The banking and telecoms sectors have a strong interest in growing their share of the market for mobile financial services.
The players that will come out as winners in the next two years are those that will have gone to the market with technology-driven innovations that are the most meaningful to the consumer.
Bill Gates’s observation “We always overestimate the change that will occur in the next two years and underestimate the change that will occur in the next 10,” seems to be accurate if we look back, but wrong if we look ahead.
In the past 10 years, Facebook was founded in 2004; YouTube appeared in 2005; Twitter in 2006, and a year later, in 2007, the first iPhone was sold. Since then, smartphones and apps have evolved into tablets and iPads. Then came the “cloud.”
Telcos and financial institutions have been overlapping services over the past decade, and although Internet banking was already commonplace, mobile banking entered as the successful new kid on the block.
Wrong, if we look ahead two years. The next two years’ change can hardly be overestimated, given both the recent developments and what’s still to come, especially when we focus on mobile banking in Kenya.
Telcos are strengthening their “banking” position — apart from mobile banking — by providing small loans and other financial services. The financial world has engaged well from their side too, by enabling payments from bank accounts to mobile payment systems.
In this way, at least, they are co-custodians of the new infrastructure after having lost part of their role as guardians of money.
In mobile payment services, the money is kept by the banks and the service is provided by telecommunication firms. This causes a yet unsolved problem of how the two institutions share revenues.
The mobile handset is never the less emerging as the key device of doing business.
Who will be the winners in the market for mobile financial services in the next two years?
Will it be telecoms providers that maintain and strengthen their position based on their golden asset, mobile payment platforms that are still walled gardens?
Or will it be banks that are launching new user-friendly ways of contactless (small) payments? Or neither of those parties, because a new technology driven entrant will shake up everything — like Google, which already holds a banking licence issued by the Central Bank of the Netherlands?
Google may follow the example of China’s search giant Baidu. Baidu Wallet offers interbank transfers for free and lets you pay for online purchases and utility bills.
Winning over consumers
Investments in innovation will be the key driver for winning the heads and hearts of the consumers.
So for all parties, it is more relevant to look to the future and see what disruptive innovations need to be anticipated, instead of looking at the present and disputing who should get access to whose conventional assets.
Kenyan banks can learn from Garanti, one of Turkey’s largest banks, which offers a free mobile app that gives customers personalised offers and advice based on their location and past spending.
The app uses GPS and Foursquare to tell customers if they are close to a store with special offers, provides saving suggestions, and estimates how much customers will have in their account based on past spending.
Some progress has been made by the banking sector by developing payments systems based on near field communication (NFC). Consumers swipe a plastic card along a reader to make payments.
The telecoms sector is likely to bypass this convenience by applying NFC embedded in a chip in smart phones, as mobile phone penetration rises. NFC chips could also be placed inside “wearables” like a smart watch or a ring.
There is also the potential of either (or a third) party picking up innovations that the leading smart device manufacturers are launching, based on biometrics.
This would initiate a much broader use of fingerprints to pay for things. All details are held in the cloud and can be accessed wirelessly.
Shops are likely to adopt the Bluetooth Beacon technology that allows them to identify customers when they enter the premises. After crossing a store’s “digital fence” payment occurs online, with the cashier simply confirming your registered picture for purchase security.
It’s a winning system, because the consumer feels respected and recognised. So why has neither the financial nor the telecommunications sector picked this up?
We would overestimate the next two years by predicting a clear winner or winning sector. It’s more likely to become a race where a party from one sector overtakes another from a competing sector.
This race is and will be entered by new participants in the telecommunications sector — MVNOs — coming from the financial sector, for which the profitable clientele for mobile financial services is the catch.
It will be only after two years that the market calms down, when mergers between parties from opposite sectors will define the new landscape. The winner will then be the party that has the strongest merger negotiation position in terms of client base, customer loyalty and profitability.
These will all be the result of timely and customer-centric innovations.
Erik van der Dussen is Senior Manager Technology, Media and Telecommunications at Deloitte East Africa and Sadiq Merali is Director, Financial Services Industry. The opinions here are not necessarily those of Deloitte EA.