By Jeppe Dorff, Clickatell The following is part of a series of articles on mobile financial services written by Clickatell. To read the full series, please visit http://www.clickatell.com/solutions/financial.php
Does past experience combined with the current global financial setting provide insight for creating a successful mobile business model?Since the late 1990's analysts have asked how and when mobility will impact the established financial landscape. The Silicon Valley boom at the end of the 20th century boosted online commerce, while making household names out of organizations that still thrive today. People are less likely to know, however, that one of these brands, PayPal, started out as a Palm-based mobile payment solution. PayPal quickly moved beyond mobile and ultimately found its niche to help change the way consumers purchase goods online. More importantly, they spurred a stream of consciousness from Denmark to Israel and back to Silicon Valley where the dream originally hatched. Today, eBay-owned PayPal is the No. 1 online "alternative" payment method and enjoys hundreds of millions of customers worldwide. The online commerce market hit the world by storm, giving organizations a new way to think about buying and selling. Many new businesses-eBay, Amazon, buy.com-created new models and increased revenue by utilizing only the Internet. For a decade, experts have pontificated about a similar promise in mobile, yet it hasn't yet experienced explosive growth.
Typically, markets are driven by a number of factors: pain points, market readiness, consumer education, technology barriers, overpromising vs. underperforming, etc. Mobile isn't "just" another credential to be utilized for payments. In fact, mobile payments are likely to emerge as the primary payment channel substituting the incumbent's cash and plastic in less than five years. This, paired with the complex value chain and subsequent claim of customer ownership, presents a bigger question: "How is the global financial sector going to accommodate the onset of the mobile commerce market?" More Questions than Answers Until now, the industry has been keenly aware of its position in the four-party system: acquirer, issuer, merchant, customer. The advent of mobile payments introduces additional parties, which will likely change the status quo. The entry of more players may seem simple, but numerous issues complicate the opportunity. Questions such as: Who pays to support new mobile devices, new software and POS devices? Who supports the customer when transactions fail or cards are stolen? Who determines the standards for interaction? Will there even be standards? What technologies will be used, or will the agenda continue to steer towards proprietary solutions giving more control to carriers? And, the biggest question: Who owns the customer? The Case for Mobile Payments "Everyone" has a Mobile Phone: Compare the mere 1.4 billion credit cards in use today with the 4 billion mobile phones around the world, with 99.9 percent supporting SMS, USSD, WAP, and voice "out of the box" to facilitate financial interactions. ABI forecasts that approximately 30 percent of mobile devices shipped by 2011 will support NFC, a wireless technology making it possible for cell phones to interact with existing payment infrastructures. Jupiter predicts that mobile payments, including those from contactless NFC, will generate transactions worth around $600 billion globally by 2013. The sheer scale of the mobile opportunity is staggering. There is clearly an opportunity for a myriad of billion dollar businesses to be created.
"Everyone" Makes Payments: According to Unisys, nearly 45 percent of a bank's revenue comes from payments, which represents about 40 percent of total profit. Gartner estimates that 104 million global citizens will make mobile payments by 2011. A study compiled by the Federal Reserve found that more than 65 billion electronic payments were made in 2007; a majority of which were "low" value of around $50. Additionally, the Center for Financial Services Innovation reported that FIs are tapping into the cash-dominated micro-payments market ($5 or less), valued at $4 trillion globally.
The financial world needs to acknowledge the ubiquity of mobile and the success that other sectors have experienced when integrating this forward-moving technology into commerce. Given the current federated model operating in today's banking systems, the established participants should address the questions that such an incorporation yields: revenue, customer retention, and remaining in the center of financial transactions. It is also important to transcend the current discussions and define the framework of how the ecosystem fits together and how the stakeholders support each other. Based on customer experience, initial deployments, headlines, and supporting statistics, mobile payments is the next tsunami to hit the financial world. Right now, however, mobile payments is still in the deep waters gathering its strength. When it arrives, FIs need to be fully prepared. Much is already happening in the industry and every institution should keep close tabs on global current events including analyst reports and published studies regarding mobile pilots, so they can tap into the rich field of knowledge held by mobile banking and payments vendors. Jeppe Dorff is VP of mobile financial services for Redwood City, Calif.-based Clickatell, a provider of mobile messaging services around the world.