Seldom in history has any invention offered so much to so many in such a short period of time. Mahuya Ghosh, Product Manager of Connectiva Systems, looks at the Mobile Miracle.
It’s difficult to imagine a world without mobile phones, let alone smart phone devices such as the iPhone and Blackberry, with their vast ecosystem of applications. When Motorola launched the DynaTAC 8000X in 1983, cellular phones were more than a foot long and three-and-a-half inches thick.
To conceptualise this, just think of the film Wall Street, when Gordon Gekko, in the ultimate display of mega-wealth and privilege, walked along the beach speaking into something roughly the size of a shoe (not to be confused with Maxwell Smart’s shoe-phone, of course). Compared to their contemporary omnipresent descendants, the first mobiles were the expensive, unwieldy playthings of the rich, which is why, in 1984, worldwide users totaled only about 300,000.
A quarter century later, mobile phones are driving the growth of the global telecommunications market, which is poised to reach US$2.4 trillion by 2015, according to market intelligence firm Analysys Mason. With 3G capabilities commonplace and 4G technology quickly advancing, the mobile industry is shaping not only the way we communicate but transforming industries and how they transact business across geographies.
One striking example is the rise of mobile banking. Mobile banking and related services are predicted to grow worldwide at a compound annual growth rate of 89%, with the number of users increasing to 913 million by 2014 from 20 million in 2008.
Approximately 110 million users will be in Europe and another 80 million in North America. The vast majority, however, will be in developing economies. The Asia-Pacific region will dominate, accounting for 65% of the global mobile banking market.
The global landscape - the developed versus the developing markets
Mobile banking is anticipated to play a key role in bringing financial services to people in the Middle East and Africa. In Europe and North America the technology will mainly serve as an extension of existing online banks, especially as mobile handsets become more widely used for Internet access. The key contributory factors leading to the growth of mobile banking are first that mobile banking has phenomenal growth potential but the industry and government must prove that it’s safe.
Next, new growth opportunities do of course bring with them a host of new kinds of regulatory challenges. Unique regulatory questions that the policy-makers are faced with include:
a telecoms operator acting as Bank – should the telco be allowed to take deposits? Should the telecoms regulator care?
agent risks – can an agent safely handle cash for a bank? What are their liabilities and how do they mitigate consumer risks related to fraudulent agents?
protecting sensitive information – can third parties use a subscriber’s credit history to assess risk?
security – is the subscriber’s PIN valid as signature?
consumer protection – what can subscribers do if defrauded?
other fuzzy areas – how easy is it for a startup to offer anywhere transfers?
will a leading mobile company monopolise the market?
Policy makers and regulators need to understand these new transactions and relationships and adjust regulatory thinking accordingly. Mobile banking has massive growth opportunities yet it requires cooperation in a complex ecosystem. Longer term rewards lie in a collaborative effort from the regulatory bodies, government, financial institutions, telecom service providers and other players in the ecosystem for creating a “Win-Win” ecosystem for all parties. There is enough in the pie for everyone.
Greater rewards, greater risk
With greater rewards come greater risks. Concerns about protecting financial transactions may also explain why consumers in developed markets such as the United States and Europe have been somewhat hesitant to embrace mobile banking.
Gartner reports that more than five million Americans lost money because of electronic fraud during the 12 months ending September 2008, and Verizon reported that hackers stole 285 million electronic records that same year. Of all these cases, by far the biggest percentage involved sensitive financial information destined for sale on the black market. The UK payment association reports that online banking fraud grew 132% from 2007 to 2008. Most of this seems to have been driven by phishing and Malware attacks.
Of course, customers were also wary of internet banking, now popular in the USA, until the online model had demonstrated the efficacy of fraud and security safeguards. The mobile banking industry will likewise have to prove that its measures are sufficient enough to make it essentially as safe as Internet or in-person banking.
Companies such as Connectiva Systems are working with telecommunications companies, in a complex multi-party environment, on developing solutions to help the operators to minimise revenue leakage and fraud exposure posed to the business from various directions in various forms. In developing countries, where mobile banking is seeing faster growth, official regulation is minimal; Connectiva advocates a technology-neutral approach, with the boards and senior management of leading telecom operators collaborating across markets on standards that will enable an international network to track vulnerabilities and risks.
The road ahead
Mobile banking can unlock enormous economic opportunities for people around the world but it will take a truly global effort among industries and governments to make it work.
The success of mobile banking will depend on regulators being both able and willing to deal with growing international trade in retail financial services, as well as new forms of distribution and customer due-diligence rules that are designed for less traditional markets.