There have been so many false starts in mobile money and payments that they have almost become a market that nobody really expects to happen. But despite the lack of standards, uncertain consumer demand and complicated value chains, there is a behind-the-scenes upsurge in mobile banking, which is driven mainly be emerging markets and could soon become a genuine flood.
Now Japan, where mobile payments and banking have taken off most convincingly, is looking to harness this growth to gain a position of influence over emerging standards. The government plans to work with the nation’s operators to help promote the use of mobile wallet services across the world, and so proliferate Japanese standards, notably Sony’s FeliCa. This is the technology that is installed in handsets, and works with contactless standards for swipe machines and near field communications. NTT DoCoMo has been using FeliCa for three years now.
The ministry of communications says it will organize a series of international missions and seminars designed to promote the technology, which has been used in wallet phones and also in Japan Railways’ contactless transport payment card Suica. A similar system used across the London transport system in the UK, Oyster, is shortly to be integrated into mobile phones.
With notable exceptions like Japan ‘ where the situation is eased by close ties between banks and cellcos, as well as the consumer’s natural tendency to do everything on the handset ‘ the developed economies have regarded mobile payments and banking as an optional extra alongside conventional PC and bricks and mortar methods, while operators have approached the sector with caution. Now the US carriers are starting to make serious plans, but in many emerging economies, mobile payments have already established themselves, almost by stealth, in areas where few consumers may have PCs, and where many may live far from banks or ATMs, or not have bank accounts at all.
A new report from IMS Research highlights the issue and lead analyst John Devlin says that, especially in parts of Asia and Africa, mobile systems are being used as a way to increase uptake of bank accounts, since most people do at least have a GSM phone. ‘People want access to financial services, and they do want to be able to transfer money either internationally or nationally, between friends and relatives. For that reason, the mobile penetration is far higher than other banks, and the presence is much greater,’ he said in an interview.
Most of these users rely on prepaid, pop-up mobile banking applications direct from their bank account for money transferring, enabled by back end telco software companies like Amdocs, which has created a platform in which mobile minutes themselves can be used as currency. This is operating in markets like Liberia and Sri Lanka, where airtime minutes can be transferred to a relative, who can then use them to exchange for goods in a grocery store, with the ‘exchange rate’ set by the carrier or managed services provider. Amdocs says this is a way for carriers to address the perennial issue ‘ how to maximize the ‘wallet share’ they have with customers who may earn only a few dollars a day.
In a developed economy, regulation might prevent minutes being used as a full scale currency, but minutes could certainly be exchanged for ringtones or other operator products, or treated as ‘virtual currency’ in a similar way to airmiles or store loyalty points. Juniper Research predicts that 2.1bn people will use this ‘pay by mobile’ approach for buying products such as music by 2013 ‘ a way for operators to tie customers into their networks, an increasingly difficult task in the age of open internet.
At the other end of the demographic spectrum are people with no bank accounts. Vodafone has been offering money transfer services similar to those traditionally provided by Western Union in parts of Africa, a way of making its mobile services indispensable in the lives of consumers who may one day have more money to spend on Vodafone offerings. Third parties like AccountNow offer prepaid Mastercard or Visa accounts to people with no established credit history or bank accounts ‘ an approach that is gaining ground in developed economies too, among poor sections of the population or new immigrants with no international bank facilities (the latter a sector identified by Vodafone as an opportunity in the UK and other parts of Europe with fluid working populations, and a rising demand for easy ways to send money home).
The latest mobile operators to launch mobile payments services are Telefonica and Iusacell in Mexico. They are working with BBVA and Citibank to target teenagers with a service that allows subscribers to make payments at participating stores, restaurants and taxis by sending a text message. Meanwhile, Australia’s Telstra has tied up with National Australia Bank and credit card company Visa to trial a contactless mobile payments trial that allows users to charge purchases to their credit card account by waving their phone over a reader. The maximum transaction value is A$35 ($30).
