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Mobile banking reaching critical mass

By KF Lai

Since the launch of the first mobile Internet banking services in 1999, many financial services firms have launched mobile ad campaigns to publicize and promote their products and services.

Banks were natural first movers in the space, recognizing that they could provide a convenient anytime, anywhere extension of their Internet banking services on the mobile Web with only slightly diminished functionality. Clients could now use their phones to check account balances, manage credit cards or loans, and transfer money between accounts.

Yet over the past year, we have seen dramatic increases in the rate at which financial services companies have moved into mobile, and equally sharp increases in their levels of investment. Clearly, the mobile medium is achieving critical mass.

What’s changed?
Banks have offered mobile banking for years, with little real innovation to their core service. It took eight years, and one small developing world player – mPesa in Kenya – to start a mobile banking revolution.

The key difference was that mPesa took nothing for granted. It realised that their target market was unlikely to open a traditional bank account, let alone register for Internet banking on a PC. The solution?To allow users to make use of their phone’s airtime balance as a mobile wallet.

So, the handset became both a financial remote control, and deposit-taking instrument. Success was quick and meteoric, and mPesa has gained millions of customers in several countries who use the service for anything from paying for shopping, to wiring money to relatives or taking a taxi home.

The success of mPesa and the number of providers who have sought to copy the approach has prompted Juniper Research to predict that the mobile banking market will be worth $22 billion by 2015.

Statistics from mobile security vendor Webroot support this claim, reporting a 40 percent growth in mobile banking usage during 2010 in Europe, and 20 million users logging onto their bank accounts from mobile devices every month.

What is more, a significant portion of the population has already transacted on mobile.

In our recent BuzzCity global research survey, we asked, “Have you ever done an online transaction?” More than 70 percent of global users had.

So, customers are more trusting of the online medium than ever.

According to the Interactive Advertising Bureau, 51 percent of the British population has already engaged in mobile commerce.

Opportunities in mobile money
MPesa is not alone in its success.

Mobile money case studies are being published with increasing frequency, and the industry is starting to gather momentum.

There are clearly a number of opportunities open to banks, financial services providers and merchants before competition makes entry into the market difficult.

The primary opportunity lies in education – of lower income brackets in the developed world, and the unbanked in the developing world.

In our recent Mobile Lifestyle Survey, 46 percent of respondents said that they would use their phones for financial services such as money transfers, bill payments and loan applications – if these were available.

In the majority of the countries that the survey ran in, though, all of these services were already present. Users were simply not aware of their availability.

The second opportunity lies in the ability of the institutions to be flexible to the needs and constraints of their customers.

MPesa was willing to work around the fact that its target market was not likely to walk into a traditional bank branch to open an account. By catering to the least advanced of consumers, it made sure that the service works for all.

The third opportunity lies in micropayments.

Mobile payment providers and gateways are missing out on the sort of lower value transfers between family and friends that occur informally, which higher-cost channels cannot profitably serve.

A number of creative approaches can be considered here, such as using airtime as a virtual currency, and building creative solutions in partnership with retailers, merchants and banks.

Marketing these services
In each of these opportunities, the first and most crucial step lies in understanding customers’ pain points in the areas of delivery, reliability, security, price and customer service.

Investing upfront in strategic marketing will ensure that fee structures are right.

Building creative partnerships will align you with the rest of the ecosystem. And if the resulting service caters to real customer needs and has been properly considered, you will have a very strong chance of success.

KF Lai is CEO of BuzzCity, Singapore. Reach him at [email protected].