Mobile in Banking and Finance - What Make Sense and What Not

Mobile in Banking & Finance “ What Make Sense and What Not” 4 th February 2004, Kuala Lumpur The 4 th Mobiles Malaysia - 2005

Introduction

Dynamics Of The Banking Industry
Banks today are faced with unprecedented challenges created by the three forces of
De-regulation
Deregulation has created a climate of increased competition and changing business structures. New competitors have emerged from both different geographies and other industry sectors -- such as insurance -- challenging the value delivered to customers and the costs. There are more opportunities for mergers, and they must offer a return on investment through greater reach and economies of scale.
Globalisation
Customers have better access to information and new expectations. The Internet, cable news, mailing lists and newsgroups are just a few examples of how regular investors are provided with information that was previously unavailable to them. As service industries have moved to availability through a variety of communications and support 24x7, customer expectations have hit new highs.
Technology
The innovations in computing and telecommunications have improved all the functions in retail banking. Computers have empowered the production and telecommunications have created new distribution channels that have instantaneous and global reach. The advances in communication and information technology have accelerated and broadened the dissemination of financial information while lowering the costs of many financial activities.

Financial Services Industry
Globalization and technology are fundamentally changing the financial services industry worldwide
Competition has accelerated and is fierce for “best credits”/corporates in most countries
New competitors have entered the market
Margins and fees are narrowing significantly
Opportunity Leverage financial, information & communication technologies to reduce transaction costs, enhance quality, increase service value, improve reach and thus expanding services to larger number of clients - profitably.

Changing Face of Banking & Finance
In recent years, the banking & financial services industry has been undergoing rapid changes, reflecting a number of underlying developments. Internet, wireless technology, and global straight-through processing have created a paradigm shift - from brick-and-mortar banks to banking virtually across time zones, geographical locations, access points and delivery channels.
Customers are increasingly fickle and demanding.
Unprecedented advances in technology are changing the rules of the game.
New entrants to the industry are picking off profitable niche businesses.
A rash of mergers & acquisitions will most probably evolve into massive global consolidation across the industry as a whole.
And last not the least diminishing lines between banking and other financial services.

Three Pillars of Strategy
Principal issues that will determine the transformation of Banking & Financial Services:
Transparency, or the ability of all market participants to determine the available range.
Differential pricing, in which finer and finer distinctions must be made among groups of customers, setting their prices based upon the revenue streams they generate, the costs to serve them, and their resulting profitability;
Dis-intermediation or bypass, in which direct interaction eliminates the role previously enjoyed by financial advisors, retail stock brokers, and insurance agents.
Or traditionally
Price (interest rate)‏
Quantity (deposit and loan size)
Quality (reputation-relationship)

Shifting the Productivity Frontier Broader service offerings & higher asset quality Productivity Frontier (Future state of Best Practice)‏ Limited Services To Limited Number Of Customers: Unprofitable How? Generating Growth: Through profitable marketing strategies Improving Asset Quality: Through enhanced risk management Increasing Operating Efficiency: Through technological innovation Lower unit costs per transaction or service

Capabilities To Succeed
Key capabilities that are pivotal to Banks’ future success are
Flexibility
Efficiency
Innovation
Convenience
Experience
Security

Technology: Fast Changing Landscape
Availability of convergence, a concentration of computer power in a variety of devices such as laptops, dashboard computers, mobile phones and personal digital assistants has led to an explosion in mobility and therefore – higher productivity levels.
The growth of the Internet has coincided with another major phenomenon – the introduction of the mobile phone. The growth in the number of cellular subscribers has eclipsed that of any other technological development in the 20 th century, including the Internet. Statistics are proving that mobility will be increasingly important. This year alone, there will be nearly 1200 million mobile subscribers, as against 600 million on-line personal computer users.
Microprocessors are rapidly becoming smaller, faster, more power- efficient and less expensive, which means they will be used more often, in more places to create a host of intelligent devices that will increase access to those services.
Wired and wireless bandwidth is expanding at a rapid rate, providing the final component necessary to create “universal connectivity” among all of those new devices and the instant availability of the information and services they help to deliver.

Technology Evolution in Banking
More than most other industries, financial institutions rely on gathering, processing, analysing, and providing information in order to meet the needs of customers. Given the importance of information in banking, it is not surprising that banks were among the earliest adopters of automated information processing technology.
The technological revolution in banking actually began in the 1950s, when the first automated bookkeeping machines were installed at a few U.S. banks. Automation in banking became common over the following decade as bankers quickly realized that much of their labour-intensive, information-handling processes could be automated on the computer.
A second revolution occurred in the 1970s with the advent of electronic payments technology.
Next in the line the world's first Internet bank opened its virtual doors in the fall of 1995. Today, all banks in USA and 80% of banks in Europe offer Internet based banking.
The euphoria surrounding the m banking being the latest in the technology advancement in Banking.

