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U.S. Mobile Financial Services Still Needs Operating Model

With mobile banking on the rise in the U.S., institutions still are challenged to find the best operating model.

The Cell Phone Carrier Battle

While m-payments will be a money-maker for banks, they're probably going to have to factor the cell phone carriers into the equation as well, points out Red Gillen, senior analyst with Boston-based Celent. "If there is interchange revenue garnished by the banks and payments associations, they will probably have to cough up some money for the carriers," he comments.

Gillen explains that because a payments application is more dependent on the device itself -- as opposed to a typical banking solution, which can be carrier-independent -- the carriers will want a cut. "I can see perhaps some kind of flat, one-time fee being paid to the carriers for each time an account is loaded onto a phone," he notes.

Carriers certainly are the fly in the ointment when it comes to the expansion of mobile applications in the U.S., contends TowerGroup's Egan. "This is a battleground between the four major cell phone operators and the 8,000 financial institutions in this country," he asserts. "The operators want to be in the control path when it comes to mobile financial services."

And the battle is over more than just fees, notes Celent's Gillen. "Revenue-sharing is just one aspect," he says. "There's also the battle around branding -- carriers versus the banks versus the payments brands. They all want their name on top. I think whatever business model dominates should reflect the cost and risk borne by a particular player."

The fight isn't as contentious in m-banking as it is in m-payments, says Javelin's Cundiff. "There is a staring contest going on on the payments side -- this is the real battlefield," he comments. "The carriers want to tap into the multibillion-dollar interchange area, but that's where the [financial institutions] dominate."

According to Edgar Dunn's Schmeltzer, however, though there may have been a battle between banks and carriers a year ago, "Mobile is becoming more of a cooperative effort where both sides realize they need the other. The carriers own the channel, and the banks own the services. The two sides are looking for more ways to cooperate. They know exclusive contracts won't work so they need to deal with as many providers as they can for this to work."

That said, banks still need to decide how they will offer mobile services to their customers. The three primary ways of delivering mobile financial services are via text/short message service (SMS), browser and downloaded applications.

Pick a Form Factor

Each form factor has its own unique attributes that makes it suitable to different types of transactions and demographics. And all observers agree that in order to ramp up adoption rates, banks are going to have to offer customers a choice in mobile banking applications.

"To be successful, banks will have to support all three solutions because different demographics will gravitate to different technologies," asserts TowerGroup's Egan.

"Text casts a wide net because the vast majority of devices have this capability," adds Javelin's Cundiff. "A bank is able to reach the majority of its customer base with text."

But browsers shouldn't be dismissed, adds Celent's Gillen. "We're still in the early stages with this technology. But browsers are almost as ubiquitous as SMS," he notes. "Banks should go with the technology everyone has."

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