Yesterday I got a mail from my bank probing me to install mobile banking application on my smartphone and get a collage cup free. This gave me a blink of fair integration of banking and telecom industry.
There is a slow tectonic shift waiting to occur beneath the banking world due to the emergence of mobile internet which will eventually alter the concept of banking, payment and money. With about half of the world's population expected to be connected via mobile phones by 2015, this is bound to have far reaching implications on social, economic and cultural life the world over. Never has the world been so widely accessible, connected, networked and mobile.
Global operators have spent around one trillion dollars to create mobile networks and services. Hardly a week goes by without any major announcement in the media about new mobile applications, opportunities, alliances and upgrades. With mobile phones becoming smarter and more powerful, with color displays and cameras, we essentially get a personal computer on phone and Internet on the move with limitless possibilities, including mobile banking.
The banking industry the world over has invested heavily and benefited substantially from computer technology to transfer traditional services related to checking, saving, loans, debts, credit cards etc. Banks first focused on computer applications in back offices to improve productivity, efficiency and reduce cost. They then moved on to front offices for tellers to improve customer services. Similarly banks have also invested heavily over the last 25 years to create global ATM infrastructure to improve access and take some of the banking services to street corners. Now they have an enormous opportunity to take ATM and other banking functions to mobile phones without any substantial incremental investments.
Banks should be interested in mobile phone technologies for three reasons:
1. To provide additional channel for delivery to mobile customers for convenience, comfort, control, visibility and security anywhere, anytime.
2. To acquire new customers at lower acquisition costs, mainly because there are more mobile phone subscribers in the world than bank account holders
3. To guard their eroding deposit base from big merchants offering prepaid cards and Internet players like PayPal.
The mobile commerce and banking have been in the making for several years with several faulty starts. Many early experiments based on small phone screens and server based wallets had very poor user experience and were not scalable.
To make mobile banking a reality, five things are required:
· Smart phones with bigger color displays and ability to connect with the Internet and download software applications directly from the net
· Simple and intuitive user interface with traditional leather wallet metaphor to incorporate branding and familiar images of credit card logos etc.
· Multiple secure payment options and services for consumers to select whatever they want from wherever they are
· Ability to store, manage and maintain accounts, receipts and budgets
· Ability to conduct physical world transactions at retail merchants
The first four are already in place. With these most of the banking functionalities related to checking balances, conducting and viewing transactions, transfer money, pay bills, receive loyalty coupons, purchase tickets etc. are possible today. The ability to conduct transactions at merchant requires interface between mobile phones and the point of sale (POS) through proximity radio frequency signals called near field communication (NFC) hardware and software. These terminals are already in place in Japan, Europe and US and are now being field tried in India and China.
Once consumers begin to conduct financial transactions using mobile phones it will be easy to integrate, customize and personalize cash, credit, loans, awards points, coupons and other promotions and incentives in real time.
The consumer will essentially focus more on spending mobile bits and bytes and less on cash as we understand today. If, for example, a one-million-mile award on international airlines, amounting to ten round trips from new York to New Delhi, is converted to instant cash, anywhere, anytime to buy other goods and services, how would this consumer account for this transaction in income tax?
For consumers to benefit from mobile banking three stakeholders will have to collaborate-banks for the financial services, Telcos for content and delivery and merchants for promotions and purchases. This could indeed create a win-win situation for all, especially the young early adapters to buy ring tones, music, games, books, movie tickets etc. If banks do not recognize the opportunity and take the initiative to drive mobile payment, there are others like Microsoft, Google, e-Bay, Yahoo! and perhaps Wal-Mart waiting in the wings to grab the new frontiers of tomorrow.
Quite inevitably the shift is caused by forces not within the industry but without. The dramatic emergence of mobile telephony worldwide is fraught with enormous implications for the future of banking and that of the form and concept of money.
The disruptive effect of mobile telephony for traditional banking has not been even recognized by the banking industry, let alone planned for. Part of the reason is that the traditionally conservative industry is naturally reluctant to adapt to this dramatic change. The institutional inertia is a serious challenge that this industry will have to address if it does not want non-banking players such as Telcos and other service providers to gradually take over the role that banks have played so far.
People around the world will no longer find it necessary to park all their cash in the banks. Instead they will have different instruments representing money sitting on their mobile phones. So instead of spending cash, they will be spending bits and bytes.
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