Mobile banking trends & opportunities by Sutherland Global Services

Mobile Banking – Trends & Opportunities August 2013

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Mobile Banking Opportunities

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Opportunities in Mobile Banking Mobile Banking Usage in Developed Markets (2012) •

16%

•

Germany

Canada

U.K.

France

Australia

U.S.

Spain

Singapore

Hong Kong

• South Korea

50% 40% 30% 20% 10% 0%

% respondents who had a mobile transaction in Oct-Dec 2012 period 47% 41% 38% 34% 32% 27% 26% 26% 22%

Mobile Banking Highlights Research shows that mobile will dethrone branch network as a dominant channel of customer interaction with financial institution. Also, mobile is expected to unseat PCs as the preferred mode of internet access by 2015 Mobile banking customers in the US are expected to reach 77 Mn by 2014, up from 26 Mn in 2011 According to Reserve Bank of India, 13 Mn people in India used mobile banking services during financial year 2012. A total of 25.6 Mn transactions valued at US$ 285 Mn (INR 18.2 Bn) were done involving 59 banks in 2012, a year-on-year growth of 198% and 174% in volume and value terms, respectively

Emerging Trends in Mobile Banking Bank and Mobile Network Operators Partnership • To reach the unbanked population in emerging and under developed countries , banks are leveraging the network and infrastructure of mobile operators. High penetration of mobile phones in countries including India along with MNO’s distribution infrastructure provide low cost opportunity for banks • A Bank- MNO partnership is a win-win situation for both parties as bank gets access to untapped population and MNOs are able to improve the retention rate Instant Short Term Loan • Wonga, a UK-based online credit company has introduced an instant short-term loan facility which allows users to avail small-ticket loans of up to US$ 1,566 (GBP 1,000) over the mobile phone. The customer can bypass the elaborate application and authorization process. As per the company, the money is paid out within 15 minutes

Source: The Wall Street Journal, European Financial Review, SGS Secondary Research & Analysis

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Demand Drivers of Mobile Banking Drivers of Mobile Banking Better Customer Experience: • Mobile Banking makes the experience of accessing bank accounts more convenient compared to the traditional banking methods like visit to branch offices, ATMs and etc • It also give bank customers round the clock access to their bank accounts Low Cost Channel: • Every visit of the customer to the branch or ATMs and every check issued adds up to the operating cost of banks. Mobile banking dilutes this cost to a significant extent Vast Adoption of Smartphones: • Share of smartphones in the total shipments of phones is increasing every passing day. This has led to increasing usage of mobile applications (apps), including banking apps being downloaded on mobiles • Citing such increasing trend, several banks have launched their own mobile phone applications for multiple OS platforms

Transaction Cost by Banking Channels (US$) Call Centre

4.00

Branch

3.75

IVR

1.25

ATM Online Mobile

0.85 0.17

0.08

by banking3.00 channel ($) 0.00Transaction 1.00 costs 2.00 4.00

5.00

Source: Tower Group, Fiserv, Mcom data, 2009

Source: SGS Secondary Research

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Mobile Payments

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Mobile Wallet Market: Current and Future Opportunities Mobile Payment Transactions Value - By Region (US$ Bn) 2012: US$163.1Bn

Mobile Payment Users - By Region (Mn)

2017: US$721.4Bn

2012: 200.8 Mn

2.4

2017: 450.2 Mn 33.7

4.5 43.7

19.5 60.4

24.2

23.2

99.4

62.6

56.5

187.9

28.8

100.2

81.8

141.9 1.0 27.6

53.4

1.4 1.7 Western Europe Middle East

205.0

82.0

141.2

21.2

16.0 North America Africa

Asia/Pacific Latin America

Eastern Europe

Mobile Payment Transaction Value - By Technology (US$ Bn) 2012: US$163.1 Bn 10.2

9.4

4.8

2.9

2017: US$721.4 Bn 47.9

34.7

Western Europe Middle East

North America Africa

Asia/Pacific Latin America

Eastern Europe

Mobile Payment Transaction Value - By Use Case (US$ Bn) 2012: US$163.1 Bn 1.6

8.1

2017: US$721.4 Bn

0.8

8.5

36.8

33.8

3.9

168.3 0.9

318.7

6.8

56.0 94.0

320.0 497.1

118.0

SMS

Mobile Web

USSD

NFC

Merchandise Purchases Bill Payments

Ticketing Airtime Top-Ups

Money Transfers Other

Source: Gartner, SGS Secondary Research & Analysis

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Demand Drivers of Mobile Wallet Mobile Wallet Opportunity •

