security than anything available on the internet in software. The SIM was originally designed to hold a user’s unique network identification data, enabling subscribers to use their GSM handset on any network world–wide. It also allowed subscribers to receive Short Message Service © Hyperion Systems Limited (1999) Page 1 of 6 (This draft Wednesday, March 17, 1999) Financial Times Virtual Finance Report Banking on the Move by Dave Birch. (SMS) messages and store personal information such as telephone number directories. This architecture helped GSM to become hugely successful, but by 1993 it was clear that the SIM would have to do more to support the kind of value–added services that operators and subscribers alike were demanding. For reasons of compatibility, it was decided to extend SIM functionality to support additional services on the existing infrastructure and exploit SMS further. The result was the SIM Application Toolkit Specification (GSM Technical Specification 11.14), often called the “SIM Toolkit” (STK). This allows value–added services to operate alongside the original SIM functionality [5]. In this way, applications loaded into the SIM can communicate using existing network infrastructure in a cost–effective way. Thus, operators can add their own applications into the mobile handset and these applications can use a standard platform (i.e. STK) for accessing the keyboard, menus, network and so on. In addition to the expanding power of the SIM, the data capabilities of the mobile platform are expanding. Data rates will reach 144Kb/s with the introduction of the Universal Mobile Telephone Service in 2002 [1]—UMTS is the new worldwide standard for mobile phones—and will then move on to 2Mb/s by 2005. While these higher speeds are some way off, interim solutions are being found to push GSM data rates up to 14.4Kb/s and then on to 28.8Kb/s in advance of the introduction of High Speed Circuit Switched Data (HSCSD) and General Packet Radio Service (GPRS). At the time of writing, Sonera in Finland is the only operator to implement a 14.4Kb/s network but others may follow this year. GSM isn’t just about interpersonal voice communications. The use of GSM to support wireless PDAs and other devices is just as important as telephony. In Germany, for example, SMS tariffs have been lowered to capture the market for communications with vending machines and the like [2]. The steady evolution of the sector—Symbian, Microsoft’s Jupiter, the Palm VIII—indicates potential for commercial transactions. Since organisations are rolling out vertical applications built on mobile devices, ranging from RAC engineering reports to Community Health Trust patient records [3], the perception of the mobile handset is about to change. Instead of being seen as nothing more than a convenient means of making voice calls, it will be seen as an indispensable integrated ‘umbilical cord’ for personal data. We’re Already Mobile To summarise the situation, then, in Europe alone there are expected to be some 175m GSM users in 2001 (with 67m in Asia–Pacific and 11.5m in North America) with a couple of million new digital subscribers getting connected every month. Every one of these handsets has a tamper–resistant smart card at its heart: one supplier alone (Gemplus) shipped it’s 100 millionth SIM card in February 1999. The installed base, the security and the standardisation combine to make the digital mobile handset a formidable platform for personal financial services. A few early examples are: » The Swedish Postal Bank (Postbanken) and Telia have a service, called Mobil Smart, that allows consumers to make Giro payments from their handsets. » Citibank have a mobile banking service currently available in Singapore. Consumers can use their mobile handsets to access their account balance, pay © Hyperion Systems Limited (1999) Page 2 of 6 (This draft Wednesday, March 17, 1999) Financial Times Virtual Finance Report Banking on the Move by Dave Birch. bills and transfer funds using SMS (at a cost of Sing$0.20 per transaction). The software uses STK, in either an Alcatel or Motorola StarTAC X handset, to provide menus and functionality. » SmartAxis, a Unisource spin–off, has been running a pilot service using both Proton and Mondex electronic purses over mobile networks. There are also a number of imaginative schemes around linking the power of banking and mobile networks to deliver strong customer propositions other than financial services. For example » Over 50% of Portugese mobile phone customers are anonymous pre–paid subscribers. They use ATM bill payment facilities to ‘reload’ their mobile phones for more talk time [4]. The advantages of this scheme, to anyone involved in the distribution of pre–paid vouchers for mobile telephony in the UK, are clear. » Pilot schemes in Scandanavia allow consumers to use their mobile phones to pay at unattended at car parking, soft drinks in vending machines and car washes. The goods and services are charged through the telecoms operators and show up on the consumers’ bills. The benefits of such schemes, to everyone except banks, are clear. As operators make the transition to higher speed data and multiple applications, their value chain breaks into three [5]: » Network services, which are really all to do with the coverage and capacity of the network. » Network–related value–added services (VAS), such as SMS messaging, voice mail and so on. » Third–party VAS, which would be provided (in the case of financial services) by banks and other financial institutions. The range of financial VAS that can be shifted to the mobile environment is expanding rapidly, as in the range of third–party service providers. Such service providers are in position to exploit the combination of the fastest–growing consumer device in history (the mobile telephone) with the richness of the internet, and will inevitably lead to a computing revolutions that dwarfs the one initiated by the PC [6]. Mobile and data networking companies are betting that enough of the things that people want from the internet (e.g. banking) can work without the big colour screen of a desktop PC. Operators, networking companies, financial institutions and others are entering a new phase of competition to offer the financial VAS. One Slot Good The simplest way to exploit the mobile platform is to use the mobile phone as a personal information delivery platform in combination with banking services. A good example comes from Spain, where customers with certain banks have their account balance sent via SMS to their handset every time they make an ATM withdrawal (which is also a good way of finding out if someone else is using your card!).