Learn from Apple, Google: Why banks need to wake up to mobile banking

The so-called ‘gang of five’ have over three billion loyal customers and they are well positioned in the payments space. Should banks be worried? Perhaps, but the proliferation of mobile creates opportunities for banks to reach out to new customers without the need to invest in a costly banking and payments infrastructure. As competition increase so do opportunities.

Payments innovation - a journey without end

Payments innovation is more of a journey than a destination. People are always looking for new ways to pay and they increasingly expect to be able to pay who they want, when they want and from a device of their own choosing. This creates opportunities for providers with the imagination and scope to offer payment services, often as part of a larger service, and as a seamless component of digital lifestyles.

The ‘gang of five’ comprising Apple, Google, Facebook, Amazon and PayPal/eBay have been quick to leverage the commercial opportunity of payments and, with over three billion customers, they are well positioned to succeed. Over time, these major brands have built customer trust and loyalty, and they have set new, high and increasing standards of online experience. Increasingly, customer engagement is by mobile, which is also the future of payments and to a certain extent, banking. Two billion people around the world now have a mobile phone but no bank account, so mobile is driving innovation in financial services. Then what is the impact on banks?

Many banks are disadvantaged by legacy systems. Some have to re-think and re-architect their systems and business processes, which are often more product-centric than customer-centric. Mobile brings a whole new dimension to customer relevance - contextual information and alerts can be tailored and delivered direct to the mobile device and customers are becoming accustomed to more personalised marketing and even location-based marketing.

As the proliferation of mobile phones approaches ubiquity, banks need to defend their existing market share from new entrants by offering a compelling customer experience and competitive terms. In addition, people expect to be able to access and transfer funds immediately and with certainty. What else can banks do to find and attract new customers?

Banking on the unbanked

Banks that embrace mobile technology are well positioned to tap into the new market of the unbanked and underbanked. Financial institutions around the world currently compete fiercely for the same business. As the gang of five offers payment and other financial services to this core market, it will inevitably become oversupplied.

Indeed, some would argue that this has already happened and that the traditional market for financial services is approaching saturation. By reaching out to the unbanked, banks are building for the future. According to the World Bank, 56 percent of adults worldwide are unbanked and more than 8 percent of the OECD population unbanked, representing more than 60 million people.

Even if margins are thin, the potential volume is huge. Moreover, many unbanked economies are fast-growing economic powerhouses. India is one of the fastest growing economies in the world, with a working population in excess of 600 million, yet only 200 million have bank accounts. Mobile presents the opportunity to offer new banking services that are unencumbered by high-cost traditional banking channels. In developing countries where unbanked is the norm, there is growing familiarity and trust in mobile technology. And more importantly, there is a demand for banking and payments services.

Playing a long game

The growth of mobile has lowered the barriers to entry in financial services. There is no need to build and maintain a costly physical infrastructure to become a payments provider or even a bank.

This has attracted many non-banks into the banking arena and the competition is intense. Banks must harness mobile to build loyalty and fend off competition from new entrants. In doing so, they will also be investing in the right technology to tap into a new market of the unbanked.

And banks that deliver mobile services to the unbanked will be investing in their long-term future while promoting financial inclusion.

The author is the Managing Director,India and China, Fidelity Information Services.