The global mobile payments market is expected to cross 450 Mn user base with a combined transaction value of more than US$ 721 Bn by 2017 with a CAGR of 18% and 35% during 2012-17, respectively

•

Money transfer and merchandise are expected to be the biggest contributors accounting for 69% and 23% of the total transactional value, respectively

•

In 2012, Africa was the largest region by transaction value with ~US$ 60 Bn in mobile payments transaction. By 2017, Asia Pacific is expected to be the largest market surpassing Africa with ~US$ 205 Bn in mobile payments transaction

•

Middle East and Latin America are expected to grow at the fastest pace, clocking a CAGR growth of 82% and 78%, respectively during 2012-17

Drivers of Mobile Wallet Unbanked but connected population: • About 70% of the overall world population have a mobile phone but only 30% have a bank account. • e.g. India with a population of ~1.2 Bn has over 800 Mn mobile phone users and only 250 Mn bank account holders Increasing smartphone penetration and widespread use of NFC • Growing smartphones shipment coupled with increasing integration of Near-Field communication (NFC) technology in phones are the key drivers of adoption of mobile wallets Government backing: • To provide financial inclusion to the huge unbanked population, governments in emerging countries like Philippines and Kenya are encouraging the usage of mobile wallet Launch of mobile wallets apps by food chains • Mobile ordering is growing at a rapid rate and fast food chains including – McDonald’s, Burger King and Domino’s have implemented their own mobile payments platform to drive instore traffic and sales

Source: Mobile Commerce Daily, SGS Secondary Research

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Mobile Banking Ecosystem

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Mobile Banking Ecosystem – The Value Chain Mobile Players Strength in Value Chain Provide managemen t services

Marketing / CRM Services Provide marketing insight

Provide associated services

Account Access & Management Provide account managemen t services

Debit/credit accounts

Route transaction

Acquire payment

Payment Process Management

Aggregate

Deliver product

Order Process Management Initiate order

Manage application lifecycle

Activate Service

Distribute application

Provide compatible Hardware

Mobile Infrastructure Provisioning

Mobile Operators Banks / Payment Networks

Strength Area

Merchants Technology Providers New Intermediaries Independent Service Providers

Merchants

Banks

Card Issuers

• Partnerships with banks to offer promotions • Partnerships with banks to offer co-branded products • Location-based offers and services • Acceptance of mobile payments at point of sale • Promotions to drive mobile payment usage

• Partnerships with merchants • Location-based promotions and augmented reality • Integrated financial services for customers and families • Bespoke packages and self-selection bundle offers • Cross-selling and up-selling pathways

• Integrate plastic and digital offerings • White labeling services • Location based security and fraud services for card payments • Integrated payment services and budget management for families

Independent Aggregators

Merchant Acquirers

Payment Service Providers

Payment Processors

• New technology • System development architecture to accept all pricing • Estate upgrades models • New price • Service models/ development schedules beyond pure • Aligning services payment with merchant processing and retail • New revenue customer value models with parents – moving away from the transaction

Electronic Money Institutions

Mobile Communities

• Banks and telecom companies play critical roles in the mobile payments landscape. Three models of mobile ecosystem have evolved depending upon the role of banks and telecom companies own or share in the model: – Operator-Centric Model: The mobile operator acts independently to deploy mobile payments applications to mobile devices – Bank-Centric Model: A bank deploys mobile payments applications or devices to customers and ensures merchants have the required Point-of-Sales (POS) acceptance capability – Collaboration Model: This involves collaboration among banks, mobile operators, and other stakeholders in the mobile payments value chain, including a potential trusted third party that manages the deployment of mobile applications

Source: SGS Secondary Research

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Changing Trends In Mobile Banking Ecosystem Mobile Banking Ecosystem • Over the years, retail banks have innovated to make personal banking more convenient and consumer-friendly – With smartphones and tablets increasingly at the center of financial decisions especially in younger consumers has forced banks to get their mobile strategies right – With mobile-savvy competitors as their major competition, tech companies like PayPal are also giving tough competition as they are developing their own payment and personal finance solutions • Mobile phones are no more just a phone, they are mobile computers, books, and even movie players, they can also function as mobile wallets, holding various credit and debit cards in addition to individual reward cards

