Mobile financial services takes off

Your mobile phone is about to become your lifestyle manager. StubbsGazette reports from Barcelona on how the smartphone is poised to take over financial services and more.

Anyone who doubts the all-pervasive and increasingly influential role of the mobile device in all our lives needs to visit the Mobile World Congress that was held again this year in Barcelona.  This massive event, that dominates life in that great city for several days annually, attracted some 60,000 visitors and featured every conceivable vendor to the industry.

On show were the latest batch of seductive mobile devices but just as impressive are the astonishingly imaginative applications they host. No area attracted more interest than that of mobile financial services where the arrival of the smartphone is poised to transform banking relationships in the developed world.

But the arrival of mobile money applications is even more profound for the developing world. The proliferation of mobile phones in less developed countries – even devices of a less sophisticated nature – is opening up the world of financial services to the unbanked and particularly those in remote rural areas.

Literally millions of people in the less-developed world are now using their mobile phones to make and receive payments. These initiatives dominated the entries for Best Mobile Payments Application at the Congress.

The overall winner of the award was the MasterCard Zap card, described as the first virtual card that operates off a wallet residing on a mobile phone. This initiative is a collaboration between MasterCard, the global payments network, mobile operator Airtel Africa (branded as Zap) and Standard Chartered Bank.

The service, according to the principals, “enables 12 million unbanked, underbanked and fully banked Zap registered customers of Zap in Kenya, Tanzania, Uganda, Zambia and Ghana to conduct on-line shopping in a secure and convenient way, on any international web site, which accepts MasterCard.”

The application allows the customer to request a single-use MasterCard branded debit card number with a predefined limit issued against the customer’s Zap account. The platform immediately generates and provides the customer via encrypted SMS a single-use debit card number issued by Standard Chartered Bank. To complete the financial transaction, the customer enters the debit card information at the check-out section of any web site which accepts MasterCard.

Until this service Internet commerce was restricted to cardholders with bank accounts and physical “plastic” cards. But there are implications in Zap for developed countries too. MasterCard Zap is a classic developing world technological “leapfrog” over conventional payment methods but it shows the rest of us how payments will look in future – the mobile device will essentially be a “wallet” containing all our bank accounts, credit and debit cards and other related digital information.

The plastic card revolutionised financial services when it arrived in the 1970s and key to that – apart from customer convenience – was, from a bank perspective, the self-service “customer training” aspect. Together with the ATM, plastic payment cards seduced the customer into accepting and preferring self-service banking.

Banks would love to extend this revolution and today, in the words of smartphone banking pioneer Jerome Svigals, the new bankcard is not a card, it is a smartphone, and the ability of the smartphone to effectively extend the Internet into the mobile realm will dramatically change how we interact with our banks and indeed other merchants and suppliers.

“Probably, the most important role for the hand held communications unit will be the replacement of today’s financial transaction card,” says Svigals. “Earlier bankcards served three purposes. First, it identified the issuing institution and accepting network. The handheld device will indicate that with displayed logos and text.

“The second function is to show specific control information such as expiration date, card type – credit or debit card, batch control information, and unique account number. That too will be replaced buy the phone.

“The third function of the card is to contain machine readable information in the form of recorded magnetic stripe content or chip. All of these functions will be provided in the future by the hand held communications device. They will be both human readable by display and machine readable by electronic signals such as Near Field Communications (NFC).”

Indeed it was the NFC session that proved the most popular at Barcelona with hundreds of people unable to get access because of sheer weight of numbers. While NFC – for practical purposes the ability to execute a transaction by “swiping” a mobile device within several inches of a reading device – is still in its infancy, rumours are the coming iPhone 5 will have NFC capability. Apple apart, there are many programmes in development and expectations are that NFC will capture the imagination of the public. The reason for this, as one speaker put it, is that NFC allows mobile to interact with the offline world.

The most obvious example of this is in transport where there are already many contactless card initiatives that are in the process of migrating to mobile – another example of a plastic card “training” the user to execute self-service.

Mobile banking applications have evolved hugely from the informational (view balance, transaction history) to the transactional (remote deposit capture through cheque scanning, balance transfers, bill payment). They are now in the interactive phase where the customer can expect to receive actionable alerts, targeted marketing and transaction verification through sophisticated personal financial management applications.

The next phase, according to Tower Group, will be the “orchestrative” phase which will feature “opt-in” preference management that will drive marketing alerts, offers and point of sale coupons. Services will be location and context aware: in short, the mobile device will know what you like and will help to deliver it to you depending on what you are doing and where you are located. Indeed, your mobile banking application will ultimately become your lifestyle management application.

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