How Mobile Technology Is Changing Banking's Future

Industry Looks to Grow in Emerging Markets With New Forms of Payment

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NEW YORK (AdAge.com) -- Recent technological developments that allow for deposits by iPhone and mobile payments could one day make ATMs as quaint as brick-and-mortar bank branches. But the biggest impact may be on the ability of banks -- and even nontraditional players such as Nokia -- to find new revenue streams as they branch into emerging markets where cash is still king.

USAA: Deposit via iPhone
USAA: Deposit via iPhone
On the home front, the technology moves apace and isn't very hard to understand. The military bank and insurance provider USAA recently launched mobile check-deposit technology, which lets users deposit checks from anywhere using an iPhone. USAA customers take photos of both sides of a check with the phone and transmit the images to the bank, which then verifies and makes the deposit. The bank has only one branch in San Antonio and, because of its military legacy, has customers in Afghanistan and Iraq.

'Woven into our growth strategy '
"Mobile is definitely woven into our growth strategy as we continue to expand," said Jeff Dennes, executive director of USAA mobile. "We don't have branches and rely on our self-service channels, such as phones and the internet."

Bob Meara, industry analyst for information technology in financial-services research and consulting firm Celent, said USAA has deposit growth nearly triple the industry average over the past three years. Further, 17% of all its customers across investing, insurance and banking use USAA's mobile app, which also facilitates on-phone trading, filing claims for auto accidents, loan calculations and the usual access to account information.

Right now, USAA represents the bleeding edge of mobile banking technology, but has no plans to trumpet such technology in a marketing push, or to fight for more share.

Bank of America, which launched mobile apps in 2007, has more than 3.2 million mobile-banking customers that can access informational services such as account balances and history, make transactions and bill payments, transfer funds within the bank and locate ATMs. Chase also has an iPhone app, as well as text message-based services. Both banks have featured mobile services in ad campaigns.

Bank of America's Doug Brown, senior VP-emerging technology and business development, said that his bank's next-generation mobile functionality is headed toward touch-phone-to-pay, dubbed "contactless payments," and new ways to make deposits. "We want the phone to be a more functional tool, like a wallet at point-of-sale, where it becomes your payment credential, like a credit card," said Mr. Brown.

But for USAA, contactless payments are more of a long-term goal. In its sights are person-to-person mobile payments. "Person-to-person payments are next on our road map," said Jeff Dennes executive director of USAA mobile.

Nokia bets on electronic payments
And that's where Nokia comes in. The mobile heavyweight could use person-to-person payments as an entry-point to emerging markets -- and a new revenue stream. It's partnered with Redwood City, Calif.-based Obopay to launch Nokia Money, a service that lets users make financial transactions on their phones. With Nokia Money, which will start to roll out in 2010 in undisclosed markets, mobile users can send money to other mobile users, pay merchants and utility bills, or top up prepaid cellphone minutes. Nokia Money will charge users a percentage or flat fee per transaction based on the market.

While there are a few mobile-payment players in the U.S., such as PayPal, Boku and Zong, Nokia's global retail infrastructure means 4-year-old Obopay can expand these services to emerging markets, including to consumers without e-bank accounts. Shops that are currently used to top up prepaid minutes will act like Nokia Money ATMs that turn mobile payments into cash.

That means new territory for the world's largest handset maker, which has faced tough competition from the iPhone and Blackberry. For those global consumers who currently use mobile phones but don't have a bank account -- according to Nokia, there are more than 4 billion mobile phone users and only 1.6 billion bank accounts globally -- Nokia has the potential to be the first point of contact for consumers new to electronic payment services.

Mobile payment technology would take on a different role in North America and Western Europe, where there's such an established payment infrastructure with ATMs, branches, credit cards and e-payments, like paying babysitters, peer-to-peer payments and e-retail purchases. But for economies in South Asia and Africa where cash is central to financial transactions and people live outside the reach of banking infrastructure, phone-to-phone payments could be the developing world's answer to cashless payments. Person-to-person mobile payments are already gaining popularity in Africa and South Asia. For example, M-Pesa in Kenya has more than 6 million users.

"In the Western European and North American markets, there isn't a threat [to financial institutions] because we have a well-established payment infrastructure," said Red Gillen, senior analyst at Celent. "Nokia Money probably won't supplant anything in industrialized nations. But in Africa and South Asia, the mobile carrier would be the consumer-facing entity for financial services."

Why it stands a good chance

Betting on mobile rather than traditional banking isn't exactly a risky move.

Nokia claims there are 4 billion mobile phone users in the world and only 1.6 billion bank accounts. The World Bank's Consultative Group to Assist the Poor estimates there are 1 billion people in developing countries who have mobile phones but no access to formal financial services. What's more, mobile-industry trade organization Global System for Mobile Communications Association's dedicated mobile-money unit projects the unbanked-with-phones population will nearly double by 2012, representing $5 billion in direct revenue potential.

Kenya's M-Pesa mobile-payment service, which launched in March 2007, serves as a successful case study. According to the Central Bank of Kenya's FinAccess 2006 report, 38% of people in Kenya, a country of about 37 million, didn't use any form of financial service. GMSA tells us that in 2009, M-Pesa has nearly 7 million registered customers and this year's Finaccess report shows that M-Pesa has become the most popular method of money transfer in Kenya with 40% of all adults using the service.

Now scale that for India, the second-largest wireless market in the world, next to China, where 36% of people have mobile phones, according to Celent. The Boston-based financial-research and -consulting firm also reports that 84% of Indian households were unbanked in 2005 and that mobile banking in India has grown 94% since 2002. That adds up to projection of India's mobile banking active user base reaching 25 million by 2012.

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