– Mobile technology has allowed banks to embed mobile in their front-end solutions offering flexibility, ease of use, and accessibility to their banked customers and account holders – Mobile technology vendors have also started to offer services for mobile users and introduced mobile payments – Major vendors include Mobile Network Operators (MNOs) and payment gateway providers, whereas both the financial and mobile ecosystems played a major and significant role in the development and offering of new services • Mobile payment providers mark their presence in the mobile banking industry by offering different services to subscribers such as utility payments (i.e. electricity, mobile bills, water services, etc.), mobile top-up, airtime transfer and many other services – Mobile payments depend on using the cards systems like credit, debit, loyalty, business and others, whereas mobile banking depends on the majority of its transactions on the customers’ bank accounts. Mobile payments also use the mobile wallet in other areas – In today’s financial market, partnership and collaboration are expected rather than competition between companies that may offer joined services, partnership among different ecosystems, at the same time, providing a unique and unified new ecosystem that consists of financial ecosystem (banks), mobile ecosystem (MNOs) and utility service providers

Source: SGS Secondary Research

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Convergence of Mobile Operators and Retailers with Banking Mobile Operators and Banking • Leading mobile service providers are coming together to deploy mobile payments services. Isis in the US or project Oscar in the UK are few examples of such joint efforts – Isis is a joint venture among AT&T, T-Mobile and Verizon Wireless and relies on NFC technology. After a successful pilot in certain states of the US, Iris plans to roll out its services nationwide by the end of 2013 – Project Oscar is a mobile wallet joint venture among Everything Everywhere, O2 and Vodafone. Oyster scheme runs on radio frequency identification (RFID) – M-Pesa, launched by Safaricom and Vodafone in 2007 in Kenya has 30,000 agents and 14 Mn users. About 70% of all electronic transfers in Kenya are done by M-Pesa i.e. US$ 1 Bn transfers per month • SMART Money, a initiative of Smart Communication, Philippines leading service provider, is an electronic wallet. SMART Money is connected to 12 partner banks, that allows transactions in 9,000 ATMs nationwide, over 5,000 Money in Money Out Centers and 95,000 International Remittance partners worldwide

Retail and Banking • Increasing number of retailers including Starbucks, Wal-Mart and Home Depot are experimenting with mobile payment apps, ranging from Square's mobile "wallet" to PayPal's in-store check-out – e.g. Home Depot is using PayPal to complete a transaction at the cash register • Top retailing companies in US have formed a company called Merchant Customer Exchange (MCX), a mobile payment network which allows its customers to pay by mobile phone application at participating retail stores, supermarkets, restaurants, and gas stations – MCX members include Wal-Mart, Phillips 66, Gap, 7-Eleven, Best Buy, Target and Dunkin’ Donuts – MCX has selected FIS as its technology partner. According to MCX, its members, when combined, operate nearly 90,000 stores and process more than US$1 Tr in payments annually

Source: Swift, The Guardian, Smart, SGS Secondary Research

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Convergence Between Wireless and Banking Convergence between wireless and banking • New technologies like m-wallet, M-Pesa etc. are becoming common with the people and results in minimizing the need of a bank – M-Pesa is an option with which an individual can go to a kiosk, buy a pre-loaded card, enter a code into their mobile device and make transactions via SMS – Similarly, mobile peer-to-peer (P2P) payments in developing countries have also minimized the need of bank. Even due to recession consumer’s trust in banks had reduced, making mobile operators' promises of an electronic purse and e-money services even more appealing • Today’s financial market mobile operators are looking at creating systems for mobile payments using NFC technology, for which they are applying for an e-money license for NFC payments – These licenses would provide capability to launch and run financial services in the company's own right without a retail banking partner. However, mobile operators would not be able to charge interest on the electronically-stored money • With advancement of NFC technology, companies like Samsung, Google etc are considering NFC as part of their offering. They might develop applications that could control NFC, whereas in this area bank cannot compete as they can’t act quick enough as start-ups, which would be quicker to create apps

Source: SGS Secondary Research

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Evolution of New Age Mobile Banks

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Mobile Banks – A Brief Profile Moven • Moven (formerly Movenbank), is a privately owned company, founded in 2011, and headquartered in the US. It has transformed banking and has taken it into the mobile age • Through Moven customers can make mobile payments with ease via a MasterCard PayPass payment sticker, deposit checks from anywhere using their Smartphone, and pay a friend via Facebook • Specialties includes Mobile Banking, Mobile Payments , Online Banking, Peerto-Peer Payments, Mobile Wallet, Innovation, Retail Banking, NFC • Moven is the first bank in the world that does not issue a plastic card for its customers, and instead utilizes the NFC capability of a phone to act as a payment device

