Mobile Banking growth an Analysis

As mobile device technology evolves from being device driven to consumer driven, we are witnessing a corresponding shift in the consumer’s outlook towards the usage of mobile devices.

In the earlier days, the consumer would feel overawed by the impact of technology and could be easily satisfied with the simple promise of convenience. Today’s consumer, exposed to unprecedented levels of information and awareness, is becoming more and more demanding by the day. The average mobile device user is not swayed by the bundle of services being offered on his device; he now expects service providers to push the envelope continuously, leading to the age of consumer led innovation. The evolution of mobile device technology and the consumer’s expectations has had a significant impact on the banking industry.

With non-banking players venturing into the realm of mobile payments, wallets etc. The consumer is spoilt for choices. However, with the mobile payments industry still in a state of flux, ambiguities remain in terms of regulations, cross-border transactions, and most significantly, ownership of the customer. To survive the onslaught of non-traditional competitors, banks need to ramp up their capabilities to service the connected and aware consumer.

This blog studied the current trends in the mobile banking sector, placing emphasis on the disruptive innovations that are altering the global banking landscape

Over the years, mobile communications technology has evolved from being device-driven to user centric. In the past, the customer’s usage of a mobile communication device was restricted by the device’s capabilities. However, with the evolution in technology, the device no longer dictates the user experience. Instead, it is the other way round; the user’s expectations now drive the device’s capabilities. Increasing computing power, scalability of operations and the increasing interaction between the device and the user have led to innovations such as voice-activated assistants, mobile handsets with built in projectors, wireless battery chargers etc., which are continuously redefining the way we use mobile devices. The past decade or so, we have witnessed the evolution from physical identity cards and passbooks to virtual methods of establishing identity such as secret questions on telebanking, pin codes, barcodes, QR codes etc.

 As technology advances further, mobile devices will play a significant role in multi-factor authentication and authorization. Identity will be sensor driven in the age of robotics, cloud and predictive analytics. Face and voice recognition using biometric technology will enable mobile devices to replace the traditional modes of establishing identity.

Emerging technologies such as Near Field Communication (NFC), which is in vogue these days for making contactless payments, can also be used to enable devices to act as electronic identity documents. Since the technology supports encryption, it is more secure than Radio Frequency Identification (RFID) systems. Unique identity can be further extended to manage access in the form of common access devices, a concept that is already being applied for getting tickets or boarding passes at airports. Innovative applications of NFC technology include car locking mechanisms, tagging of pets, parking meters etc.

The emerging trends of Bring Your Own Device (BYOD) technology, virtual thin clients, and cloud-based network management can be applied to enable authentication even when a local network server does not manage the device.

As wearable’s become more and more prevalent, users will be able to carry their identity with them at all times. As mobile technology becomes more and more affordable and accessible, a mobile device will gradually become an extension of one’s self.

The delivery of a mobile banking service to a consumer in Indian context involves the participation of four primary players; A Bank, Mobile Network Operator (MNO), a Mobile Banking Technology Vendor and the consumer. 

In most instances the mobile banking vendor has been the pioneer in shaping industry adoption and lobbying the other two principle stakeholders on the value of extending the banking franchise to mobile.  The early pioneers of mobile transacting go back around 10 years. These initial visionaries have persisted in lobbying the banking industry over this time with little success, and where implemented, little consumer adoption. However the consumer mobile market has matured and the various stakeholders (banks and MNOs) seem to have taken an interest and realised the potential value of the high penetration in mobile phones amongst their respective customer bases. This is seen through the recurrent press coverage around new launches and new global initiatives to leverage this channel in banking. 

This is also clear when looking at the number of known, deemed successful, implementations in the world. The bank typically has a multi-channel approach to delivering transactional services to its customer base. Its channels include the traditional bricks and mortar branch, ATMs, POS and the internet. These channels have gone a long way in servicing the retail banks in delivering financial transaction volumes and assisting in extending the banks reach to its customers. 

Mobile banking represents a more cost efficient channel for the banks, allowing them to charge less for transactions, and permitting the consumer to have immediate access to information related to their bank accounts. These factors should translate into more transactions more often.

The bank’s mobile banking options include:

• Leveraging the MNO bearer channel and infrastructure to extend its payments franchise to mobile facilities as a channel
• Leveraging the MNO brand, distribution network, and extended customer base to target new market segments
• Allowing a MNO to use the bank’s financial license and/or infrastructure to become a bank.

The Mobile Network Operator (MNO) provides the mobile phone and the ability to use the mobile phone for providing banking services to the consumer. The global mobile phone market is becoming more competitive, with reducing prices, increasing customer churn, and reduction in profits. The highly competitive mobile environment is also reflected in the number of mergers and acquisitions seen in the global market and therefore the sheer size of some of the MNO multinationals. 

