Reality Check: Embracing and implementing mobile money management

Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
Consumer demand for mobile money transfer services will see users exceed 500 million globally by 2014, principally in developing countries. Signs point toward mobile money management as being the personal banking option of the near future. So why have banks been slow to roll out these services to the general public? And how can they ensure rapid, safe and cost-effective service to a public hungry to step into the future of money management?
Many challenges face financial institutions looking to develop mobile money management capabilities. These include security concerns, inadequate technology and business ecosystems, and an uncertain regulatory environment. But most of all, cost is an issue. In today’s uncertain economic environment, finding investment money for new initiatives is more difficult than ever.
However, the inherent value of mobile money management capabilities for financial institutions are too good to ignore. This technology can:
• increase banking penetration to untapped markets at a relatively low acquisition cost;
• lower the cost of financial transfers for banks because it removes the need for physical points of presence and ensures a timely and secure method of transaction; and
• increase customer retention by offering mobile financial services, especially among customer segments that increasingly expect more sophisticated mobile offerings.
For financial institutions that seek to achieve high performance over the next decade and beyond, attaining the benefits and possibilities of mobile money management capabilities are essential.
New possibilities for the mobile customer
Mobile money management refers to both mobile payment and mobile banking capabilities. In the area of mobile banking payments, the consumer uses a mobile device for initiating, authorizing and realizing a payment. These transactions can take place either by using the device as an equivalent to a credit card or wallet—payments are taken directly through the phone—or by using near field communication (NFC) technology to execute a payment directly. NFC capabilities give a mobile device “point and click” functionality on a phone. Imagine pointing a phone at a vending machine from about four inches (10 centimeters) away and paying for a drink through the device rather than fumbling for coins or bills.
In this sense, the phone functions as a mobile “wallet.” A specific sequence of communications through multiple potential channels – including Short Message Service (SMS), General Packet Radio Service (GPRS) and Unstructured Supplementary Service Data (USSD) – enables the system to verify if the user has sufficient funds in the wallet and then authorizes a deposit or withdrawal transaction. When depositing money, the merchant receives cash and the system credits the client’s bank account or mobile wallet. In the same way the consumer can also withdraw money from a merchant location. In an exchange of communications to provide authorization, the merchant hands the client cash and debits the client’s account.
Keys to successful implementation
There are several key issues that financial institutions much address if they are to reap the benefits of implementing mobile services:
• A flawless launch A flawless launch is essential. Offering mobile money services that are prone to errors and breakdowns could permanently damage an institution’s standing with both customers and industry colleagues. Banks also need to execute a rapid transition from launch to steady-state, low-cost operations.
• Protection against technology change: Cutting-edge technology has approximately 18 months before it becomes outdated and starts to drag on performance. Banks need to keep their technology system fresh without large ongoing capital investments.
• Low operational costs: To provide a homegrown solution requires anticipating demand and building a solution that exceeds that demand. Yet the risk is investing in capacity that a bank does not need, or under-investing in a way that hinders growth.
• Brand equity and credibility: Several mobile money management options available to banks today necessitate putting another company’s brand on the offering. Such an approach risks confusing the consumer, may detract from the brand value of the financial institution itself, and means that the value of the entire operation is constrained by the brand value of the least part of the value chain.
• Constant innovation and service evolution: Any mobile money management solution must be kept fresh and on pace with general industry developments.
• Regulatory experience: Mobile financial services bring into play a host of complex regulatory constraints, especially for a global institution whose markets are affected by a sometimes bewildering array of privacy laws. Consistent global solutions can be hindered by these varying governmental considerations.
• Security: Fraud and privacy breaches are common news stories today and can cause tremendous damage to the brand of a financial institution. Mobile money management requires a broad range of technical security capabilities.
All these points lead to a single, overriding conclusion – deep knowledge and experience is required to effectively launch and operate mobile money management capabilities. Therefore, a broadly tested technology platform that is cost effective and capable of running flawlessly for years is essential. It is also important to provide access through operator-independent channels using SMS, GPRS and USDD to communicate between the customer, the clearing institution and the bank.
One of the most important attributes for a successful mobile money platform is to be able to deal with sudden peaks of usage. A platform that delivers cloud-like scalability that can handle peak loads of thousands of transactions per second requires hardware that can also sit dormant for much of the day, running at five to ten percent capacity during low traffic periods. At the same time, the platform should also be able to handle micropayments – something difficult for institutions to deal with through traditional payment technologies. It is also vital for these services to cross all locations and geographies with multi-national institutions.
Security is the final, and perhaps most essential piece of the puzzle. A successful platform will leverage leading encryption technologies, offering built-in security and monitoring. A mobile PIN can enable safe and secure payments through the phone and customizable applications that will enable the solution to reach a wide range of phones with a rich, functional menu structure.
When implementing a mobile money management solution it is essential to launch services rapidly while reducing the high initial costs of IT and infrastructure set-up and minimizing the risk and complexity of managing multiple connections to third parties. A strong platform must interoperate with operators’ OSS/BSS systems to access identity, authentication, billing, presence, location and other network-based services. It also should provide a generalized “app store” capability that lets developers target applications to multiple devices.
Final thoughts
People have high expectations for what they should be able to accomplish through their mobile devices. Their phones are enablers for daily activities – from communicating to shopping to banking. Banks and mobile network operators must be careful not to disenfranchise customers who are just getting used to the idea of mobile money management. Institutions must act quickly to provide compelling and
differentiating services if they wish to gain the type
of customer loyalty that will carry them into the exponentially evolving digital future.