01 March 2005 Features

 

Mobile market moves on

Mobile banking has a poor track record in Europe and the US, but experience from Asia Pacific shows that banks can reduce costs. Rekha Menon reports on the latest initiatives

Mobile payments evangelists must finally be rejoicing: the recently concluded mobile industry mega-event, the 3GSM World Congress in Cannes, saw the long-awaited announcement of the launch dates of Simpay, the m-payment scheme created four years ago by some of Europe’s largest mobile operators.

Simpay, whose backers include Orange, Telefonica Moviles, T-Mobile and Vodafone, aims to provide an open and interoperable system of payment that will enable customers to seamlessly buy digital content using mobile phones irrespective of the country they are in or whether or not the merchant has any relationship with the consumer’s mobile operator.

“Over the last two years, phones have got better and the range and quality of mobile content available has improved drastically. We’re seeing some real movement in the m-content market. We’re thrilled to be able to put a date to our consumer launch: we are looking forward to offering consumers a fully-tested, secure, easy-to-use method of payment,” comments David Taylor, recently appointed chief executive of Simpay.

The m-payments industry in Europe has had a rough ride to date. Several initiatives have been launched in the past few years, but success has been restricted to specific regions and has been very limited. “There is a demand for m-payments but the problem to date has been the lack of an international standard,” says Tom Uhart, founder and managing partner of Nimbus Systems, a Madrid-based billing software and mobile payments company. “The most exciting thing about Simpay is that it is a completely interoperable solution, an international standard. While Europe has seen operator-driven initiatives over the years, these initiatives were doomed to have a limited appeal especially from the point of view of merchants.”

Simpay has been a long time coming and while Uhart and his ilk fervently believe that it will kick-start the fledgling European m-payments space, others are more cautious. Martha Bennett, European vice president and research director for financial services at Forrester Research says: “Simpay’s proposition is quite compelling, but how can we judge them? They have nothing to show yet.” According to Bennett, success in the m-payments market is very difficult to achieve. “The only area where you really need m-payments is where things are directly downloaded to the phone as in digital media. For anything else, m-payment systems are too complicated compared to existing alternatives such as credit cards, debit cards, cash or contactless RFID systems,” she says.

This augurs well for Simpay, because in the initial stage it is only looking at digital content. Jim Wadsworth, chief media officer at Simpay explains that Simpay’s immediate focus is the micro-payments space, payments less than €10, and specifically digital content consumed on a mobile device such as mobile ring-tones and logos. The challenge for Simpay would come when it moves out of the digital content domain and then further into the macro-payments space, an area in which Simpay is actively keeping an eye on.

Unlike other significant m-payment schemes in Europe like Paybox in Austria and Mobipay in Spain, Simpay is completely driven by the telecoms companies and does not have any banking sponsor. According to Liisa Kanniainen, vice president of mobile banking at Nordea, banks are better equipped to provide payment services at a lower cost, “Our core service is payments processing. We understand this business and have the payment infrastructure in place.” Kanniainen, who is also on the workgroup executive of the Mobey Forum, an industry body driving mobile financial services, says: “It is a very important message for banks. If banks will not provide the required service, operators will provide it even if it is not cost-effective.”

Wadsworth, however, believes that banks do not view Simpay as a threat, saying that banks are essentially not interested in serving the micro-payments space. Jukka Riivari, chief executive of Meridea Financial Software, a provider of mobile solutions owned by companies like Accenture, Nokia and financial group Sampo, agrees with him. “The micro-payments market, especially where coins are involved, is a very expensive market for banks and they would be happy to give it away. However, their concern would by why operators are getting involved in this non-profitable space.” Calling payments a loss-leader product, Riivari says: “Banks must worry that anyone who is going into a loss-leader product would definitely want something more.”

In an effort to get into the mobile payments space, Nordea, in association with Sampo, last year launched a mobile cash initiative in Finland that enables consumers to pay for goods and services in real-time using their existing mobile phones without any additional equipment or software updates. The banks have already signed up merchants such as the Helsinki Transport company and claim that usage is growing.

A leader in mobile and internet banking, Nordea in fact offers the whole array of mobile services from SMS alerts to mobile internet banking. “We were the first bank in the world to launch WAP banking, way back in 1999,” says Kanniainen. Much has been written about the failed promise of mobile internet banking and how several banks that adopted WAP banking in its heyday have since dumped it. But Kanniainen says that WAP banking usage at Nordea is now growing steadily because mobile phones are getting more sophisticated. In fact mobile internet banking for Nordea has grown by 30 per cent in the last year.

“The problem with mobile banking earlier was that we thought we could implement internet banking on the mobile. But a mobile phone is good for simple transactions such as authorisation of transactions,” says Riivari of Meridea, explaining that one of the main disadvantages of early mobile internet banking was the cost issue for consumers as they checked their accounts online. Riivari believes that they have finally created the right mobile solution that will find user and bank acceptance. This is an offline client for the consumer’s bank account that works similarly to the way Microsoft Outlook works with e-mail. Customers download the application onto their mobile phones and then can easily update the data by going online. This application will run on Java-enabled mobile phones and Meridea has already signed up five banks for the solution that will start going live in the second half of the year.

The main interest that Meridea is seeing for its solution is predominantly from the German market and is focusing on Germany, UK and Spain. Riivari says that WAP banking has left very deep scars, especially in Scandinavia. So banks that had invested in WAP banking earlier and had to cut their losses are not willing to look at the mobile internet now. Meridea is also looking at emerging markets like China and has already signed on a Chinese bank. “In emerging markets, additional value is brought by m-banking because not everyone has internet at home and even lots of companies do not allow internet access for personal use, unlike in Europe,” explains Riivari. The only problem in these emerging markets is that Java enabled mobile phone usage might not be high enough in regions with a low per capita income.

The immense popularity of SMS banking, where the bank sends SMS alerts about events such as account balance information has deterred Meridea’s entry into markets like Italy and France. In the UK too, SMS banking is very popular. The direct banking subsidiary of HSBC, First Direct, recently announced that it had sent its 100 millionth text message since launching its SMS-based customer notification service in 1999. First Direct says some 500,000 customers regularly use the service, which currently sends out one SMS message to customers every second. The bank estimates that the text service has helped save customers €32 million by alerting them of low balances and allowing them to curb their spending before becoming liable for unauthorised overdraft charges.

Most industry analysts suggest that mobile banking is a non-starter and that SMS banking instead satisfies customer requirements. “At the moment there is practically no interest on the part of the customer to do mobile banking,” says Bennett of Forrester Research. While cost was a major deterrent, it was also extremely difficult to use the mobile internet even with sophisticated mobile devices, “Often connecting to the call centre is quicker rather than messing around with the mobile application,” she said.

Indeed, while m-banking has picked up steam in Asian countries such as Japan and Korea, it still has a long way to go before Europe can be wooed and much later the US. But examples from Asia suggest that m-banking offers tremendous business benefits for banks. According to a TowerGroup report about mobile banking in South Korea, indications are that about 80 per cent of transactions are migrated from other channels and the rest are new consumer requests or transactions.

For those 80 per cent that are migrated, banks can reduce their costs of service to about 15 cents for a mobile-initiated information request compared with several dollars for the average face-to-face transaction. The additional benefit is the “immediacy value” that m-banking services can offer users, strengthening their relationship with a dominant financial institution.

So while it remains to be seen how Simpay and Meridea’s new mobile banking solutions are actually received by the market, the value of such initiatives cannot be under estimated, if only to keep the interest in mobile banking and mobile payments alive till the killer application is discovered.