How do banks monetise mobile channels?

The era of mobile banking and mobile payments is dawning. Around the world and across the banking value chain, everyone is waking up to the huge potential of a market that is changing the way customers interact with financial institutions.

Richard Warren-Tangney, KPMG Partner: Bank Audit

Banks are responding to this mobile evolution in a number of ways. Some are getting ahead of customer demands by developing and deploying innovative mobile solutions with an eye towards gaining market share and driving new sources of revenue. Others are waiting for standards to be set and for customer demand to hit critical mass.

In the midst of this fragmented global approach, KPMG International conducted a set of complimentary studies to develop a clearer picture of the current – and more importantly, the future – mobile banking landscape.

We spoke with executives and mobile channel leaders at more than 20 retail and commercial banks, as well as a number of payment processors, acquirers and card services providers. Our interviews were conducted with industry leaders around the world including respondents from Asia, Australia, Africa, the US and Europe. We augmented our research with an online survey of more than 150 banks and other participants in the payment value chain.

Consumers (and a fair number of bankers) often make the mistake of using two terms interchangeably. However, ‘mobile banking’ refers to platforms that enable customers to access financial services such as transfers, bill payments, balance information and investment options. A ‘mobile payment’, on the other hand, is generally defined as the process of using a hand-held device to pay for a product or service, either remotely or at a point of sale.

In large part, the global uptake of mobile phones is driving this new market. At the same time, consumers are becoming increasingly comfortable with using mobile devices to support highly secure and mission-critical tasks.

Indeed, for both retail and commercial banks, the question is no longer whether mobile banking and payments will be important to their business (84 percent of respondents to our survey say that it will). It is how best to approach a rapidly changing and nascent channel to deliver better customer service, retain market share and protect or enhance revenues.

One of the more daunting challenges is systemic and largely outside of the control of individual banks. But not entirely: banks will be an important partner in the development of standards, the rollout of technologies and the adoption of services. They will also need to work with new and emerging value chain partners and endorse new revenue-sharing models that properly acknowledge each player’s role in delivering mobile services.

Another key technology challenge relates to security. Recent large-scale security breaches in other industries have heightened public concern and scrutiny on company security policies. While banks and financial institutions are no strangers to security and privacy issues, almost three-quarters of respondents to our online poll suggested that security was their leading concern as they develop their mobile payment strategies.

One trend that repeated itself across the value chain and in every geography surveyed, was the emergence of a core group of ‘innovators’ who, having already deployed robust mobile banking services into the market, were now making aggressive forays into the mobile payments world. However, there is no right or wrong path to creating a mobile solution.

Based on our survey, it would be safe to say that most large banks and many mid-sized banks already offer some form of mobile banking service. In fact, almost two-thirds of respondents to our survey indicated that mobile banking was either already mainstream or on the verge of gaining major traction in their market.

For bankers, there is significant difference between launching mobile services in the developed world and the developing one. According to the UK Department for International Development, more than 2.7 billion people in the developing world have no access to financial services. What’s more, the same study suggests that by 2012, 1.7 billion people will have access to mobile phones but not bank accounts.

For banks that are able to develop easy-to-use and low-technology solutions, mobile banking in the developing world offers massive opportunities and rewards. “We know there is a lot of money outside of the formal banking sector,” said an executive at one pan-African bank. “We believe that the amount of money involved is huge and any retail bank would be foolish to not play in this area.”

As mobile phone penetration soars across Africa and the pressure increases on banks to ‘bank the unbanked’, emerging market institutions that embrace mobile banking platforms may have a significant competitive advantage in the drive to increase stakeholder returns.

Richard Warren-Tangney, KPMG Partner: Bank Audit