Financial Technology Technology Architecture Wide Area Network Local Area Network Mainframe/Parallel Simplex Branch Architecture Call Centre ATM POS SWIFT/MERVA Wireless Mobile Banking Call Centre POS ATM Branch Banking Application Architecture Bank Program & Project Mngt. Change Mngt. Service Mngt. Recovery Mngt. Quality Mngt. Technological Organization & Key Processes Security Mngt. Operations Mngt.

Disruptive Technologies
Key technologies which completely changed Banking & Financial Services Industry are…
Computerization & Automation
Payment and Settlement Systems
Electronic Funds Transfer (EFT)
Real Time Gross Settlement System (RTGS)
Centralized Funds Management System (CFMS)
Structured Financial Messaging Solution (SFMS)
Monitoring of Clearing Systems
Imaging of Instruments
Electronic Clearing Services
And now “Mobile”

Delivery Channels
Alternative electronic delivery channels provide a major means to cut costs. The proliferation of ATMs, plastic cards, PINs and a totally revised customer value system.
The first renaissance was profound but took about 20 years to fully take hold.
The second renaissance is driven by the Internet and is now in the early stages and migrating towards a more convenient wireless banking.
The most striking difference between the two periods is the financial customer. In the '70s and '80s, financial customers were being led by the financial industry. Today, financial customers are waiting for the industry to catch up to their expectation levels.
Average transaction cost Branch 2.95 USD CallCenter 0.56 USD Internet 0.04 USD ATM 0.01 USD Mobile 0.004USD

Delivery Channels - Convenience
ATM
Benefits:Transaction Cost Reduction, 24-hour availability, Saving of Customer Time.
Fact: Even today, for a retail bank, an average of 30% of consumers still do not bear an ATM card.
Call Centre
Benefits:Transaction Cost Reduction, 24-hour availability, Saving of Customer Time, Anywhere Banking.
Fact:Transaction fulfilled by a live agent over the phone can be as low as 1/6th of that of the branch agent and IVR and automated call handling is ineffective so far.
Internet
Benefits:Transaction Cost Reduction, 24-hour availability, Saving of Customer Time. Anywhere Banking.
Fact:Very effective but requirement for computer with network connection, basic computer and browser literacy
Mobile
Benefits:Transaction Cost Reduction, 24-hour availability, Saving of Customer Time. Anywhere Banking.
Fact:Mass Appeal
Other channels under development are TV, RFID etc.

Issues in Mobile Internet

Mobile Internet Service Evolution Instant message Ring tone download Directory service Music download Ticket reservation information On-line betting E-Salary Advertising Auction Broking Shopping banking Video communication VOD AOD Game Content-based service Transaction-based service Multimedia service mCommerce Application Wireless infrastructure technologies SMS SIM Tool kit WAP GPRS EDGE UMTS 1998 1999 2000 2001 2002 2003

Mobile Internet Service Evolution Hype Disappointment Current Situation Growth 1998 1999 2000 2001 2002 2003 2004
Business perspective
High fee
Low quality contents& service
Limited CP profit model
Capital investment for infrastructure set-up
Technology perspective
Inconvenient user interface
Low speed due to narrow bandwidth
Low reliability due to security problem
Business perspective
Low fee according to packet based method
Fierce competition to get customer
Technology perspective
CDMA 1X, HDR
Java, VOD/AOD multimedia technology
Enhance reliability from higher security technology like WPKI

M-Commerce Value Chain OS MICROBROWSER ME/WAP HSCSD GPRS EDGE UMTS MIDDLEWARE (GATEWAY)‏ News Sports Game Stock Traffic CONTENTS PACKAGING MOBILE PHONE COMMUNICATOR Dominant Role Mobile Portal Providers Infrastructure &Equipment Vendors Technology Platform Vendors Application Platform Vendors Application Developers Content Providers Content Aggregators Mobile Network Operators Mobile Service Providers Handset Vendors Service Carriers Financial Facilities

Barriers to M-Commerce Market Aspect Customer Dissatisfaction Inconvenience According To Mobility Weak Profit Structure Compared To Infra Investment Poor Quality Of Content High Price Technology Aspect Security And Privacy Terminal User Interface Reliability Of Network Poor Standardization Bandwidth

Limiting Technological factors
Mobile Devices
Battery
Memory
CPU
Display Size
Networks
Bandwidth
Interoperability
Cell Range
Roaming
Localisation
Upgrade of N/W
Upgrade of Device
Precision
Mobile Middleware
Standards
Distribution
Security
Mobile Device
Network
Gateway

