My handheld bank

Mobile telephony, which in a few years has penetrated virtually every corner of the world, has opened new opportunities for marketers of goods and services. Recent research indicates mobile handsets can become the primary digital channel for delivery of banking and related financial services in emerging markets.

While analysts may debate whether the number of mobile banking users will cross the magic one-billion mark by 2015, everyone agrees it's an idea whose time has come. What's more, mobile banking is undergoing a complete renaissance, to deliver versatile financial services ranging from transaction banking to money transfer and commerce.

Market watchers will recall that mobile banking, which arrived on the scene in 1999, had a fairly unremarkable history until recently. So what's different this time?

Turning the clock back about 10 years, we find that the fundamental change is in the ease of adoption, scope of application and definition of target audience.

Mobile banking customers have crossed the learning barrier, which is crucial to the acceptance of any new electronic channel.

Sometime in the second quarter last year, worldwide mobile subscriptions crossed 5 billion. Its near-universal adoption gives the mobile phone a significant competitive edge over channels such as the ATM and call centres. Going beyond the familiarisation stage, mobile users have embraced the device not only for communication but also lifestyle enhancement.

Today's mobile banking is wiser, wider and for the masses.

Most new technologies usually have a few early adopters who are eager to try everything. However, this small subset can hardly predicate a business case. Enthusiastic and technology savvy, they willingly overlook initial glitches.

An offering that is acceptable to the average user is another thing altogether. Banks now have the benefit of hindsight to know that any channel innovation can succeed in the mass market only if it features essential attributes such as security, convenience, simplicity and functionality.

Consequently, banks have taken steps to enhance the mass appeal of the current mobile banking avatar, with friendly features beyond SMS banking and greater security features. Beyond doubt, the arrival of sophisticated mobile devices, including smartphones with their pleasing interfaces and downloadable mobile apps, has played a key role in this improvement.

Mobile banking is no longer stepped-up Internet banking.

When banks first launched the mobile channel, they assumed it was the next stage of Internet banking and promoted it largely to Internet banking users, then a small minority.

Over the past decade, Internet users have grown across geographies, age groups, professions and multiple linguistic profiles, and consequently enlarged the mobile banking target audience. However, little did banks foresee that developing nations, which still lag in Web connectivity, would leapfrog into mobile banking for their unbanked masses.

The Asia-Pacific region (which will account for more than half of all users of mobile financial services), together with West Asia and Africa to some extent, is expected to drive the growth of the gamut of mobile banking and remittance activities. The mobile is also central to the financial inclusion initiatives in this region. The mobile banking ecosystem is widespread in these markets, comprising not only financial institutions and telecom companies, but also business correspondents, retail outlets, and local small businesses providing last-mile connectivity to far-flung customers.

On the other hand, North America and Europe continue to take the more predictable path from Internet to mobile banking, and will collectively have about 200 million users by 2015. Europe's mobile banking is in various stages of development, ranging from basic text-based banking in Central and Eastern Europe to sophisticated 4G services in the Nordic region. And while both mobile payments and commerce are still at an insignificant level, the recent announcements of NFC enablement by several handset manufacturers might give an added push to contactless payments on the continent.

Today, banks view mobile-led innovation as a strategic priority and a means to achieve various objectives.

Customer acquisition and retention: The ubiquitous, uninterrupted, low-cost access and greater control over personal finances make mobile banking a very attractive proposition. It is likely that customers in future will choose their financial service provider based on the quality of mobile channel, rather than branch network.

Market expansion: Mobile banking has enabled banks to reach far-flung areas that were not served by traditional channels. Money transfer and wallet services, especially in emerging markets, are expected to create new revenue sources in the form of mobile payments and commerce.

Cost-efficiency: Mobile banking is the most economical form of financial product distribution — it is estimated that the cost per transaction is 8 cents for mobile banking, against $1.25 and $3.75 for IVR and Call Centre, respectively. With smartphones supporting most types of banking activity other than the management of cash or cash-based transactions (which are in any case dwindling), there is a huge opportunity to save costs.

Cross-selling: Because customers holding a large number of products are less likely to leave their bank, cross-sales assumes importance both for revenue generation and customer retention. Significantly, customers seem more open to cross-selling messages delivered in conjunction with a mobile banking activity — piggybacking an offer on an alert, for example. Moreover, banks can leverage the GPS capability of smartphones to deliver location and context-specific information, promotional offers and mobile coupons.

Increasingly, banks look set to innovate their mobile banking proposition to create new offerings, reach more customers and converge banking, entertainment, networking and commerce, all through the medium of a small, handheld device.

This time around, mobile banking is ready to take its place in the sun.

The author is Vice President & Head Worldwide Business Development and Alliances – Finacle.

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