The MNO is increasingly focused on innovation in order to offer higher value to its customer base in an attempt to reduce customer churn, as well as a focus on new ways of generating revenue, even from sources not core to their current business.

Mobile software solution vendor has its roots in

• Developing applications or platforms to service its own commerce needs
• Developing applications as foresight to a future with the mobile phone as a banking channel   

These roots have developed into business models that enabled Maximus as application service provision (ASP) and packaged licensing of technology. In other words one can either pay for the use of the technology to a on a per transaction basis or license the system for use by internal operations.

Mobile software solution vendor as a mobile banking play an integral part in the delivery of mobile banking to the customer. The business model the mobile banking system vendor & technology provider we have the ability to do mobile banking, for a Bank, through a MNO, to a consumer.

In crux of the matter, mobile Banking solution facilitates the integration of the bank system with that of the MNO bearer channel, and provides the mobile banking platform or the mobile banking application, that enables the consumer to bank using their mobile phone.

Mobile banking is seen to be an extension of the existing payment infrastructure of a bank to mobile phones as a channel for the leveraging of the mobile network and its reach, to deliver banking services to consumers. The mobile banking infrastructure thus sits in a similar technical environment to the banks ATMs, POS, branch and internet banking service offerings. 

A bank’s core banking system, the system that houses the consumer’s account and related transaction management and history, would require a means to translate banking instructions, received from consumers, through one of the bank channels such as ATMs or the internet, into a format that the core banking system can process. This translation is normally performed by an EFT channel switch. The EFT channel switch would switch transactions from the channel to the appropriate area within the core banking system.   

A generic architecture depiction for Mobile banking solution

The mobile banking channel can be delivered to the consumer through two bearer or application environments. 

Client-side applications are applications that reside on the consumers SIM card or on their actual mobile phone device. Client-side technologies include, .Net, J2ME, etc. Server-side applications are developed on a server away from the consumer mobile phone or SIM card. Server-side technologies include USSD2, IVR, SSMS and WAP.

The bank would only need to select one of these bearer channels, or bearer channel strategies, for implementation. However, in some markets it would be wise to implement more than one bearer channel in order to manage consumer take up and the risk associated with non-take up of a specific technology. The selected bearer channel does not have an effect on where the mobile banking platform should sit.

The extension of the payment franchise to mobile can be as simple as a bank channel enablement or as complex as a complete bank system implementation depending on what infrastructure already exists, and that which can be re-used as part of the implementation

Let’s have close look at multi-layered mobile architecture 

Selecting the right technology for your market will, firstly, require some work to understand the market’s technology environment. Some key elements are:

• Who is your target market and which mobile devices do they have?
• What kind of user experience and value proposition would be sufficient/appropriate in servicing your target market?
• What are the bearer channel costs related to this transaction and is it affordable to your target market? 
• Does your target market have access to the bearer channel?
• Are you able to get the application onto your consumer’s phone or handset without requiring the consumer to have an in-depth knowledge of the technology?
• Is the bearer channel selected secure enough for the risk profile of the customer you are targeting? Is it secure enough to protect the bank from any reputation risk if security is breached? Are there sufficient means to manage the risk around the bearer channel chosen?  
• Does the channel comply with any financial processing rules and regulations relating to: the method of processing; authentication of the customer; transfer of data; and levels of encryption, yet still deliver on the business requirement?  

A bank with a single market segment that a certain bearer technology suits in regard to access; cost; and device and SIM dependency, should implement this single bearer channel and focus its efforts on consumer education and increasing usage.   

In a more complex market segment, or an unknown market environment, a multi-bearer strategy may suit. In this way you mitigate the risk of one technology not being taken up by the consumer. There are good examples of focused as well as spread bearer technology strategies.

Mobile banking is moving up on the adoption curve, which is evident in the number of implementations known in the world and the level of interest and discussion around the technology and its implementation.  It is also evident in the number of technology providers emerging in the mobile banking space.

There are several choices when considering how to implement mobile banking. These choices include whether or not to develop the technology within the bank, use a shared infrastructure, or purchase the enabling technology from one of many vendors. 

The choices also include various mobile bearer channels, suited to differing market segments and differing capabilities of consumers handsets. Each of the bearer channels has unique requirements in provisioning and securing applications, transactions and consumer data.

The selected implementation option including bearer channel, vendor and value proposition, should be driven by consumer adoption of the technology, technical capability of the handsets in the target market, affordability of the bearer channel, and the consumers ease of accessing the service.