Balance of competitive forces is a prime consideration for mobile banking regulation

The complexity of providing regulatory frameworks for transformational banking is well known. While regulators are keen to create mechanisms to ensure access to banking services also for the poor, they have to the risks in changing existing regulations. I have written about these risks. (Read here). To recap, the following are the typical risks that one should be thinking of:

• Utilising the system for criminal activities (money laundering, funding terrorism etc.)
• Protecting the customer so that deposits are safe and also information protection
• The creation of money

Lately, in discussions with regulators and what I have seen in the market, it seems that regulators are also apprehensive about an competitive imbalances that may be created by allowing transformational banking. My first reaction was that this is not the mandate of regulators, but thinking about it, this makes a lot of sense. The natural forces in a free market system ensure behaviour that will not harm the customer, keep costs in check and contain criminal actions. If these forces are lost because of a dominant player all of these benefits will not materialise. Regulators concerned about the balance of competitive forces may just be getting it right.

A view on the trigger behaviour for mobile payments

It is my believe that many experts just re-package what they heard other people say. The saying: "Originality is the art of concealing your source", is true for most people. However, some individuals do exist that are capable of new, original thought. It is these people that build new offerings and ultimately change the world. I am privileged to know quite a few such people. One of them is my good friend Dave Parratt.

We have shared thoughts on this industry through many hours of discussion and always found his thoughts interesting and stimulating. Unfortunately I cannot share all of them because they were shared in confidentiality. However, he recently spoke about one such theory in a podcast published on the web (Read here). I suppose this means that it is now general knowledge and I can also publish it.

Dave postulate that widespread adoption of payment systems are triggered by change in behaviour of the population. He says (for instance) that the big move to card-based payments from check-payments was triggered by people that started travelling more frequently. Check-payments from foreigners were frowned on, but quickly got replaced by a plastic card.

He then describe (in much more detail than is possible on this blog), how the need for "card-not-present" transactions will drive the adoption of mobile payments. He does not believe that mobile payments (ala NFC) will replace card payments in retail environments, but will definitely become the preferred mechanism to pay in situations where cards cannot be used. (On the web, call centers, and of course on your phone). Transactions where you wanted to use your card, but cannot because you could not swipe the plastic, it is those type of transactions that are the low hanging fruit for mobile payments.

Some books that one should read in order to appreciate mobile banking

Peter, one of our senior solution consultants sent me the following quote:

"Overcoming poverty is not a task of charity, it is an act of justice. Like Slavery and Apartheid, poverty is not natural. It is man-made and it can be overcome and eradicated by the actions of human beings. Sometimes it falls on a generation to be great. YOU can be that great generation. Let your greatness blossom."

— Nelson Mandela

This really resonate with me. This is what I would want to work on and what I believe mobile banking can change. I found two books worthwhile reading with similar messages:

• "Portfolios of the Poor" is a great book describing the complexities of managing money if you are poor. The book looks at the many different instruments that poor people use to manage their financial world. (Read here)
  
• In "You can hear me now", Nick Sullivan talks about his experiences in poor countries and also the effect of cellphones on the wealth of people (Read here)

I am looking forward to hearing about other books that is a must read for us that are passionate about using mobile phones to better the lifes of billions.

Visiting our new offices

My apologies - this blogpost was mistakenly published to the wrong blog. It was meant for my private blog.

Is the US really the biggest market for Mobile Banking

Navi Radjou published an interview with Carol Realini recently (read here). In this article Carol made a number of statements that I think one should analyse a bit further:

• That the US is the next big market for banking the under-banked. She base this statement on a statistic that 106 million citizens in the US are underbanked. Considering that these people are spread over many states (all with different banking legislation) it would be difficult to offer a service to all of them. If one then compares the realities and size of this market with countries like Nigeria, Pakistan, Indonesia, Brazil or Mexico (to name just a few), this statement smacks of ignorance.
• The article reference the recent Economist publication (Read here) as if this is Obopay technology. Careful reading will show that MTN Banking and MPESA are referenced only and very different technology suppliers have made this possible. These are true African success stories made possible by the real pioneers of the industry.
  
• She makes the statement that mobile banking has not been able to scale because Operators have worked with closed networks and that the answer is open standards. Well, the reality is different. Massive penetration have been achieved by closed systems: Smart Money, GCash, mPay (in Thailand), mPesa etc. This statement is just not accurate.
  

