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Monetizing mobile: How banks are preserving their place in the payment value chain

Monetizing mobile: How banks are preserving their...

KPMG has published the results of its latest global survey of mobile payments.


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"This survey is interesting and relevant for the Russian market, where, I believe, there is already demand for effective and modern banking approaches and services," said Alexander Sokolov, Partner, Head of Financial Institutions Services, KPMG in Russia and the CIS.

One trend that repeated itself across the value chain and in every geography surveyed was the emergence of a core group of "innovators" who were making aggressive forays into the mobile payments world. For this group, the development of mobile payment solutions offers more than just a "first to market" advantage. It also offers the opportunity to work with partners across the value chain to take a larger role in the development of standards and build early customer awareness and adoption.

With a combination of nascent technologies, unproven demand, fractured approaches and the lack of standards and networks, many banks are taking a wait-and-see approach to mobile payments. But in an effort to reduce risk, these "followers" may –in fact– be creating an entirely new set of risks such as low consumer education standards slowing adoption, security and privacy concerns impacting uptake, merchants not accepting the payment type, etc.

Mobile banking becoming mainstream

Around the world, banks of all sizes –both retail and commercial– are rapidly deploying an array of mobile banking solutions aimed at customer convenience and cost reduction. According to the UK's Department for International Development, more than 2.7 billion people in developing countries have no access to financial services. In addition, according to the same source, by 2012 there will be 1.7 billion people who own a mobile phone but do not have a bank account.

At the same time, most large banks and many mid-size ones already offer some form of mobile banking service. The new channel can be built at relatively low cost and risk by adapting existing internet platforms to mobile devices. And with little or no incremental costs for each additional mobile user, the financial justification for basic mobile banking services is easy to rationalise.

Mobile banking has also started to see widespread customer adoption, with a number of respondents indicating noticeable drops in telephone and internet banking inquiries accompanied by increased "app" download rates and text inquiries.

And while most provide basic information services such as balance updates, payment alerts and account transfers, a number of banks have also started to incorporate remote mobile payment solutions as well. Peer-to-peer payments and remittances, in particular, are increasingly being offered through mobile devices, particularly in the developing world.

“Smart phone users are becoming increasingly comfortable using their devices to take care of all sorts of daily tasks, so it’s no wonder that mobile banking is taking center stage. After all, from the consumer standpoint, banking is all about convenience. From the banking standpoint, it’s about serving customers at low cost. Smart phone banking enables both,” said Mason Tokarz, Partner, Audit, KPMG in Russia and the CIS.

“In the past 20 years, banking in Russia has evolved from cash to card to internet. Mobile banking may eventually overtake these as the preferred way of banking. Smart phone usage in Russia is growing rapidly and many smart phone users, especially young users, are open and eager to use their devices for all sorts of applications. Having a mobile banking strategy is critical for those banks serious about serving the consumer market in Russia,” - Mason Tokarz added.

Delivering on brand promises

As a response to growing customer demand, many respondents suggested that they expected to gain competitive advantage and differentiation as key benefits of their mobile banking solutions. For the innovators, however, building an early presence in the mobile banking space promises a range of other qualitative and quantitative opportunities.

Across the value chain, our study found that players are quickly moving to consolidate their position and capture larger parts of the revenue stream. Payment processors, for example, anticipate a more significant role in the mobile banking and payments system in the future, and many are already working closely with alternative payment providers like PayPal to extend their reach into the online and mobile markets.

Mobile banking has forced banks to work with new partners. In particular, Mobile Network Operators (MNOs) have become increasingly important as banks work to deploy their applications and test their functionality across multiple devices and networks. The relationship between MNOs and banks will continue to evolve as mobile payment solutions begin to enter the market in earnest.

One of the central debates for mobile payment participants revolves around the method by which devices will enable mobile payments.

From our discussions with banking executives, it seems clear that most participants are anticipating some form of Near Field Communication (NFC) technology to emerge as the winning technology. Many are looking to NFC to provide a very simple and convenient method of payment for bank customers.

However, NFC is also hampered from widespread adoption by a number of critical challenges. For one, NFC payments will require that merchant POS networks be updated to effectively interoperate across multiple banks, card types and devices. In itself, this will create a host of new considerations and challenges for banks as they build their retail mobile payments strategy.

But, according to our research, some banks are still not convinced about the benefits of NFC. At the root of the debate is whether customers will see enough value in mobile payments that they push adoption rates to a level that offsets the investment costs. As one respondent insightfully pointed out, "Consumers don't always act as logically as you think they will in the marketplace."

Another key technical challenge relates to security. While banks and financial institutions are no strangers to security and privacy issues, almost three quarters of respondents to our online poll suggested that security was their leading concern as they develop their mobile payment strategies.

What in your opinion are the main challenges companies face as they develop mobile payment strategies?

Across the payment value chain, all the participants voiced concern about the cost of the investment that would be required to build out a new payment method. Notwithstanding the expense of developing a merchant acceptance network, the roll-out of mobile payment solutions will likely require not just a financial investment, but may also necessitate a business model transformation with implications across the front and back end of the bank.

© 2021 KPMG refers  JSC “KPMG”, “KPMG Tax and Advisory” LLC, companies incorporated under the Laws of the Russian Federation, and KPMG Limited, a company incorporated under The Companies (Guernsey) Law, as amended in 2008, member firms of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

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