March 21, 2013

Banks and financial institutions are most effective when they can utilize technology and outsourcing services to give customers full accessibility to their accounts – but reduce their direct interaction with customers. To this end, we are seeing banking technology vendors continuously generate innovative ideas and solutions. During the past decades, we’ve witnessed the evolution of Checks and their Clearing Systems, Automated Teller Machines (ATM), Point of Sale (POS) devices, Interactive Voice Response (IVR) Systems and the list continues.

The evolution of mobile technology has allowed banks to embed mobile in their front-end solutions offering flexibility, ease of use, and accessibility to their banked customers and account holders. Through Mobile Banking (m-Banking) services; users can review their balance, transfer money between accounts, and perform some sort of utility payments along with many other services that enables interaction between the account owner and the bank’s back office systems.

On the other hand, other mobile technology vendors have started to offer services for mobile users and introduced Mobile Payments (m-Payments). The contributors in this new era included Mobile Network Operators (MNOs) and payment gateway providers. Both the financial and mobile ecosystems played a major and significant role in the development and offering of new services. M-Payment solutions offer different services to subscribers such as utility payments (i.e. electricity, mobile bills, water services, etc.), mobile top-up, airtime transfer and many other services. For its basic functionality, m-Payments depend on using the cards systems: credit, debit, loyalty, business and others, whereas m-Banking depends on the majority of its transactions on the customers’ bank accounts. M-Payments also use the m-Wallet in other areas.

Despite the fact that banks are not in the forefront in providing mobile services especially in the context of m-Payments, banks still have the opportunity to conquer this market and make use of bank’s infrastructure.

The question that might rise here, is there an ongoing dispute and debate between banks and other service providers to win the market? The answer is absolutely NO.

These days, the business model encourages partnership and collaboration rather than competition between companies that may offer joined services. In this view, we could see partnership among different ecosystems, at the same time, providing a unique and unified new ecosystem that consists of financial ecosystem (banks), mobile ecosystem (MNOs) and utility service providers.

Money Transfer Future: Domestic and Cross-Borders

In the previous section, I mentioned different services provided by both m-Payments and m-Banking systems. One major function that has a wide impact in the global financial system is money transfer, which varies in amount and flows to and from different directions and performed at different levels in terms of technology education.

This is a clear example showing what the new ecosystem can provide. Partnership between financial institutions represented by the banks and the m-Payments providers such as MNOs will expand the capabilities of this ecosystem and add huge amounts of money that travels from one continent to another.

Moreover, software and technology vendors are offering and promoting the concept of the card-less ATM where bank accounts or m-Wallets (both managed by banks) are linked to a mobile number that is managed by MNOs, enabling a wider range of money transfer beneficiaries to receive money, despite being unbanked customers and customers who don’t hold ATM cards. This is a significant feature and an added value to all stakeholders in the money transfer cycle.

The Technology Question

This new partnership will enable the different technologies in the market to provide its services for both classic and newly started ones, such as money transfer.

The new ecosystem will benefit from old and new technologies supported by the mobile manufacturers and the MNOs. These technologies can be: - Short Message Service (SMS) - Unstructured Supplementary Services Delivery (USSD) - Mobile Application - Mobile Web - And the recently released technology in the market; Near Field Communication (NFC) technology.

Each of these technologies has its advantages and disadvantages. However, it is worth mentioning that the majority of stakeholders prefer investing in mobile applications and NFC due to their capabilities in providing accessibility and usability for customers.

Challenges

Security

Newly launched services will lack the trust and confidence in the market until there is a success story and some real proof of credibility. This is especially important because cardholders are apprehensive to provide card information without a guarantee that their information is secure. But who said that we shouldn’t trust mobile transactions to perform money transfer or utility payments using our own mobile devices? I would say it is more secure as most of these mobile applications are secured with digital certificates and use different mechanisms of data encryption.

In addition, most m-Payment solutions should comply with PCI standard to secure the transactions.

Fraudulent Transactions

Banks and service providers should address all issues that might fall under the fraud category. Central banks and regulators are publishing rules and regulations to govern and manage fraud transactions. It is not difficult for service providers to adhere to such rules, follow regulations, and accordingly protect their consumers and their revenues from fraud. Also, it will be a good idea to use shared services in which huge databases are in place, monitoring tools are implemented and the rules followed by these shared services are enhanced and maintained frequently.

KYC

With Anti Money Laundering (AML) regulations and laws imposed worldwide, the identity of people involved in the money transfer process becomes a major issue that service providers have to address and provide solutions for in order to eliminate this potential risk. Collaboration between MNOs, Payment Gateways and Banks (issuing and acquiring) provides a larger scale of databases and information about the people involved in this process.

Conclusion

In order to provide quality services and eliminate the risk, partnership and collaboration are the keys to success; the future will tell the success stories.

Eyad is a Sr. Project Manager at compliance and payments solutions provider EastNets who manages the mobile remittances program and payments solutions.