Mobile Banking Faces Competition, Interop, Consumer Issues

ABI believes that 193 million people will be using mobile money services by 2012, a less “aggressive” estimate than the 364 million users predicted by the Consultative Group and the GSM Association, Beccue said. The services include person-to-person payments, mobile top-ups, mobile banking, and m-commerce for buying physical goods and services, he said. Becue concentrated on P2P payments between those in the same country, which he said will have the greatest effect, and international payments.

P2P payments are used in parts of Africa, India and other places where families are split up for work. Mobile services offer access to mobile operators’ agents almost everywhere, including in rural places with few banks, Beccue said. There’s pent-up demand for the services, but adoption is held back by differences in national regulations, he said.

International remittances are cross-border P2P payments now handled mostly by wire transfer, Beccue said. They follow migration corridors. In 2008, 200 million migrants living in developed countries sent $232 billion to relatives back home, he said. Many remittances are made by cash to a mobile phone, he said. A worker in a developed country can pay money into a payment office, which wires it to a mobile operator with a mobile “wallet” that allows the recipient to withdraw cash from the agent on the other end, he said. Payments can also be mobile-to-mobile, and then the recipient gets the stored value of the money, he said.

Regulatory Issues

Competition issues in mobile banking have become more visible in some markets in the past year, Lyman said. There’s competition between banks and other providers, he said. The Consultative Group sees conflicting trends, “both potentially troubling” depending on a country’s regulation and market structure, he told us.

The first is that banks are using their clout with financial regulators, and are taking advantage of authorities’ wariness of risk, to block openings for other businesses, such as mobile network operators, to play a role beyond electronic communications channels, Lyman said. Oln the other hand, in places where providers such as MNOs can operate outside banking rules -- including Kenya, “home of the sky-rocketing mobile money platform ‘M-PESA'” (CD Feb 27 p5) -- they can have strong advantages if restrictions apply to banks’ use of non-bank retail agents as the cash-in/cash- out point but not to mobile operators’ agents, he said

MNOs may also have another advantage over banks, he said: The operators own the telecommunications infrastructure and can deny an application access to a stable gateway to and from the network.

Another matter related to competition and increasingly important is interoperability, Lyman said. One challenge is whether customers can switch mobile providers without having to change banks, or the other way around, he said. Another is whether a customer can use any MNO channel, and a third is whether one providers’ subscribers can use another’s agents, he said.

Policymakers have rarely imposed total interoperability from the start, Lyman said. But the problem has dampened the industry appetite for mobile banking, he said.

There are also many consumer issues, Lyman said. The Consultative Group lists these: (1) Who regulates and supervises the provider. (2) Whether clients’ funds are protected. (3) Whether the provider is fully liable. (4) Whether the system is open. (5) Whether there’s effective and efficient recourse. (6) Whether services are provided with quality and reliability. (7) Whether personal data are safe. “Current regulation is highly unlikely to treat all of these subjects satisfactorily,” he said.

The most important principle of consumer protection is that for poor clients, the “frame of comparison should be the typically informal and typically riskier options for financial services that they would otherwise not have available,” Lyman said. Policymakers must be “extremely careful” not to set the consumer-protection bar so high that it’s not profitable for mobile operators and banks to offer mobile banking services, he said.

Policymakers seem generally receptive to mobile banking as a way of reaching people who can’t be served profitably with conventional branch-based financial services, Lyman said. The financial crisis seems to be fueling interest and creating opportunities for mobile banking, he said. In many countries, the economic downturn is forcing unprofitable branches, many of which serve poorer and more rural customers, to close, he said.

It’s also creating an opportunity for more “government- to-person” payments for fuel, food and other items, he said. If customers receive assistance payments on their mobile phones, they may try a broader range of financial services, he said. It depends on whether there’s adequate coordination among policy makers responsible for social transfer programs and the financial and telecommunications regulators who must find a way to work together for mobile banking to succeed, he said.

The GSM Association said in June it had started an effort to help financial-services companies go mobile. The project aims to provide a common voice and formal business forum for the two industries, it said. Creating a safe and consumer-friendly space for mobile payments through EU-wide standards and rules is a high priority for the European Commission, the information society and media commissioner, Viviane Reding, said this month.