Vertical Snapshot: Mobility in Banking

Image may be NSFW.
Clik here to view.Smartphones offer banks a new means of customer interaction at deeper levels. To increase the breadth and depth of their relationships with smartphone-enabled customers, banks must go beyond providing customized information services and offer transaction-based services. This requires two areas to mature: the development of technologies like Near Field Communication (NFC) and the mobile banking ecosystem.

Mobility: A Variable Impact on Banking Customers

Mobility offers a new channel for banks to reach out to their customers. Because mobile banking is convenient, a large number of educated young banking customers are willing to switch providers if their current bank does not offer the latest in mobile services. This article describes how to overcome the challenges and exploit the opportunities.

Banks have been cautious in adopting mobility and have experimented mainly with customer-facing services. Even for customer-facing services, there are obstacles to the penetration of mobility. One of the biggest hurdles for banks today is to determine how to reach out to customers. They need to find out which customers want to be contacted through which channel, and what products and services they would like to use across channels. Some bank customers are tech-savvy smartphone users. This group wants the bank to engage more personally with them and offer products suited to their tastes and preferences. Then there are customers who bank at branches and do not use their smartphones for banking. The bank needs to work on reducing transaction costs by nudging these customers to use their smartphones. According to the Yankee Group, some 51% of Gen Y ⁽¹⁾ and Gen X⁽²⁾ carry smartphones but do not have checking or savings accounts. As a result, they pay expensive check cashing and bill payment fees every month. This group presents a challenge to the bank’s marketing and on-boarding strategy as their service needs are quite different from the other two groups (see Figure 1).

To engage with the online savvy customers, banks should design their strategy around financial advice and planning. Based on strong back-end analytics, banks should encourage users to fulfill their requirements without human intervention, using spending and savings information to facilitate investment decisions.

Banks should entice the offline branch visitors with technology to dissuade them from visiting bank branches. A good starting point may be location-based services. This would reduce calls to the IVR or the call center for inquiries about the nearest ATMs or branches, thus reducing transaction costs.

A good on-boarding strategy for the unbanked Gen X and Gen Y customers may be to offer virtual banking coupled with a targeted credit card plan. Customers could use the mobile banking program or attach a universal subscriber identity module (USIM) chip with embedded financial functions to their smartphone, either of which can enable an array of services, thereby increasing customers’ brand loyalty.

These groups differ with respect to risk aversion and comfort levels with technology. To reach each group effectively, banks should be prepared to offer very simple information services as well as more complex transaction-based services. Let’s analyze the challenges banks face in providing these diverse services.

Mobile Services – Adoption and Challenges

Although mobility is capable of broadly offering two kinds of services to banking customers, namely, information services and transaction services, the power of mobility in banking has been vastly underutilized and has been skewed toward information services like generating bank statements, setting alerts on account activity, accessing statements for loans and credit cards, locating ATMs or the nearest bank branches, and verifying account balances. As we saw earlier, a savvy smartphone user will look for more transaction-oriented and interactive services from bankers like domestic and international funds transfers, investment portfolio management, securities trading, transfer of investment funds through mobile devices, and so on. Technologies like NFC will help push the envelope only if associated security concerns are addressed. Figure 2 shows the adoption levels as well as challenges for various services.

As is clear from Figure 2, information services are prevalent and text alerts are widely accepted among customers with online accounts. Although the number of online banking customers is relatively large in developed countries, developing countries still have more customers visiting bank branches. Another notable feature is the bottleneck due to the complex value chain for providing Location Based Services (LBS). There has been a lot of feedback requesting the mainstreaming of LBS, but due to the involvement of many stakeholders, the cost of such services is likely to be high. Other concerns relate to network limitations to provide services like accessing loan and credit card statements and document submission. These challenges would be partly met by the natural evolution of network technologies and the industrial ecosystem, and partly through technology and infrastructure upgrades in banks to support customer expectations. Both of these can be supported by high-end network and device technologies like NFC-enabled devices and GPS, but banks are waiting to see if they reach mainstream adoption.

Compared with information services, adoption of transaction-based services varies by geography. The overall picture shows that although services like funds transfer and P2P payments are being provided, there are security concerns related to transfers (prevention of money laundering) as well as problems of standardization for P2P payments. Mobile applications can make it easy to transfer money, but may also make it difficult to effectively prevent potentially unethical money transfers. P2P payments suffer from the inability of banks and other stakeholders to standardize on payment mechanisms without getting into complicated details of intermediate networks, parties, and so on. There is a need for standards and cooperative ecosystems to enable such transactions. On the other hand, advanced transaction services like Portfolio Management are gradually gaining traction, but face hurdles in the form of immature applications and the lack of connectivity between various trading systems.

