The rise and rise of mobile financial services

Matt Buttell

Banking via mobile devices is becoming more and more critical to the financial sector. From India to the EU to the US, the growth in mobile financial services is raising issues of security and trust - but can the industry's hottest trend prove itself as a sustainable method of banking?

The way we bank has changed. Sheltering from a battered economy, with consumer confidence at an all-time low, unemployment levels soaring and banks struggling to restore their former glory, many customers are now living paycheck to paycheck, being overcharged as they struggle to manage their finances and are feeling increasingly under-served by the the traditional banking system.

Currently the US has 106 million underbanked citizens, suggesting that a significant portion of the population could benefit from innovative, low-cost financial schemes such as mobile financial services.

In the Indian subcontinent and Africa, for instance, where hundreds of millions of people face financial exclusion, mobile banking services are becoming a hot new phenomenon. India is home to 600 million unbanked citizens, for instance, while only 25 percent of Africans are banked.

The logic behind the growth of mobile services is based on one simple truth: if these millions of people can't go to the bank, then the bank must reach out to them.

Key trends

Meanwhile, in the European Union, new research conducted by leading advisory firm Celent examines the current penetration and growth opportunities for mobile financial services within the EU.

The findings of the research show how mobile financial service adoption is heavily influenced by internet banking penetration and the sophistication of incumbent payment systems, such as card payments. In other words, the more widely used internet banking is within the nation, the more likely mobile banking will play a secondary role. By contrast, the more sophisticated the incumbent payment system is, the more likely that mobile payments will take on a "niche role". Depending on the country, these factors can be quite different, resulting in varying mobile financial service environments.

Growth

Elsewhere, back in August, Nokia - the world's top mobile phone maker - said it would launch a mobile financial service next year targeting consumers, mainly in emerging markets, with a phone but no banking account.

According to reports at the time, Nokia said its Nokia Money service was based on the mobile payment platform of Obopay, a privately-owned firm that Nokia had invested in earlier this year, and is now building up a network of agents.

Obopay, meanwhile, which uses text messaging and mobile internet access, charges users a fee to send money or to top up their accounts, and is making significant waves in both India and the US. According to Obopay's CEO Carol Realini, "In order to be optimal, a mobile payment system must boast two qualities: affordability and openness.

"To make small transactions like micro deposits affordable, the system must be anchored by a very low cost business model. And to allow ubiquitous access, the system must be built around an open network that supports all mobile carriers and interconnects with all banks, thus generating positive networks effects."

And for the guys at Nokia, chief development officer Mary McDowell has similar notion, having previously commented how mobile-enabled financial services offer "tremendous growth opportunities."

But, with more and more mobile devices in use, so comes more and more challenges in terms of security and risk management. Still though, if mobile-based financial services do warrant a significant chunk of future market space, the facts are simple: the significant gap between people - especially those in emerging markets - who have a mobile device but no bank account needs to be addressed.

And, if mobile money is going to be one of the hottest topics in the wireless world, we need to be ready for it: both in terms of technology, acceptance and security.

After all, according to a report by the Consultative Group to Assist the Poor (CGAP), a US-based microfinance policy and research center, the market for mobile financial services to poor people in emerging markets is set surge from nothing to $5 billion by 2012. It's going to be one interesting ride.