The banking industry is yet to come out of the crisis and its revenues are
still facing the heat.
Those banking
institutions that survived
the last global financial crisis are fighting hard to resolve
their current crop of problems — including but not limited to, poor customer
confidence, low borrowings, depressed asset value, lower interest rates and
regulatory strictures on risk and capital management — that have severely
eroded revenue realization opportunities. But if there’s a silver lining to
economic crises, it’s that they often breed innovation.
But in adversity, lies an opportunity for innovation.
So even as retail customers try to secure their
post-crisis future by closely watching over their money and tracking their
progress towards their financial goals, and corporate banking clients seek
better visibility into their payables, receivables and cash flow, this new-found
need for information is alerting banks to new opportunities. Similarly, the
competitive crush in banked markets is forcing banks to look at tapping the
massive revenue potential of the unbanked and underbanked segments. What is
common to the realization of these two, very different opportunities? Mobile
banking innovation.
One may wonder why mobile banking and not some other
channel. The answer to that in one word : ubiquity.
Banked customers are seeking to control their financial
positions by being fully informed. In this age of high speed change and
mobility, that implies having access to updated information at all times and at
all places. At the other end of the spectrum, there are about 2.5 billion
people around the world who don’t use formal banking services — either because
they cannot access them or because they are unable to furnish the documentation
which is required for onboarding.
In order to satisfy the first group, banks need a channel that is open to
customers in an all time mode in order to attract the second, they need a
mechanism that can reach far-flung locations as well as circumvent the rigorous
documentation stipulated by branch banking.
Only the mobile fulfills all these criteria.
There is revenue opportunity in customers’ need for information in all time
mode.
With the arrival of the smartphone, the versatility of
mobile phones has grown by leaps and bounds. They have evolved from voice
communication and texting gadgets to connected Internet-enabled devices that
are increasingly being used to access information, make purchases and conduct
other non-financial transactions. This is corroborated by a report released by
a leading independent PR agency in February 2011, which cited that consumers
were using mobile phones to gain instant access to information over the
Internet, which they needed for business purposes.
Mobile browsers and downloadable applications have also
expanded the scope of mobile banking well beyond SMS-based enquiry services, to
include features such as bill payment, and funds transfer. Their rising
popularity is reflected in the findings of a study on mobile financial services
in the United States, conducted every quarter by a leading provider of digital
analytics, which showed that access of financial accounts using a mobile
application in the last quarter of 2010, exceeded its year ago figure by more
than 100 percent.
Such developments are building a great platform for the
delivery of enriched information as well as other innovative services in all
time mode to retail and corporate banking customers, using which banks can
upgrade the mobile from a supplemental channel to a mainstream one.
There is also revenue opportunity in unbanked markets.
With the cost of mobile communication reducing to really
affordable levels, mobile phones have achieved high penetration even among the
low-income, financially excluded segments. Telecom operators, particularly in
the developing markets of Africa and Asia, have been quick to exploit their
massive consumer reach to deliver additional services to their subscribers,
including basic money transfer services. If banks were to latch on to this
opportunity to offer similar facilities, they could earn additional revenue in
the short term, and in the long run, absorb some of these unbanked individuals into their mainstream banking customer base.
The mobile enables both opportunities.
Banks intent on pursuing the two strategies of providing
greater information to existing customers, and services to the financially
underserved using the mobile channel, can leverage several innovations in this
space. However, as the subsequent discussion explains, the choice of innovation
must be guided by its relevance to the target users’ needs.
Consider the first objective, namely, providing up to the
moment information to customers at all times to help them track their finances.
Young, educated, tech-savvy customers typical of Generation Y are likely to be
the biggest takers for such services. An October 2009 study of over 1,000 U.S.
customers revealed that people belonging to Generations Y and X were most in
need of advice on the management of day to day finances. What’s more, despite
the ravages of the crisis, they still looked up to their banks as the primary
source of advice.
But even as these customers show a willingness to
continue their banking relationships, they’re bringing new expectations to the
table. First, they want the banking experience to be a lot more interactive.
Next, they expect banking services to be available over the tools and channels
that they use in their daily lives, namely mobile devices and audiovisual
modes. Last but not least, they would like to consult peers and social
communities while taking financial decisions.
Corporate customers, while currently not big users of
mobile banking, would become interested if mobile banking could deliver
tangible value by say, shortening the lead time to make and receive payments,
or providing a unified view of all accounts held globally. At the same time,
corporate customers need the assurance that transacting on mobile is completely
secure.
Each of these demands can be met through mobile banking
innovation.
For instance, banks can include Personal Financial Management
(PFM) tools within their mobile banking offering, so that users can see a
consolidated view of their accounts, track expenses versus budget, or make
investment decisions regardless of time or location. The earlier mentioned
study by the PR agency found that mobile banking users were much more likely to
manage their finances online than traditional channel users, which indicates
that they would welcome the availability of mobile PFM tools. Here, it is worth
citing the example of Jibun Bank — the first institution in Asia Pacific to
leverage mobile banking as its primary channel which offers several
sophisticated products and services including PFM, foreign currency deposits
and insurance, on that channel.
Customers’ need for
higher interactivity can
be fulfilled through an audiovisual facility provided on the mobile banking
channel, which enables them to connect with a bank executive when required.
The emergence of social networking has transformed the
way in which consumers research products and make buying decisions. This
retailing-world phenomenon has also spilt over into the consumption of
financial services, such that today’s consumers would like to compare their investment goals
with others of a similar profile, discuss
their banks’ customer service, or seek advice before buying a particular
product from existing investors. What is even more
significant is that
mobile phone users are
apparently even more socially wired than desktop-based Internet users, which
strengthens the argument in favor of allowing mobile banking customers to
connect to their favorite social networks directly from the banking channel.
Some banks like Hong Leong have already taken the lead by offering rich
services through their mobile banking app, including PEx (Payment
Express), a social payment facility that allows customers to instantly transfer
money to someone else’s mobile, from their own smartphone.
Evolution of corporate mobile banking has improved its
security and features. And while there’s still a long way to go to reach
significant adoption, these are important steps forward.
Let us now consider the second objective, namely providing an alternative mode
to fulfill the financial needs of those with limited or no access to banking.
The target customers primarily seek an economical and secure method to send and
receive money — one that involves minimal documentation, is simple to deal
with, and is accessible in familiar surroundings. No mechanism matches up to
these criteria as well as the mobile phone does — person to person lending and
mobile wallets are but some examples of how mobile-led innovation is spreading
financial inclusion.
But banks will have to overcome the challenges of mobile
banking innovation before realizing its opportunities.
While banks have an opportunity to shore up their falling
revenues by leveraging mobile banking and technology innovation, they also have
their share of challenges. The first of these is by way of regulation. Given
the industry’s current preoccupation with regulatory compliance, the absence of
clear legislation on issues like person to person lending and mobile money
transfer is forcing many banks to adopt a wait and watch approach to mobile
banking innovation. Similarly, a lack of consensus on how to share revenue with
two additional participants, namely network operators and device manufacturers,
besides merchants and payment processors, is acting as a dampener. Unless these
challenges are addressed, mobile banking will not grow to its potential.
But once they are, mobile banking will stand a real chance of emerging as a
mainstream channel and a major contributor to banks’ topline and profitability.
By Sai Kumar Jayanty, Lead Product Manager, Finacle,
Infosys
editor@telecomlead.com
