Mobilising money

Mobile operators stand to make significant gains from the growth of mobile financial services.

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By  Alan Goode Published  July 13, 2008

Mobile operators stand to make significant gains from the growth of mobile financial services.

There is much activity in the world of Mobile Financial Services (MFS) with representatives from key banks and vendors calling it the next new gold rush for financial institutions, after the rush into e-commerce services in the 1990s.

The CEO of Monitise, Alastair Lukes, said banks are now looking at mobile phones as their fifth channel to customers after branches, ATMs, internet banking and phone banking. "We want to be the remote control to your bank balance."

The mobile phone is also being called the "fourth screen" for the delivery of mobile financial services.

By 2011 consumers will become more familiar with making mobile payments, transferring funds and paying their bills through their mobile phones.

A combination of increased user demand and a desire from all sections of the MFS ecosystem to deliver intelligent applications and services has created an atmosphere that is both creative and pragmatic. Gone are the days when mobile operators, banks and handset manufacturers went their own separate ways and developed silo services that were bound to fail.

Mobile financial services, that include both mobile banking and mobile payment applications and services are already available in most regions in a variety of formats and where they are being adopted, whether in trial or commercial mode, the user feedback has been very favourable.

Defining mobile financial services

There are many forms of financial services and Juniper Research defines MFS (mobile financial services) as retail banking services offered to customers on their mobile phones.

There are two main categories for MFS; mobile payment, and mobile banking. This excludes insurance services. Juniper Research has a simple definition of a mobile payment as "payment for goods or services with a mobile device." Our definition for mobile banking is: "The provision of banking services to the mobile device."

For both banking and payment services the primary method of communications will be via the mobile telephony network. However, there are some instances where the mobile telephony network is bypassed, eg. a physical mobile payment system that uses contactless (NFC) technology.

Mobile Banking

There are four major categories for mobile banking, all of which enable the consumer to access a similar set of banking services as offered via internet banking. The four categories are:

• Mobile financial information services (includes financial messaging), a category that includes balance enquiries, threshold alerts, for transaction limits, balance levels and stock prices, confirmation alerts on completion of placed orders.

• Mobile funds transfer

• Mobile bill payment and presentation

• Mobile account management and customer service

Mobile payments, meanwhile, are divided into two sub-categories: remote mobile payment; and physical mobile payment.

A distinction between the two main methods of mobile payment is this; a remote payment is when the storefront or retailer is remote to the mobile phone user, eg. paying for digital goods or physical goods or physical goods via a mobile web enabled retailer. A physical mobile payment is when the storefront or retailer is physical, eg. the payment is made in a physical storefront in the same way we would use cash or plastic debit/credit cards, or at an unattended vending or ticketing machine.

Remote mobile payments are currently the most popular payment method and SMS is the dominant technology. There are many categories under the remote mobile payment header, and there is generally a high degree of overlap between each category. For instance, payment to mobile phone bill is generally initiated by an SMS (Short Message Service), usually a PSMS (Premium Rate SMS).

Physical mobile payments are when the mobile phone is used at a physical location to make the payment. This has included trials with infrared, "point & buy" and SMS text, "text & PIN" where there is a text-based message communication between the consumer, the payment scheme operator and the retailer. The infrared schemes have not been successful as the technology is not particularly suited for use at the physical storefront; schemes in countries like South Korea have been abandoned.

There is much excitement in the industry concerning the prospects of NFC and contactless payments. There are already commercial deployments of contactless payment in Japan and South Korea using Sony FeliCa ship technology and trials using NFC-equipped phones in North America and Europe.

There are some compelling market drivers for the adoption of mobile financial services and equally, many reasons why its adoption could be stalled. This section details the major market drivers and constraints for mobile financial services.

User demand is one of the primary drivers for the delivery and acceptance for mobile financial services. The mobile phone has become a tool that users will not leave home without. Surveys carried out by financial services companies such MasterCard, and service vendors including Sybase 365, tell us that users want to have the capability of using their mobile phones for banking and payment purposes.

There is potential for financial institutions to reduce operational cost by using the "fourth screen", ie. the mobile phone as a delivery channel for financial services. There are a number of financial services that are being delivered, or being planned for delivery, to mobile devices that have significant cost benefits.

For instance, the "mobile ATM" service could reduce the overhead of installing and maintaining a high-cost network of physical ATMs. Data from the USA is already pointing to the fact that there is a slow down in the physical ATM market and it cannot be helped by the deployment of intelligent mobile ATM solutions that allow mobile users to get statements, make payments and even top-up mobile pre-paid via their mobile phones.

Increasing ARPU

Operators are experiencing flat total ARPU, or even reduced total ARPU in some cases, even though data ARPU is rising. Mobile financial services could potentially increase ARPU for the operators, with increased data traffic. This is very important to operators expanding into developing economies where ARPU is traditionally lower than the developed world. If we look at the Indian sub continent, Bangladesh in particular, we can explore possible ways in which operators can improve ARPU in a low-GDP economy.

Bangladeshi operator Grameen Phones provides "an insight into how to improve market penetration by profitably targeting the low income market segments," says Anil Gajwani, CTO of Indian software provider Bharti Telesoft. Grameen Phone implemented Bharti Telesoft's pre-paid top-up solution, PreTUPS, in a bid to tackle the bottom of the pyramid.

"The constant availability of top-up and the opportunity for micro-prepaid options ensure the sustainability of the operator's monthly ARPU," says Gajwani. "This is clearly reflected in the case of Grameen Phone, where with a 250% growth in top up transactions, the ARPU for prepaid users was $6.30," - high for a developing country.

Reducing churn

It is an unwanted expense to lose a customer after a mobile operator has invested in the original acquisition of that customer. Churn rates in the UK were around 30% in 2006. Churn creates two main problems to operators, reducing revenues as it raises the cost of customer acquisition. Research has estimated that the cost of winning a new customer could be 12% of the total lifetime revenue a customer brings in - operators are losing billions of dollars per year as a result of churn. By adding MFS applications and services to a mobile phone a customer could be less likely to replace their mobile operator with a new one; customer loyalty may increase as a result of MFS.

However, there are also some constraints to mobile financial services, including resistance from operators, a lack of technology standards, business model issues, and financial regulations and legislation.

Growth market

By 2011 consumers will become more familiar with making mobile payments, transferring funds and paying their bills through their mobile phones. An increase in user familiarity and acceptance will be coupled with the increasing availability of MFS applications and services.

The figures for the Rest of Asia Pacific region are higher than other regions, especially for the coming years, because of the high penetration for mobile payments and remittances in countries like the Philippines. Demographic groupings such as the overseas "Overseas Filipino Worker" are sending a percentage of their monthly wage back home to their families from cities such as Dubai, Singapore and Hong Kong.

Furthermore, a similar story is seen in Africa and the Middle East, an economic region that has a current high volume of cash transfers and remittances, both international and domestic.

Juniper Research specialises in the identification and appraisal of high growth opportunities across the telecoms and media sectors. It offers market expertise in the areas of wireless and mobile as well as content, applications and device strategies.

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