Written by Marek Handzel
When it comes to mobile banking, the UK remains stuck in first gear. Marek Handzel reports on the long road ahead
Imagine that it’s your first evening abroad on holiday. You want to go out and sample the local cuisine. So you use your smartphone to locate a restaurant that matches your budget and personal taste. While eating your meal, it updates you with an offer to visit a nearby tourist attraction for half the normal price. You decide to go, so it books you a bus ticket and checks the weather for the next day. It will be raining, so your smartphone immediately identifies some stores within 300 metres of your hotel that sell umbrellas and accept mobile payments.
As you are set to leave and pay the bill with your phone, it automatically suggests how much you should tip the local staff and displays the meal price in UK Sterling. Your mobile operator has a commercial tie-in with the restaurant too, so you get a 15 per cent discount. On your way home you check your account to make sure that the cost of the travel insurance you bought on the flight has been debited. You notice that the purchases you have made that evening been registered too.
This level of convenience and artificial intelligence, transcending language barriers and currency exchanges is currently the stuff of mobile wallet fantasy. But with the right amount of collaboration, technological tweaking and easing of regulation, it could become reality. Unfortunately, getting governments, mobile network operators (MNOs) and banks to meet these criteria may take a long time.
In the UK, mobile banking remains stuck in the dark ages. Glimpses of the start of a Renaissance exist, in the form of Barclays’ Pingit payment service, for example, but a wholesale mobile wallet revolution remains far off. This is partly due – Pingit and the like aside – to the slow adoption of mobile payments.
“Despite a great potential and need for mobile payments, the market has plenty of challenges to overcome in order to become a better, faster, more cost-effective, secure and easier payment option for consumers compared to the traditional methods they have today,” says Aksana Pekun, managing director and technology specialist at international investment bank Altium.
Sirya Nordlund, executive director at Mobey Forum, says that mobile payments has not been a focus for many banks, mainly due to not having any real direct financial incentive to do so. “The (mobile payment) ecosystem is very complex. It has many layers and as we all know payments is not an area where banks can make money.”
Then there is the regulatory stalemate. The European Payments Council (EPC) is still working to initiate the Single Euro Payments Area (SEPA) for mobile payments, but some EU countries are unlikely to meet the 2014 deadline requirements mandated by the European Union legislator.
Some technological areas that could fast-track mobile wallet progress are also lacking, says Pekun, pointing the finger at the “baby steps” taken to deploy NFC. According to research by the Yankee Group, she says, less than one per cent of all phones shipped in 2011 included NFC.
Vikram Gupta, vice president of FLEXCUBE strategy, development & management at Oracle Financial Services, also highlights problems with non-standardised platforms and upgrade problems. “Financial institutions are more challenged than ever in building and catering to a varied platform set. Apps have to be developed for redeployment on each platform, thereby increasing cost and effort considerably while decreasing the agility of banks to respond quickly to business needs,” he says. “Banks spend large chunks of their resources concentrating on portability and upgrades, rather than building functions that address strategy.”
And of course, there are problems that need overcoming within the channel that banks must use to get to their customers – the MNOs. “(They) control the network and what is included in the phones and have their own business logic,” says Nordlund. “They are looking for more control points in the value chain and preventing take-off.”
Gupta adds that MNOs, with their established customer relationships, can retain complete ownership of financial apps and services. “This has led at times to (a division) between service providers, banks and non-banks, causing fragmented development of mobile finance solutions that are neither completely integrated with the core and back office banking silos, nor completely guided, regulated or standardised.”
This leads to problems in mass acceptance, tracking, deployment and upgrade as well as making regulation even more of a headache in a “fragmented, multi-vendor environment”.
If and when payment problems are solved, however, banks will then have to earn the trust of customers who may be wary of managing and perhaps revealing their financial transactions due to both a lack of security and anonymity. “There is a thin line between customer profiling and privacy,” admits Gupta.
“The mobile device has advanced capabilities for highly personalised features based on location and preference, for example, and can help banking institutions in assisting the customer with the right financial advice and products for them, at the time the customer wants them,” he says.
But distinguishing clearly between what is personal and what can be profiled,
remains a tough challenge. Although great strides have been made in home computing security, ensuring that mobile banking is safe is an ongoing issue. “The mobile device is growing to become the unique identity of the consumer. Sensitive information stored on a pocket device, which can be easily accessed online or manually is a banker’s nightmare,” says Gupta. “Fraud from malicious apps, network security issues and man-in–the-middle attacks – to name but a few – are all vulnerabilities that need quick solutions.”
He says that effective answers will require some large jumps: co-ordination between apps, improved virus detection and better firewalls. What’s more, he says that digital verification, specifically biometrics, will have to be attached to transaction data.
We shall overcome
Despite the barriers to growth, mobile wallets are not something that banks can afford to ignore and relinquish to other providers. This is something they have been quick to recognise. According to a survey conducted by Fujitsu across 50 CIOs from UK banks, mobile is now seen as a top business priority for the industry with 71 per cent of those polled predicting it will be the number one priority by 2015.
Richard Johnson, group strategy director at Monitise, says that most banks are now getting to the stage that the number of log-ins through mobile banking is overtaking the number through internet banking. “This is becoming mainstream very quickly,” he says.
The first generation of mobile just looked at putting internet banking on a smartphone; looking inwards. But now, says Johnson, it’s connecting to the world around you. “The mobile is a much better way to engage with the world around you,” he says. “So if I’m out and about I may want to pay a friend or buy a cinema ticket, and then the bank earns a bit of commission and starts generating some revenue.”
With mobile, there is also the risk that the Googles and Apples of this world might come in and commodotise the banks, turning them into a commercial dumb pipe, warns Johnson. Which is another reason why mobile wallets are now being taken so seriously by the banks.
A space, then, offering plenty of opportunities and challenges. Whether or not mobile banking in the UK can get out of first gear and successfully address them remains to be seen, however.