NFC – Future Mobile Banking Technology

Let’s look at how NFC technology works. It has its roots in RFID technology but is more secure. Future mobile phones will come with NFC tags that will enable consumers to make payments anywhere an NFC tag reader is available. Consider what happens if Sam goes for a drink at a local tavern. When he is ready to leave, he asks for the check. Using the NFC reader, the bartender sends an SMS to Sam’s smartphone. Sam views the bill and authorizes payment via the touchscreen. Since so much business will be transacted via mobile apps, such transactions have a huge implication for the banking as well as the mobile industry. Figure 3 depicts an NFC-enabled mobile banking ecosystem.With NFC-enabled cell phones already available on the Android platform, there is nothing stopping other device manufacturers from following suit as this technology becomes an enabler for key services in many industries like healthcare, transportation, and other industries. Although device manufacturers and telecom service providers partly control rollout of NFC to consumers, it is imperative for banks to adapt in time to seize the opportunity. NFC-based payment systems have the potential to empower banks and to reduce the cost of payment services. It may, however, take a couple of years to get NFC-enabled phones into the hands of consumers. During this period, banks can consider alternative methods such as NFC stickers (which can be attached to the back of the phone and add NFC capabilities to older mobile devices,) to increase user adoption and comfort. To gain more agility, banks need to invest in technology that will allow the integration of payments from NFC-enabled phones as they become widely adopted.

In this example, technology changes the role of one player in the payments market at the expense of another. Sam receives a bill for his drink on his mobile phone bill at the end of the month. This type of payment could be a serious threat to the credit card business, and banks might have to find new ways to attract and retain the huge customer base that handles daily expenses via their credit cards. However, this is just one aspect of the story. A substantial group of people use credit card loans, which run into trillions of dollars and are a major source of revenue for banks. With the proliferation of smartphones, mobile network operators may offer similar credit for purchases.

Security is the main concern for consumers adopting NFC. Since customer information travels through multiple modes during a transaction, banks need to ensure that customer information is well guarded and that no errors or security breaches occur. This calls for cohesion between the guardians of the network – network operators, service managers, and service providers. Network operators and trusted service managers provide the anchor in the relationship. The mobile network operators have four primary responsibilities; they allow existing SIM over-the-air platform to the service provider to manage the application, create Supplementary Security Domain (SSD) as per global platform standards, assign the SSD to the NFC service provider, and manage overall Universal Integrated Circuit Cards (UICC) memory. As application owners, they manage the allocation of space on the UICC for service providers securely without imposing on other service providers’ applications on the UICC. UICC is considered as the best Secure Element (SE) in an NFC ecosystem.

Trusted service managers provide a contact point between service providers and NFC mobile phones with service providers. They remotely manage multiple applications in mobile phones thereby creating an interoperable mobile NFC ecosystem. A best-in-class trusted service manager should issue and manage trusted execution environment, securely download applications to NFC mobile phones, personalize applications, and lock, unlock, and delete applications from the mobile device when requested to do so.

In Conclusion

For mobile banking to achieve wide adoption, two things must happen simultaneously: bringing technologies like NFC mainstream and determining the right channel strategies across the mobile customer segments to leverage those technologies effectively. Banks need to balance their channel strategy delicately since ignoring one group at the cost of another might backfire. Banks should look at low-hanging fruit in terms of mobile technology and offer the right set of mobile transaction and information services. It is important to bring together the right ecosystem to integrate more complex applications so that a plethora of mobile services can be delivered to customers.

Simplifying the existing value chain can make internal processes more efficient. Using the right technology and incorporating to the Voice of the Customer are crucial components needed to provide a rich mobility experience to a broad range of customers.

References

(1) Generation X abbreviated to Gen X, is the generation born after Western post–World War II. This segment includes people born in the ’60s and ’70s, ending in the late ’70s to early ’80s, usually not later than 1982.

(2) Gen Y, also known as the Millennial Generation (or Millennials), Generation Next, Net Generation, Echo Boomers, describes the demographic cohort following Generation X. This segment includes people born between the mid-1970s to the early 2000s.

The post Vertical Snapshot: Mobility in Banking appeared first on TCS Perspectives.