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Mobile Financial Services (MFS): The unrealized potential

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4 January 2011 04:31 am - 0     - {{hitsCtrl.values.hits}}

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By Thanzyl Thajudeen
Overview

 Along with the increasing usage of mobile phone handsets globally, the handset is becoming an excellent primary digital channel for the banking and financial players in the markets - mostly being emerging markets. These include m-banking, money transfers, m-wallets, and remittances.
This trend currently is growing at a very fast rate and is said to reach 1 billion people by the end of 2015. According to Berg Insight, an insight agency, in April 2010 estimated that users of m-banking and related services (including money transfers) almost doubled between 2008 and 2009 to 55 million, and also stated that it will double again in 2010.
 In 2015 there will be 894 million users globally. This growth is mainly being driven by efforts of operators and banks in developing countries (particularly in the Asia region) to bank the unbanked. Global Industry Analysts (GIA) in February 2010 predicted the global customer base for m-banking will reach 1.1 billion by the year 2015 whilst ABI Research in January 2009 forecasted that in 2013 there will be nearly half a billion customers of MFS.
 Defined
 Mobile banking is an emerging convenient solution for customers with existing bank accounts to get connected to their bank or financial institution over the mobile network. This includes standard banking that is to check summaries, transactions, balance, and credit as well as debit card management, and a whole new array of emerging conventional banking services.
 M-wallet on the other hand is a solution also adapted for unbanked customers. It provides the unbanked customers with an access to financial services via a mobile wallet (store value account).
 Mobile payment enables customers to make credit card payments and bill payments any time, anywhere, from either a bank account or a mobile wallet.
Mobile money in where transferring money through the usage of international or national remittance hubs from and/or to a real bank account or a mobile wallet (e.g. peer-to-peer).
 Worldwide mobile payments (m-payments)
Portio Research in March 2010 estimated there were 81.3 million people worldwide using their mobile device to make payments which includes in-app payments, mobile ticketing and mobile coupons, etc in the year 2009. By the end of 2014, it is forecasted to increase to nearly 490 million - that is almost 8 percent of mobile subscribers
In terms of volume, m-payments i.e. face value of purchases and transactions, was US$68.7 billion in 2009, rising to US$633.4 billion by end-2014 according to the reports.
Juniper Research in April 2010 predicted that nearly 50% of global mobile subscribers - both developed as well as developing nations - will pay by mobile for physical and digital goods and services such as ticketing, etc by 2014.
On the other hand, IDC in May 2010 believes that in EMEA, m-payments will be slower than m-banking, forecasting that13% of mobile subscribers will be registered to use m-payment.
M-commerce boost more mobile transactions
 As predicted by ABI Research in February 2010 the m-commerce market value will reach a value of US$119 billion which is about 8 % of the total e-commerce market.
In today's context, Japan is the leader of m-commerce, where mobile Web shopping exceeded US$10 billion in 2009 according to the report. 74 percent of online retailers in the US are planning for m-commerce, according to Forrester Research (June 2010) in which one in five have a fully implemented mobile strategy in place already. Retailers were spending an average of US $170,000 on their mobile sites in 2010, with large multichannel retailers spending several times that amount.
According to the Altimeter Group (June 2010), the top m-commerce retailer was Taobao which is a part Chinese Web giant of the Alibaba Group with an estimated $800 million in revenues in 2009.
EBay's mobile gross merchandise volume ("GMV") was $600 million plus in 2009 according to statistics from eBay.
 From June 2009 to July 2010, customers around the world have ordered more than US $1 billion of products from Amazon using a mobile device, according to Jeff Bezos, Amazon.com (July 2010).
 Banking the unbanked
 According to Pavola and Nokia, with more than 4.6 billion people already using a mobile phone globally and less than 2 billion people having a bank account (out of a world population of 6.8 billion), it's clear that a larger populations is left without bank accounts mostly being in developing economies. Being able to do transactions in a secured way, as well as from anywhere in the world, is a key part for people's life as it enables them to build and grow their own life and business.
This is where mobile wallets (m-wallets) come into play as it meets the needs of cellular customers who don't have a bank account for themselves. In Indonesia for instance, there are only 40 million banking customers but there are 160 million mobile-phone subscribers. Of all mobile financial services (MFS), the one with the biggest potential is remittance services, particularly the sending of cash from abroad according to statistics of Putra and Indosat.

Mobiles will play a significant part in the quest to provide banking or banking-like services to those at the bottom of the pyramid. Mobiles are fairly simple to understand and roll out; it's also cheaper and more accessible to everyone according to Avendano/GXI.
Realizing the potential
 Banks and other financial institutions throughout the globe are now realizing the added values, improved customer convenience, speed of information availability and cost savings resulting from mobile integration of consumer and enterprise services. 
These simple notifications services which are available to customers not only improves customer satisfaction levels but also results in savings for banks as customers do not call centers or walk into bank branches for such routine information, thus saving the traffic by minimizing it - being green and responsible. It's almost the moment to cut as much things as possible that are confusing the customers - it's much better to be simple.
 As stated by Abraham Punnoose, vice president at Roamware, San Jose, CA "The trends are about empowering customers with real-time advisory notifications about transactions on their financial services and the capability of transacting their accounts on the move".
"For example, the ability of paying a utility bill via a mobile connection using one's mobile banking service, provides customers the ability of being in control even while on the move without Internet access," he said.
 Security and threats
 Along with the increasing usage of mobile financial services, there is an increase in mobile fraud. Customers are reluctant, and are worried about carrying out transactions over the mobile - this is the challenge the mobile network operators (MNOs) need to work out closely with the financial institutions. Despite this, organizations such as Gemalto, a world leader in digital security has developed the most secure and comprehensive Mobile Financial solutions in the market.
Benefits to the banking and financial institutions
 This will strengthen customer loyalty by offering new and better services by attracting new customers to one-on-one bank-customer relationships, expanding the institution's brand presence in the marketplace, extend the bank's reach by turning cell phones into ATMs, increasing market presence using new, flexible and ubiquitous channels, reducing the cost of direct teller interactions while maintaining the level of high quality service, increasing usage through availability, providing 24/7 services, creating direct marketing channels and also creating new revenue sources by offering new transaction.
Benefits to Mobile Network Operators (MNO's)
 This increases the provider's brand presence attracting new customers and by strengthening customer loyalty levels through better service offerings, increases ARPU (Average revenue per user) by opening up new revenue streams and boosting the usage levels of the network, widens the provider's services portfolio, providing subscribers with instant access to airtime purchase. This also increases the cost-benefit ratio by reducing per-service costs, and overall it allows Mobile Network Operators in playing a leading role in the convergence of services and breakthrough technology.
Conclusion
 Asia-Pacific is by far expected to become the most important regional market, accounting for more than half of the total user base. Furthermore by 2015, Berg Insight forecasts that mobile banking will attract 115 million users in Europe and 86 million users in North America. "The global number of mobile banking users more than doubled between 2008 and 2009, and almost doubled again in 2010. Mobile handsets are in an excellent position to become the primary digital channel for providers of banking and related financial services on emerging markets," said Marcus Persson, Telecom Analyst at Berg Insight. It's time up for marketers across banking and financial services, telecommunication sectors as well as mobile payment entities to realize the potential it holds and leverage this opportunity before it's too late.


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