Are telecommunications companies and the financial services prepared enough for the oncoming mobile banking revolution?
Much has been written and said about MobileBanking and how it will change the way people conduct their financial affairs, buy and pay for goods and services and the subsequent impact this may have upon us, the consumers and the providers of the new services.
To help stimulate some thought on this at the last Experian Telecommunications conference in Holland, a Discussion Panel was held to see what people from both the banking world, who are currently engaged in mobile banking, and the attendees from the Telco world have been doing in this space to develop products which are in demand by mobile banking consumers and their appeal to potentially new and existing account holders.
Importantly, we also wanted to discuss what the Credit Risk and Fraud teams, who are currently or may become involved in assessing customer credit worthiness and preventing fraud, what new strategies they were adopting to ensure this did not pose a serious risk to their businesses.
First of all, what is Mobile Banking? If you asked this question 10 years ago you would have received a very different response to that of today and would have probably have entailed the vision of a vehicle driving from village to village to serve the local populations who could not travel significant distances. Today, it is dominated by the proliferation of mobile telephones, which boasts +80% of the world's population as subscribers, and the software applications now available on these devices.
Mobile Banking now means conducting your financial affairs; transferring money from account to account, making payments, buying goods, reviewing transactions and using your handset from anywhere you have network coverage.
The growth in internet banking caused significant changes to the way we now use our bank accounts and it was the precursor to mobile banking as it proved the service model for the bank and provided real time account management and convenience to the account holder's. Now everything you can do using the internet can now be done using your enabled mobile phone.
In the developed world, many bank branches have been closed due to the drop in people making use of them and I for one have not visited my own branch for 10 years, preferring to use the internet or call the contact centre. Yet, if I were in one of the many parts of the emerging world I may never have seen a traditional 'brick's and mortar' bank as we know it let alone step inside one.
One of the big challenges of emerging markets is to make banking facilities available to a much wider range of their populations, in fact, the majority of their populations may be unbanked. Currently, there are an estimated 3 billion people, a staggering percentage of the world's total population, who are classified as unbanked.
These peoples do not have access to the traditional banking services such as savings accounts or the means to borrow money, at reasonable interest rates, terms and conditions, to help them buy goods or build their own businesses. Therefore, by helping the unbanked to become banked this will stimulate the economy of their countries. This is also important to us in the developed world as these people are potential customers of our products and services.
Imagine what would happen if the world had an additional 1 billion people wanting to and being able to buy goods and services, what would it do to unemployment, manufacturing, industry and tax receipts?
Mobile networks are recognised as providing better network reception coverage in emerging markets than even local radio or television. Mobile networks are also recognised as being very secure and free from hacking by would be fraudsters. So, the model to use these features to extend banking to a wide audience were traditional bricks and mortar bank buildings are not available has a huge attraction.
The remaining question relates to who provides those services? Is it the mobile networks themselves or the traditional banks using the networks as the pipe like a broadband connection? Certainly, mobile companies are keen to make us of their billing capabilities to sell non-traditional telco services such as music downloads and to enable micro purchases and payments. Subscribers can then buy small items such as cans of drinks from vending machines, rail tickets etc which will be billed directly to the subscriber and the network charging a merchant fee or commission for providing this payment service similar to Visa or Mastercard.
The next step would be to provide all the services that a current credit card allows, as the only difference is the average transaction value between a credit card and the mobile micro transaction. Or is it the traditional bank who should provide these services? The reality is that both can play in this space as long as they have the technical capabilities to do so. This is why Rabo Bank of The Netherlands has become an MVNO (mobile virtual network operator) in Kenya to promote their banking services and Safaricom, a mobile network operator (MNO) has set up a mobile bank, M-Pesa, which already has 4m account holders.
The issue this creates for the Telco Credit Management teams is a significant change in customer profile, behaviour and risk. They are now managing subscribers consuming non Telco services were the margin is significantly smaller than they are used to on normal Telco services and the cost they need to bill is 100% of the goods value. Also, the subscriber has usually only been asked for and provided very limited, non-financial, information about themselves. They are now being encouraged to use this new credit service as they would a bank account or credit card. Are their credit teams ready for this?
Similarly, the traditional banks are now dealing with a changing population who are becoming more demanding for faster, more convenient services in the developed world at the touch of a button on their mobiles or a new vast population, who have little or no understanding of the products and services and are living in remote areas using their services in new and challenging ways to build a life for themselves. Are the banks credit teams ready for this and do they have the appetite given their recent challenges in the developed world?
Phil Watson
Senior Consultant
Decision Analytics
Experian
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