Mobile is there for the taking …
Financial institutions have owned the commercial payment space for centuries, but are now seeing a threat to their incumbency from new technologies that have opened up the industry to other business sectors. Mobile transactions in particular are shaking-up banking and new players, from mobile service providers to cyber merchants, are penetrating the market and having an impact on the behaviour of traditional financial services organisations, writes Helen Thomas.
Although our recent study found that financial services companies have a high level of credibility with their customers, their monopoly on payment-related issues will disappear if they ignore this trend. And it’s a trend being driven by consumer and business-user demand for mobile devices and the ease-of-use they offer. In fact, industry analysts at Gartner expect 1.2 billion smartphones and tablets to be purchased in 2013, up from 821 million in 2012; this latter number represents 70% of the total number of end-user computing devices sold that year. For corporate use, Gartner is predicting that tablet purchases by businesses will triple by 2016 to 53 million units, supporting a far more mobile workforce; the firm expects 40% of all workers to be mobile within the next three years.
As the number of device-owners increases, it’s clear that the analyst community sees mobile commerce as becoming an extremely valuable market in just a few years. KPMG anticipates that, by 2015, mobile payments will top $1 trillion, and the volume of mobile payments will jump around 100% per year. Similarly, Gartner expects the global mobile transaction volume and value to go up, averaging 42% annual growth between 2011 and 2016, and forecasts a market worth $617 billion with 448 million users by 2016.
Into this burgeoning market come the new entrants; the technological and business challenges posed by the mobile payment ecosystem have been greeted with open arms by technology providers – they feel at home with these challenges and are learning the ways of the financial system as they go. Many of these newer players are nimble competitors that can and will foster disruptive innovation in the mobile payment ecosystem; some, like Square and PayPal are already doing so. These innovators are transforming the purchase journey and payments experience, altering the entire customer experience as it pertains to transaction processing.
So, the battle to control and monetise mobile payments, digital offers, and virtual coupons is underway, and participants need to move swiftly and decisively to claim their place on the playing field. Internet giants have already started to acquire or partner with niche start-up players in the mobile payment space, banks need to consider this too.
Of all the players, however, telecommunications companies and financial institutions have the longest-established and deepest customer relationships. This, together with their control of assets critical for mobile payments (financial accounts and device connectivity) will be key elements in to maintaining and improving their position in the mobile payment ecosystem.
We see that mobile banking is now a mainstream expectation for consumers and mobile payment isn’t far behind. It is no longer being perceived as an alternative system but as an essential business imperative. So what should banks be doing in order not to drop behind the new, perhaps more innovative entrants?
• Take the main-player advantage. Banks have the knowledge and are well-positioned to move into mobile payments, but they need to capitalise on mobile services soon.
• Develop an enhanced mobile offering. Mobile payments infrastructure is more complex and demanding than that of mobile banking – many more stakeholders are involved, and many more skillsets are required. Financial institutions can, however, leverage the work they already have in the mobile banking space to jump-start the building and deployment of mobile payment infrastructures
• Stop thinking like a bank. The mobile payment ecosystem is populated by a large number of players who are neither banks nor financial institutions – and don’t think that way. It’s an opportunity to connect with the de-banked too.
Both retail and corporate banking customers today expect to be able to interact with their financial institutions via their mobile devices, whether over the Internet or via SMS and email, and that thinking naturally extends to mobile transactions of other types, including mobile payments.
Existing mobile banking platforms are well-positioned to support a move by banks into the mobile payment arena; the trust relationship already exists between customers and institutions, and trust is at the heart of all effective financial relationships. By adding mobile payments to their existing portfolio of mobile services, or indeed by establishing a completely new portfolio of service offerings, banks can establish themselves as the hub for all things financial for their customers. Mobile has been one of the most important strategic changes in retail banking in years, and continuing to evolve down the mobile path is critical for future success – one might even say relevance.