Simple

GoBank

• Simple (formerly BankSimple), is a privately owned company, founded in 2009, and headquartered in Portland. It has created a better interface for banking through the Web and mobile apps and provide services to more than 40,000 customers across the US

• GoBank launched by Green Dot a publicly traded bank holding company primarily regulated by the Board of Governors of the Federal Reserve System

• Simple has partnered with Visa, The Bancorp Bank, Allpoint, TxVia, Cachet, CPI, and their investors • Reports and Goals, which offer insights of the account including – block and unblock card, reset pin, and deposit a check – all with phone are unique features offered by Simple

• The main idea followed by Simple is to help people spend smarter and save more money

• GoBank a modern, feature-rich, bank account with deposits insured by the FDIC and specially designed from scratch to super-serve a mobile generation

• GoBank has a special feature through, which people can spend money over Facebook or email. Customers with an existing GoBank account can just complete the transfer, while non-members can accept the money using PayPal • GoBank also allows users to send money with no charge through text or email

Source: SGS Secondary Research, Company Website

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Selected Global Mobile Payments Initiatives

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Selected Global Mobile Payments Initiatives (1/4) Company

Regions

Initiative

Launch Year

Service Uptake

Airtel State Bank of India

India

•

AT&T Barclays Discover T-Mobile Verizon

Citi Standard Chartered Zain

MTN Standard Chartered

Remarks

Formed joint venture to target financial inclusion. The joint venture became the Business Correspondent of SBI and offers banking products and services at affordable cost to the citizens in unbanked and other areas

2011

N/A

•

The joint venture engaged Airtel’s retailers as Customer Service Points (CSP) all over India in a phased manner. With this existing and new Airtel mobile subscribers would be able to visit these outlets and open new SBI bank accounts and avail of other banking products and services available at the CSPs. Additionally, existing SBI customers would also get serviced at these outlets

•

Joint venture among AT&T, Verizon, T-Mobile, Discover and Barclays for initiative called Isis, to utilize smartphone and NFC technology to modernize the payments process

2010

N/A

•

Isis planned to create a mobile wallet that ultimately will eliminate the need for consumers to carry cash, credit and debit cards, reward cards, coupons, tickets and transit passes

Kenya, Tanzania, Uganda, Niger, Malawi, Sierra Leone, Ghana

•

Zain-Zap allows users to transfer money and manage their bank accounts

2009

More that 12 Mn customers fully-enabled for the service across seven African nations as of 2010.

•

Transaction fees of US$ 0.13 charged for the transfer of money between Zap accounts

South Africa, Uganda

•

MTN Mobile Money service allows users to transfer money

2009 (Uganda) 2005 (SA)

MTN had 100,000 customers as of September 2009 (Uganda)

•

For money transfers above US$ 5, MTN charges US$ 0.40 per transaction.

Source: SGS Secondary Research

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Selected Global Mobile Payments Initiatives (2/4) Company

Regions

Initiative

Deutsche Bank Luup

80 countries in Europe, Middle East and Asia

•

Partnership between Luup and Deutsche Bank allows the bank’s GTB clients to offer instant and secure payments and money transfer service from any mobile device with any mobile network

Vodacom

South Africa, Tanzania

•

Vodacom- PayPoint allows users to accept payments from credit cards in SA Vodacom’s M-PESA enables customers to transfer money in Tanzania

•

Launch Year

Service Uptake

Remarks

2009

N/A

•

First initiative, where a major commercial bank has offered a crossborder mobile payments service to its banking and corporate customers

2008 (Tanzania) 2005 (South Africa)

1.5 Mn Vodafone M-PESA subscribers in Tanzania as of 2009.

•

Paypoint service costs US$ 6.44 per month M-PESA costs US$ 0.14 per transaction

•

Roshan Vodafone

Afghanistan

•

M-Paisa acts as a vehicle for microfinance institutions’ (MFI) loan disbursements and repayments, with salary disbursement and airtime distribution

February 2008

N/A

•

Based on SMS and Interactive Voice Response (IVR) system Charges US$ 1.07 for sending money to registered M-Paisa user

Tigo

Paraguay

•

Tigo Cash enables subscribers to use their mobiles to make payments and transfers as well as recharging mobile credit and withdrawing cash.

2008

150,000 subscribers in 2008

•

Subscribers pay money into a Tigo Cash account and then use this money to pay small bills in neighboring shops (which also have to be Tigo Cash clients) with very low affordable fees

Safaricom Vodafone

Kenya, Egypt

•

Safaricom’s MPESA allows users to access bank accounts and transfer money in Kenya Vodafone Mobile Banking allows users to access bank accounts and transfer money

2007

Over 8 Mn subscribers, M-PESA accounted for US$300 Mn in monthly mobile payment transfers in 2009.

