Small and medium enterprises (SMEs) want mobile-based banking that helps them run their businesses smarter. This spells a new opportunity that can unlock services that generate revenue streams. SMEs are major contributors to a nation’s GDP. In G7 countries, SMEs contribute about 53 percent of the GDP. In spite of the importance of these companies, banks have not focused on the this segment. However banks are increasingly recognizing the potential of the SME market and the need for differentiated servicing for these customers.
SME customers are showing a willingness to subscribe to SME mobile banking services. A 2011 survey by Aite Group found that 30 percent of companies with revenues less than US $2 million would be ready to use mobile banking services.
Some of the key drivers for SME mobile banking include:
The ability to manage banking needs on the go makes great business sense for SMEs because it enables them to focus on managing core business operations. Often, the average SME is playing multiple roles in managing and operating his or her business. It’s imperative to address banking needs in a way most convenient to them. Additionally the rapid proliferation of devices, such as smart phones and tablets, has made mobile-based banking services more attractive and consumable.
The Cost and Revenue Factor
The relatively lower cost of providing services through mobile makes it that much more a compelling proposition for banks, as the average cost of servicing a transaction is the lowest on the mobile channel. It is noted that the average cost of a transaction is the lowest among channels for the mobile channel. According to Fiserv/M-COM, the average transaction/interaction cost starts at $4 at a branch, to 85 cents via ATM interaction, 17 cents for online and a minute 08 cents for mobile interaction. Given these benefits, banks can move routine transactions to the mobile channel, while retaining operations which require personal interactions in the branch. SME mobile banking provides banks with the opportunity to strike the most optimized balance between assisted service and cost-effective self-service. For a long time, the monetization of mobile offerings has been a pipe dream for banks. The icing on the cake is the potential for monetizing services being offered on mobile to SME customers is the willingness of the SME customer to adopt these mobile-based services.
The Payment Push
The robust growth expectations on the mobile payments space (The value of global m-payments reached €62 billion in 2010, and is expected to grow aggressively at a sustained annual rate of 52.3 percent from 2009 to 2013, putting global m-payments at €223 billion– World Payments Report 2011 from Capgemini, RBS & EFMA) is another boost to mobile-based SME banking services. In fact many leading banks are providing their customers with the ability to transfer money from account to account through mobile (B2B). Additionally the emergence of the smart phone as a mobile point-of-sale (POS) enabler has the potential to provide greater value to the mobile SME banking proposition. Brett King, the author of Bank 2.0 predicted that “Within the next 3 years our phone will become the payment device of choice for paying SMEs who work in the service arena.”
For developed/developing economies, small businesses have either limited or no access to financial services. Mobile banking is identified as a solution for unlocking the entrepreneurial potential of the informal sector. According to Oliver Wyman in Beyond Payments –Next Generation Mobile Banking for the Masses, the number of unbanked or under-banked mobile subscribers around the world will have reached two billion by 2012.
Overall, mobile banking applications for the SME mobile segment fall into two categories: customer applications and staff applications. Within the customer applications category, there are three primary areas, including core banking services, business enablement services and value-add services. Core Banking Services include viewing account balances and transaction histories, funding transfers and bill paying, receiving mobile alerts and providing multi-count access. Business enablement services address mobile POS, small business financial management, and remote deposit capture. Value-add services include mobile coupons, shopping and social media integration. Finally, Core staff applications include building an SME banking dashboard and transfer/payment approval systems. There is immense potential for banks to tap into the SME customer segment with differentiated mobile propositions. Buoyed by the willingness of SME customers to adopt mobile solutions, and, more importantly pay for some of the services, Banks are gearing up to launch innovative SME segment focused mobile banking solutions. It’s safe to say that a revolution in SME mobile banking is just around the corner.
Ravi Raghavan and Sudarshan Palliakaranai are senior solutions consultants for HCL Technologies.