Mobile Advantage : Some Attributes
Mobility—users carry cell phones or other mobile devices
Broad reach—people can be reached at any time
Ubiquity—easier information access in real-time
Convenience—devices that store data and have Internet, intranet, extranet connections
Instant connectivity—easy and quick connection to Internet, intranets, other mobile devices, databases
Personalization—preparation of information for individual consumers
Localization of products and services—knowing where the user is located at any given time and match service to them

People With Mobile Internet Access ( In Millions)‏ 2000 2003 2005 USA 20 120 224 Africa 4 34 78 Asia/Pacific 29 151 282 Western Europe 101 324 409 Rest of the World 7 64 159 World Total 184 737 1,187

House Holds with Mobile/Pc/TV Millions Mobile Subscribers TV Households PCs

1996 1998 2000 2002 2004 0 200 400 600 800 1,000 (millions)‏ Wireline Wireless Internet Seamless Communication

Wireless Challenge
Mobile and wireless business applications have definite allure, but these applications can involve few fearsome obstacles:
Application design and development
Application deployment
Network-related issues
Building a mobile banking solution is complex, and requires advanced technical skills to bring successful solutions to market quickly.
Financial institutions are faced with technical barriers when developing mobile banking solutions, such as integrating:
Disparate networks
Devices
Operating systems
In addition, as customers use the public Internet to convey confidential information to highly portable devices, rigorous security issues must be addressed.

Mobile Service Scenarios M- Services
Entertainment
Music
Games
Graphics
Video
Pornography
Communications
Short Messaging
Multimedia Messaging
Unified Messaging
E-mail
Chat Rooms
Video - Conferencing
Transactions
Banking
Broking
Shopping
Auctions
Betting
Booking & Reservations
Mobile Wallet
Mobile Purse
Information
News
City Guides
Directory Services
Maps
Traffic And Weather
Corporate Information
Market Data
Marketing & Advertisement Tracking

Coupon
Shopping point card
Governmental Service
ID card
Driver’s license
Transportation
Train/Bus ticket
Prepaid card
Air ticket
Bank
Bank card
Credit card
e-money
e-Ticket
Concert
Sports event
Contact less IC Card R/W Smart phone UIM Shopping M-Commerce Application

Top Mobile Services - 2005 Users want Financial Services as a core offering in their portfolio source: ARC Group 1268M navigation 469M 206M 614M 775M 785M messaging e-commerce intranet internet entertainment financial services 798M

Mobile Application: Financial Tool
Mobile Banking Services
Mobile Payment Services
Mobile Financial Services

M Banking: Any time and Anywhere
Mobile banking is a subset of on-line banking. Based on an existing back office on-line banking operation, mobile banking can be deployed in a straightforward manner. It requires the elements in the form of a private information service, SIM Tool kit or WAP support and security. services mainly considered for offering through mobile banking are:
Public Information
check exchange rates
check interest rates
Private Information
check account and credit card balances
administer credit lines
check interest earned on deposits
check last transactions
Transaction
transfer funds
pay invoices
apply for credit line

Mobile Payment Services
“ transform mobile phones into secure, self-contained purchasing tools capable of instantly authorizing payments…”
Types:
Micropayments
Wireless Wallets (M-wallet)‏
Bill Payments
Example
Swedish Postal Bank - Check Balances/Make Payments & Conduct simple transactions
Dagens Industri - Receive Financial Data and Trade on Stockholm Exchange
Citibank - Access balances, pay bills & transfer funds using SMS

Mobile Finance Services
“ transform mobile phones into information, trading and transaction tool capable of instantly initiate transactions…”
Types
Mobile Brokerage: This service offers the user information about the stock market and also transaction capabilities. The commands for the service could be given through a voice recognition server, SMS, WAP etc. Notifies users when anything changes or event happens that is of interest to them.
Example
Merrill Lynch, Fidelity, Charles Schwab and E*Trade

Mobey Forum
Financial industry-driven forum founded in May, 2000
Founding members:
ABN AMRO, BNP Paribas, Deutsche Bank, HSBC, Nokia, Nordea, Santander Central Hispano, Siemens, USB
Goal:
to encourage the use of mobile technology in financial services such as payment, remote banking and brokerage
Supports dual-chip technology

Mobile Electronic Transactions (MeT)‏
Founding members:
Ericsson, Motorola, Nokia
Goals:
to establish a framework for secure mobile transactions, the ability to buy goods and services using a mobile device
to ensure that interoperable mobile transaction solutions are developed around the world - enabling consumers to access goods and services seamlessly wherever they may be

Global Open Platform
In 1999, organizations interested in issuing multiple application smart cards founded a global alliance under the leadership of Visa.
GOP adopted the Open Platform card specifications and terminal framework.
Goal:
- to promote global smart card use and to assure interoperability of smart card.
Interoperability issues have not been completed yet. Some core parts are still left up to vendor ’ s individual interpretation and left optional.