•

Safaricom charges US$ 0.37 for money transfer of up to US$ 440 to a registered M-PESA user

•

Source: SGS Secondary Research

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Selected Global Mobile Payments Initiatives (3/4) Company

Regions

Initiative

Launch Year

Service Uptake

Mobile Money

Jamaica

•

3 O2 Orange T-Mobile Vodafone

Oi Paggo

Remarks

Mobile Money allows users to prepay for goods and services by adding funds to their Mobile Money account and transfer money between accounts

2007

3,000 active affiliates selling to more than 30,000 customers.

•

Payments made at Paymaster of less than US$ 1,200 made through payment agencies / banks will attract a recovery fee of US$ 45. Payments of US$ 1,200 or more will not attract the US$ 45 recovery fee

•

Orange, Vodafone, T-Mobile, 3 and O2 launched a payment system called Payforit that allows subscribers to use the mobile phones to pay for low value purchases

2006

Over 52 Mn mobile phone users in the UK alone.

•

Only browsing costs are charged in accordance with the mobile operator data tariff. Any purchases made are charged directly to the monthly phone bill, or deducted from the prepaid credit

Brazil

•

Oi Paggo offers the virtual credit card using a relatively simple SMS based payment service from the clients mobile phone to the stores

2006

More than 1 Mn.

•

This initiative competes against traditional credit card players and is launching a trial of NFC technology

Zain

Jordan, Kuwait

•

Zain Mobile Payment service allows users to recharge airtime with funds from their bank accounts and allows users to transfer airtime to other users

2006 (Kuwait) 2005 (Jordan)

N/A

•

Zain charges US$ 0.20 per transaction

Rabo Mobiel

Netherlands

•

Rabo Mobiel runs in cooperation with parent company Rabobank Nederland, postpaid and prepaid mobile telecommunications services, and mobile banking and payment services

2006

At the end of 2007, Rabo Mobiel claimed to have 125,000 customers.

•

Using SMS payment, transferring money from account to ‘ordinary’ bank account costs US$ 0.67 (EUR 0.5)

Citi MasterCard Verizon

•

Obopay is a peer-to-peer mobile payment company enabling cell phone users to send and receive money through their phones via a mobile web browser or SMS

2005

N/A

•

Obopay charges a fee of US$ 0.10 for sending money and a 2.5% charge for adding money from a debit or credit card

Source: SGS Secondary Research

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Selected Global Mobile Payments Initiatives (4/4) Company

Regions

Initiative

Launch Year

Service Uptake

NTT Do Co Mo Sumitomo Bank

Japan

•

Globe Telecom

Philippines

Vodafone

Remarks

The Osaifu mobile phone can be used as a wallet, credit card, ID card or a key to the home. It is equipped with FeliCa contactless IC Chips

2004

53.5 Mn customers

•

One of the most successful mobile payments scheme

•

GCASH is an internationally acclaimed micropayment service which allows G-Cash subscribers to transfer credit between mobiles, make retail payments and person-toperson transactions

2004

GCASH has more than 1.2 million registered users with transaction volume of about 5 billion a month.

•

Cost of a text message and withdrawals and deposits (made through GLOBE offices) cost 1% of the transaction

Spain

•

Mobipay can be used for purchases on the Internet, pay for a taxi, top up a prepaid card, public transport ticketing, authorizing payments and send money to another person

2002

400,000 registered users in 2009 with 2,000 transactions per day.

•

Charges US$ 0.1 (EUR 0.08) per transaction

MasterCard PayPass JP Morgan Chase

•

MasterCard worked with Nokia, AT&T Wireless, and JPMorgan Chase to incorporate MasterCard PayPass into mobile phones using NFC technology, in Dallas, Texas

2002

N/A

•

The use of MasterCard PayPass technology has no bearing on pricing. Pricing is entirely dependent on the underlying, existing payment application

Mobilkom Austria One

Austria

•

Austrian mobile operators Mobilkom Austria and One are the owners of Paybox Austria. Paybox offers mobile parking, ticketing for public transport, online shopping, mobile POS (e.g. vending machines, gas station), remittance (money transfer)

2001

N/A

•

Charges US$ 25.4 (EUR 19) subscription fee per year. All postpaid subscribers are automatically enabled for the service

Source: SGS Secondary Research

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