Africa was the inspiration for Carol's company when she visited the continent in 2002, as she indicate in these interviews. I do hope that the fact that Kinshasa is the capital of Kenya as is implied in another Realini interview (Read here), is a mistake by the publishers. Knowing how big the African continent is, how big the need is and the progress that is being made by Africans for Africans, the statement that the US is the next big market is a bit ironic.

Marketing is essential to grow Mobile Banking

"Consumer Adoption of Mobile-Banking is Lagging Primarily Due To Ineffective Marketing By Many Financial Institutions" is the heading of an article reporting on a recent research report produced by Javelin Strategy and Research (Read here). "Wow!", I thought, this is insightful: it is true that consumers will not use things that they are not told about. This is marketing 101 and is true for every consumer product. Could it be that mobile banking is not reaching its full potential because it is not sold properly? So I decided to read on.

It turns out that the report provides many other interesting observations and is based on the assessment of 26 criteria for a collection of US banks. It seems an accurate observation that banks do not support mobile banking with adequate marketing when a number of banks do not describe the security of their offerings in marketing material. This is important as it is known that security is one of the key inhibitors for consumers to use mobile banking. If banks do not actively address these concerns how could they expect their subscribers to use the service?

While this is a report focused on the US market, it is my experience that this lack of marketing support is more widely spread. Mobile banking seems to be the only consumer product that companies expect to take off without telling their customers about it. This is one of those things that I have difficulty in understanding.

The "Spin" and "Hot air" of mobile banking

I have been told that flying a hot-air balloon can be quite scary. Many things can go wrong and one has to be extremely careful in understanding the weather patterns prior to a cruise. Best advise for some-one considering a trip in a hot-air balloon is to choose your partner carefully. It is important to only get into a basket with some-one that knows what they do and have a lot of experience.

The same with mobile banking. The pilot that you select for your deployments should be selected carefully. Some-one recently told me that the mobile banking industry is full of "Spin" and "Hot-air", and I thought that this is a good description of "mobile banking experts" that have not done many (if any) flights and are looking for customers to join them in their basket. The real experts actually talk little and are generally quite non-descriptive. It is my view that they are quite busy and their reputation usually does the talking rather than wild claims and too much confidence.

Who would want a bank in their pocket?

I have a lot of respect for what Charles and Brian achieved with Wizzit. The vibey brand and the distribution model should be embraced by other transformational banking ventures. They use the by-line "...you have your bank in your pocket" to describe their mobile banking offer.

Some-one recently said to me: "Who would want a bank in their pocket?" and the more I thought about it, the more I realised that a lot of truth is locked up in this question. Many professionals in this space are grappling with the challenges to ensure take-up and growth of wallets. One of the reasons that transformational banking initiatives work is if it offers a real value proposition.

What we should not be selling is a new kind of bank or banking in a different format. This is not what subscribers really want. As a matter of fact, these customers do not want to get close to a bank if they can help it, but they have very real problems to solve. The brand message should rather be "Now you can send money to some-one else easily" or "It is so easy to pay a bill, or your rent or buy stuff" or "Your money is safe". Thinking about the value proposition, I believe, will help to deploy solutions that people really want.

New predictions on Contactless deployments

With the recent launch of the Nokia 6216 Handset, I thought that it would be interesting to look at the prediction of NFC again. According to all accounts it seems as if this is a cool handset that comes with all the features that one would want in a phone. Also (most importantly) the phone implemented the (possibly industry standard) single wire protocol (SWP) entrenching the SIM card as the source of identity.

So now that the phones are available, we should start seeing more deployments, and less trails and pilots, or will we?

I thought I should look at some of the predictions that experts and specialists are making of NFC. What follows is a random selection of predictions (With the date when the prediction was made):

• Aug 2006 Technology Review published by MIT predicts that 50% of new phones shipped in 2011 will be NFC enabled
• Sept 2006 ABI research predicts that 450 million new phones in 2011 will be NFC enabled. This represents about 30% of the phones to be shipped in that year.
  
• Nov 2008 The GSMA predicts first commercial deployments during latter part of 2009
  
• Feb 2009 Informa's prediction is that 10% of phones will by NFC enabled by 2013
• Sept 2009 Junper predict that the NFC market will be $30 billion by 2012 (In the same report the prediction for MMMT is $200 billion)
• Oct 2009 Venyon CEO predicts the first mainstream production deployments in 2010

I wonder if there is a trend here somewhere?