Mobile Payment Forum
Founding members:
Amex, JCB, MasterCard, Visa
Goal:
to develop methods for standardized, secure and authenticated mobile payments, using payment card accounts
Supports dual chip technology
SIM

Ingredients of Success

Customer Proposition
Convenience
Ease of use & enrolment
Speed
Price
Freedom to choose any bank, operator & handset
Wide usability of mobile payment methods
Security
Protection against fraudsters and hackers
Assurance of genuine payment destination
Privacy
Personal information remains confidential

Business Priorities
Security
Effective customer authentication
Issuing bank mandates the level of authentication
Transaction-level security
Versatility
Scalability across all payment opportunities
Support to multiple payment products
Operator-independent service
Merchants’ demands
Bank and operator independent payment products
Low transaction costs & running costs
Non-repudiation to protect from charge-backs

Technical Considerations
Independence of different players
Banking relationship and operator relationship should be independent of each other - avoid walled gardens
Handset independence
No proprietary technologies - use of open standards
Use of existing standards & systems
Existing infrastructure must be utilized as much as possible
Security: confidentiality, integrity, authentication, non-repudiation

Implementation Keys
Cost factors
Cost for a bank
Cost for a merchant
Consumer’s total cost
Speed to market
Availability of existing solutions
Speed of roll-out

The Story so Far: Some Clicked some got Kicked

Good Experiences: M -Brokerage
Four of the top 10 U.S. securities houses
Merrill Lynch, Fidelity, Charles Schwab and E*Trade
launched mobile services.
The Current State:
Fidelity has around 100,000 registered users
E*Trade less than 25,000 registered users
Schwab has about 100,000 registered users
During a typical month:
About 20,000 to 25,000 of the total Schwab-Wireless users access the service
Each user averaging 14 times during a typical month

Bad Experiences: M–Retail Banking
Bank of Montreal - launched its Veev in 1999, which allowed customers to conduct a range of banking and investment activities. It was broadened in June 2001 to offer real-time news feeds, tailored news on topics from sports, politics, stocks. On August 31, 2002 Bank of Montreal shut down its wireless banking service.
Wells Fargo - launched its mobile retail services in Jan 2001. Service required Web-ready phones with Sprint PCS service and Palm VII or i705 organizers. On September 1, 2002 Wells Fargo says it will discontinue its mobile banking service due to limited adoption.
In 2001, Top U.S., Canadian and European banks launched mobile banking services. They were Bank Of America, First Union (US), Quick & Reily, Keybank, Washington Mutual (Canada), and NatWest, Bank of Ireland (Europe). All of these Banks closed done their mobile retail services by late 2001 or early 2002.

Conclusion – Lessons Learned

Road to Mobilisation
Serve a market
Avoid unpleasant surprises
Capitalize on location, location, and location
Make the most of wait states
Fit it in-wherever possible
Anticipate and avert problems
Do things once

Desirables
Convenient user experience: Financial services have to be easy-to-use, fast-to-use and they have to offer value for money.

Flexibility: Freedom to choose bank, operator and handset, and change them independently of each other. All three are reissued or renewed in varying cycles.
Customer habit enhanced: The habit of using mobile financial services has to be formed within the user by starting service provisioning with today’s technologies and exploiting new technologies as they emerge.

Features
Ease-of-use
Protection against fraud
Speed/transaction time
Price (for customer)‏
Confidence that data will not be forwarded
Customer and merchant authentication
Assurance of genuine payment destination
SIM change independence
Standards based (interoperable)‏
Transaction level security

Merchant acceptances
Not operator-specific
Use of existing or planned infrastructure
Set-up costs per consumer
Customer enrolments
Cost to implement (merchant)‏
Cost to implement (consumer)‏
Existing solution availability
Support of multiple payment products
Potential to add brand
Features

Business Plan - Tool Development Process for new Products & Services No Yes No Yes Market Pull Technology Push Business modelling Concept definition of the product/service Business analysis Marketing plan Definition and use of market analysis Business plan Stop Sustainable ok? Sustainable ok? Market analysis (interest, sustainability, competition, competitive advantage)‏ Service development and investment analysis

Strategy
Business Comes Before “e, m or t”
Technology is Big, but the Processes are Bigger
Build on a Solid Technical Foundation
Look Beyond the Business
Involve the Right People
Create a Clear Plan of Action
Refresh the Strategy

Vision
Brand awareness
High customer loyalty
New Technology Innovations
M - Banking Realization Service Differentiation Customer Solution Infrastructure Investment Core Competence
Efficient and effective operation know how
Close cooperation with partner
Capital capacity for investment

Thank You Presentation By:- Deepak Pareek Resource4Business +91 98982 69489 [email_address]

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