Mobility drives more digital disruption in banking
The banking industry is going through another phase of digital disruption triggered by mobile banking. How can existing players and new entrants take advantage of this shift in online banking?
According to a report by KPMG in collaboration with UBS Evidence Lab, there is already an exponential growth of global mobile banking users. They forecast that this level of growth will continue over the next five to ten years before eventually flattening out as the market saturates.
The report as identified the key demographic for mobile banking as the mid to late thirties, primarily because they are comfortable with technology and have relatively high economic activity. For those looking to switch banks, mobile banking has already become a key criterion in decision making.
While online banking still has an important role to play, digital strategies are increasingly turning to mobile. “Online banking is really the father of mobile banking, but the limitations of the computer has relegated online banking as more of a research tool and to conduct more complex transactions,” explained Marc DeCastro, Research Director, Consumer banking, IDC Financial Insights. “For day-to-day interaction with your financial institution, the mobile device is tops.”
The functionality offered by mobile banking is increasingly diverse and reflects a desire by banks to differentiate themselves and provide for specific market requirements.
Chase Bank in the US, for example, offers Chase Quick Deposit, which lets its customers bank checks from virtually anywhere. Users simply download an app, snap a picture of their check and follow the on-screen instructions to deposit them securely.
In the UK, Lloyds Bank has been investigating Near Field Communication (NFC) and contactless technology to authenticate devices during the mobile banking registration process. In the future, NFC could also be applied to other tasks, such as authenticating new payments.
Mobile money in developing countries
While mobile banking services are being led by banks in the developed world, they are being pioneered by telcos in the developing world.
Adoption rates for mobile banking are still highest in so-called developing countries – reaching 60% to 70% in China and India – rather than developed countries such as the US, Canada and the UK, according to KPMG.
Why? Because in many developing countries, a large proportion of the population are still not served by the traditional banking system. In Sub-Saharan Africa, for example, just 34% of adults have a financial account and in the Middle East it is as low as 14%, according to the World Bank’s Global Findex Database. In high-income OECD countries, 94% have an account.
In Africa, Orange Money lets consumers and business customers convert their money for storage in an electronic wallet from which they can carry out secure transfers. In some countries, the service offers international transfers. Of the 200 million euros circulating between Mali, Côte d’Ivoire and Senegal every year, 30 million euros are exchanged through Orange Money.
“The Orange Money offering in Africa, originally intended for people with no access to a bank account, is currently broadening its scope to people with bank accounts and allows transactions between their mobile and their bank account,” commented Thierry Millett, SVP Mobile Financial and NFC Services at Orange.
Mobile Money is currently available in thirteen countries: Botswana, Cameroon, Côte d’Ivoire, Egypt, Guinea, Jordan, Kenya, Mali, Madagascar, Mauritius, Niger, Senegal, and Tunisia, with a total of 13 million Orange user. Agreements with banks will allow the service to expand still further.
New mobile rivals to traditional banking
Traditional financial institutions are already facing unprecedented threats from new entrants looking to use technology to disrupt the traditional banking model.
PayPal and TransferWise are already firmly entrenched in the payments business. Peer-to-peer lenders such as FundingCircle have circumvented banks and opened up the doors to crowdfunding. Mobile banking is making the same waves.
At the end of last year, Orange in conjunction with Wirecard, launched Orange Cash in France, which allows for mobile transactions in shops and restaurants using an NFC-enabled smartphone with a pre-paid virtual Visa card.
Orange Cash customers just need to tap to pay at any contactless Visa terminal in more than 324,000 stores across the country, including Ikea and Relay, and 2.8 million payment points throughout Europe. Contactless payments are teamed with real-time loyalty and couponing deals via participating retailers through Wirecard’s Card-Linked Offers platform.
Orange is also in talks to create a new bank called Orange Bank together with French insurer Groupama, in a move that targets a new generation of consumers using mobile phone technology. Although in its early stages, the plan is to open a 100% mobile bank next year that will offer standard banking services, together with loans, savings and insurance.
In the UK, Atom Bank, Monod and Tandem were all given the green light by regulators in 2015 and are gearing up to take advantage of the consumer thirst for all things mobile. By moving all current account services onto apps, the new players are looking to exploit all the convenience of mobile banking without the hefty overheads of bricks and mortar outlets.
Maintaining market share
High street banks face a huge challenge to maintain market share in face of this digital revolution. According to a survey carried out by international law firm Pinsent Masons and YouGov, almost a quarter of respondents (24%) said they would be “likely” to be banking with an alternative payment provider, such as PayPal, within two years.
“Nobody can doubt that transitioning to a digital strategy is essential for any customer-facing bank given the potential for greater speed, reliability and security of payments and other services. However, financial institutions are going to have to focus on taking consumers with them on that digital journey,” John Salmon, Head of Financial Services at international law firm Pinsent Masons.
We are going to see an explosion of innovative banking models, particularly in the mobile sector, as existing and new entrants battle it out for market share. The winner will be the consumer who will have a smorgasbord of choice and an enhanced banking experience.
Read more on how mobile financial services fit into the Orange strategy here.