Mobile banking faces uphill battle in mature markets

NFC technology might boost mobile payment systems in developed countries

The mobile phone is turning into the platform of choice for banking in emerging markets. In developed markets, however, the phone has struggled to compete with existing payment methods, and the challenges aren't going away in 2010.

Mobile banking services gained momentum in 2009 with roll-outs in dozens of countries in emerging markets, including Brazil, Cambodia and Malaysia, and the pace will continue this year, according to Sandy Shen, research director at Gartner's Mobile Devices and Consumer Services group.

"[The roll-out of services] will help the unbanked people of the world to get access to financial services and help improve their quality of living," said Shen.

For people in emerging markets the mobile phone is many cases their only means of access to financial services, according to Shen. Developed markets, on the other hand, have well-established banking and payment infrastructures. So the advantage of using the phone isn't that obvious, she said.

Still, mobile banking services are being rolled out in developed markets as well. For example, mobile phone retailer The Carphone Warehouse and Monitise, which has developed a platform for mobile banking services, have joined forces to launch the Mobile Money Network in the U.K. in the first half of the year. The network will then be rolled out in Europe and the U.S., according to Monitise.

Any retailer that wants to offer mobile services can connect to the network instead of developing their own infrastructure, including having to connect to each bank and operator individually, said Richard Johnson, chief strategy officer at Monitise.

Carphone Warehouse will use the network to let consumers send money to friends and family, top up their prepaid mobile phones and use text messages to buy goods, Johnson said.

In developed countries, where the banking infrastructure is well developed, mobile payment services are all about making the purchase of goods more convenient, according to Johnson.

However, for mobile phones to take off as a means of making in-store payments, a technology called NFC (Near Field Communications) is needed, Johnson and Shen agree. It allows users to pay by waving an NFC-enabled handset in front of a contactless reader.

Trials of NFC-enabled phones have been conducted for a number of years, but so far there are very few commercial services. Proponents of the technology face two major challenges: no proven business model and only a handful of phones, according to Shen.

Nokia is so far the only phone vendor that has launched NFC-enabled handsets, but the Finnish phone manufacturer is in it for the long haul. Launching new financial services takes time. ATMs and credit cards didn't become popular overnight, according to Gerhard Romen, director for alliances at Nokia Mobile Financial Services, whose message to other phone manufacturers is to get going.

More choice is needed for NFC to take off, and that will start to arrive next year, according to Nokia. Next year will see the launch of more phones with NFC, Shen agrees. However, phones equipped with NFC won't become available in large volumes, she said.

Payment services aren't the only possible applications for NFC phones. For example, users participating in a trial in Kuwait can tap on so-called smart posters with their phone to collect retail offers. NFC can also be used to transfer money between two phones, authorize tickets or allow people to swap items like business cards or calendar notes by tapping their handsets together, according to Nokia.

Because payment services using NFC are taking so long to come to fruition it might be that these other services will trigger vendors to launch more phones, according to Johnson.

The card companies have been very active in getting NFC off the ground.

"We continue to be bullish about [NFC] as a fundamental destination," said James Anderson, who is in charge of mobile product development at MasterCard.

The technology behind NFC is maturing. But what MasterCard has realized -- about a year or a year and a half ago, according to Anderson -- is that technology alone isn't sufficient to raise the profile of NFC-enabled systems. In order to make NFC a reality there was a lot of business work that needed to be done, Anderson said.

Banks, mobile phone manufacturers and retailers don't want to jump in head first, so taking small steps is better than trying to do everything at once, according to Anderson. To show them and consumers the potential of using the mobile phone MasterCard has done work on various intermediate technologies, including payment tags or stickers that are attached to the phone.

The first commercial services using payment tags are expected to be announced in the first quarter of 2010, according to MasterCard.

The tags work just like a traditional card, but instead of sliding the card through a reader the user holds up the phone with the tag in front of it. The tags aren't integrated directly with the user interface on the phone. Because the tag is attached to the phone MasterCard has had to make sure it doesn't interfere with the phone itself, Anderson said.

In addition to payment services, card companies and banks have already launched or are working on a variety of value-added mobile banking offerings, including notifications of transactions and account balances via SMS (Short Message Service), person-to-person payments and authenticating on-line transactions using the phone, which should help curtail Internet fraud.

"When I or one of my kids try to buy something on-line [the transaction] will come to my mobile for me to confirm," said Johnson.

Johnson is also a big believer in person-to-person payments. Lending a friend money or splitting and paying a restaurant bill with friends will be as straightforward as sending a text from your mobile phone, he said.

MasterCard next year plans to test a program that delivers discount coupons to mobile phones of consumers who agree to receiving the offers, according to Anderson. Sending offers makes sense because the mobile phone is with you when you go shopping, he said.

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