All this shows banks and operators increasingly addressing the potential difficulties in working together to support mobile payments. ‘Despite many initiatives and projects undertaken to develop mobile payment solutions, nothing compelling has emerged, until now,’ said Cees de Jong, senior VP of global markets development at consultancy Atos Origin, which has a practice in mobile payments. ‘Thanks to technological advances and new regulations, the time is now right. Consumers are changing in their attitude to what a mobile phone can do, and mobile phones are changing to make those things easy to do.”
However, he points out that the opportunity is not for the cellcos alone, but will lead to a far more complex value chain than they are used to dealing with, including internet giants like Microsoft, banks and new entrants.
While the main initiative needs to come from the financial institutions and carriers – which can invest in the required systems and on marketing and customer awareness – there is also a need for policy makers to act to accelerate uptake, especially in emerging nations. This is certainly the view of some of the major players, and earlier this year Vodafone, in association with Nokia and Nokia Siemens Networks, published a report that put pressure on governments and regulators to act. It claimed a lack of access to banking services was forcing people in many nations to rely on a cash-based economy with inadequate security, which led to an informal labor market and lower tax revenue for governments. Where infrastructure for traditional banking services is limited, the mobile phone – the most commonly owned electronic device in all but the poorest areas – could provide the most commercial and practical route.
Alan Harper, director of group strategy for Vodafone Group, said in a statement: “The case for mobile transactions has been well proven by recent pilots. In a country such as Kenya there are 400 bank branches, 600 ATMs and 10 million mobile phones. There is clearly the potential to bring access to finance for hundreds of thousands of individuals for the very first time. However, there is also an increasing need to ensure that current banking regulations do not undermine or limit this growing potential.”
Most importantly, the report authors believe that mobile transactions must not be shoehorned into existing retail banking regulatory structures as this will involve high fixed costs and “significant compliance problems”.
While the operators are keen to embrace mobile payments as a way to generate new services for their high speed networks, and attract and retain customers, there remains the problem familiar from mobile content – how to turn all this activity into a profitable revenue stream, particularly if m-payments will require updated (subsidized) handsets with NFC facilities. The role model is NTT DoCoMo in Japan, the country where the FeliCa proximity payment system is already widely used. This allows customers to install the EDY ‘mobile wallet’ system onto their phones and pay for small purchases, such as public transport tickets, by waving their handsets over a sensor. FeliCa handsets are now sold by all the Japanese networks, though NTT DoCoMo was the driving force behind it.
However, DoCoMo generates a strong revenue stream because its parent company is also active in mainstream banking, and so its mobile network can act as a new channel to market for existing services. Most cellcos will have to partner with a separate financial institution, making the commercial case less clear. For the handset makers, though, this may be another chance to implement a relatively low cost new technology in phones and so drive another upgrade cycle. Nokia has offered NFC handsets for some months now, and earlier this year, Motorola took the lead role in a new pan-European consortium formed to develop an open architecture for the development, deployment and use of NFC in handsets (the group’s project is called ‘Store Logistics and Payment with NFC’ or StoLPaN.
The US carriers are also putting the seal of respectability on mobile banking. The drive behind mobile payments from consumers and certain institutions such as transport organizations and credit card processors is becoming too strong to resist, and the cellcos clearly want to see contactless payments become part of the handset, rather than confined to other devices such as standalone smartcards and payment cards. AT&T plans to offer a nationwide mobile banking platform that will enable subscribers to view account balances and history, transfer funds and pay bills from their handsets using NFC. The carrier is working with Wachovia and SunTrust banks and will begin preloading the Firethorn enabling application (now owned by Qualcomm) on handsets by year end. Among the Firethorn features is a banking icon that provides one-touch access to the service. The application is already available for download on 30 handset models from AT&T, or about 30m units in use. The carrier will offer the service for free, relying on data charges to increase revenue, though it claims Firethorn is optimized to reduce the number of page views necessary to complete each transaction. Over time, it may consider other revenue streams from mobile payments, such as revenue sharing deals with retailers and other organizations, or premium banking applications.