Financial services for mobile devices: new trends from the Philippines

Trust the clever people in the Philippines to lead the way with Mobile Financial services. Any person studying the industry would know that it was the people from Smart Communications that deployed the first commercially successful mobile-based person to person payment system. Mobile banking the way that the rest of the world deploy them has been available in Manila for ten years and they invented mobile remittances. It therefore does make sense to look at what they are working on now.

I picked up on a number of interesting articles published during the past few weeks that all seem to point in the direction of a new generation of mobile financial services. "We are looking at it..." says Napoleon Nazareno, president of Smart about Micro Finance in one article (Read here). In another article (quoted from the Philippine Star) John Owens says: “It has to do with smart money and mobile phone technology,” (Read here). John heads up and organisation called the Micro-enterprise Access to Banking Services (MABS) program in the Philippines. In this article mention is made of ".. several mobile banking products already being pilot tested with several rural banks."

Could it be that we are seeing the emergence of a new generation of banking products based on the proven mobile payment capability in the Philippines? How would this be translated into other markets? I think it is worthwhile to keep tabs on these activities.

The SIM-based authentication mechanism in Turkey

Turkcell provides advanced crypto authentication on every SIM card that they ship (Read here). The level of technical security provided in this way can not easily be duplicated in any way as the SIM provides a cost-effective way of distributing crypto keys.

As far as my information goes, at least twelve of the largest banks in Turkey makes use of this solution for secure login in order to gain access to Online banking. Amongst others, the solution is also used in e-Government. (For instance to access and lodge Patents, to get access to government information, during the Customs process and various declarations.) The wide roll-out of this solution places Turkey at the forefront of digital signatures.

The solution has been designed in such a way that it is available on any type of handset (expensive or entry-level, old or new), the interface is simple to understand and use, yet powerful in application. The fact that the same security paradigm is used for many different applications ensure better support and a high level of confidence with the subscriber base.

It would be interesting if some-one could provide us with more information on commercials, the take-up and usage and any technical challenges that Turkcell experienced in deploying this solution. Purely from a technical perspective, every mobile operator should consider deploying similar infrastructure at a marginal increase in cost, but offering significant benefits to all of their subscribers.

Turkcell Mobile Signature is Turkey's first and only ISO/ IEC 27001 Information Security certified GSM service. The service infrastructure and processes are audited by globally accredited audit companies and by Turkish Telecommunications Authority.

New types of mobile based payments by mainstream banks

We have seen it in the past: a mainstream bank attempting to launch a mobile payment or an innovative payment solution. These attempts usually ended in the "did not work" folder and life carried on. This is why mainstream banks wait for standards to evolve. By launching a product conforming to an industry standard, the bank can be assured of interoperability, conformance to regulations and a clear definition of liability(and how to manage risk).

However, it seems as if this may be something of the past, with a number of proprietary mobile payments and wallets being launched by mainstream banks with very little consideration for standards. It is almost as if the banks are saying: "We have waited long enough for these standards to emerge..." and now we are going to do what is needed. And I am impressed with what they produce.

I was exposed to the mobile wallet solution being offered by Rabobank in the Netherlands last week and was really impressed with the way that the team have worked on integrating different aspects of remote payments, SMS order entry and proximity payments. The solution is called MiniTix and may indicate a way forward for mainstream banks (Read here).

Of course one can reference many other initiatives. For instance the Mowaly wallet from Standard Bank recently launched in South Africa (Read here), the tie-up between Deutche Bank and Luup and many initiatives that one can refer to in the US. (for instance Boku (Read here) and the Starbucks wallet (Many references, but read here). Maybe it is time for mainstream banks to stop waiting for standards and start delivering solutions in this space.

Nacha requests mobile payment ACH comments

Nacha (the US electronic payment clearing organisation) published a request for comment document with major implications for mobile payments. (Read here). This action in my view could be one of the biggest catalysts for proper mobile payments in the United States.

If the door being openened by Nacha is embraced by a critical mass of financial insitutions, the US is poised to launch the first cost-effective interoperable mobile payment solution in the world. Nacha provides the rules and the infrastructure to enable electronic funds transfer from one bank account to another in a secure way. This, coupled with a very low cost structure and enough participation can trigger true mobile payment products, that are both open and flexible.

The RFC issued by Nacha recognise that payment transactions triggered from mobile devices should be identified as such and that different rules can be applied to these transactions. The question now is, if financial institutions see this will they embrace it?