by John Walton, Managing Director, Gresham Computing Inc, Canada
We are bullish on smartphone banking globally. Two broad uses are internet banking apps and mobile payments. These services are still immature, however they are consolidating around the telecom providers (M-PESA), for example, provided by Safaricom in Kenya as well as the established financial oligopolies like those found in the G7 countries. There is a battle taking place between these and other providers; the telecoms are trying to expand beyond payments, the banks are trying to maintain their grip on both payments and other banking services and the likes of Google also want a piece of the action.
Banks face Telco disruption
Telecoms are storing value for their customers in the form of prepaid services (where they traditionally billed for services after the fact), and there are opportunities for the telecom(s) that can disrupt the banking model and make this new business model work. If the telecoms harness the value they are storing to enable commercial transactions, there will be significant disintermediation of the banks and a large stream of fee and float revenue for the telecoms; the bonus being the fees derived from serving the “underbanked”.
The Caribbean market in focus
The Caribbean is a geographically large and fragmented market with several national and regional regulators requiring compliance of those institutions operating within the Region. This fragmentation and the relatively small markets within the oversight of each regulator have dampened the opportunity for any single telecom operator to provide an M-PESA style service. It should be noted that, while technically feasible, a telecom based “bank” like M-PESA faces significant anti-money laundering (AML) challenges when operated on a multi-national scale. Although there are several banks operating multi-nationally in the Caribbean (Republic Bank, Bank of Nova Scotia, Royal Bank of Trinidad and Tobago), it appears that Caricom, through its Caricom Single Market and Economy (CSME), the Eastern Caribbean Central Bank (ECCB) and the Caribbean Association of Indigenous Banks (CAIB) have no strategy to enable co-operative regional banking. This means that consumers can only operate within their bank’s sandbox when transacting business on the internet, however one or two of the regional players are aggregating the client data from their foreign units and could enable inter-unit activities à la branch-to-branch banking.
We have seen continued growth in the use of smartphones in the Caribbean. Several countries in the Region, like Guyana and Suriname, never had significant landline infrastructures and have taken a deep-dive into mobile technology. In Jamaica, for example, we have witnessed significant adoption of RIM’s Blackberry devices whereas Apple’s iPhone is only starting to gain acceptance and Google’s Android is yet to make a dent. Indeed, the Blackberry enjoys considerable favour in Latin America
Users keen but access poor
Mobile banking adoption is in its infancy. There is an awareness, anecdotally, among C-level executives, that smartphones will become a significant channel to their clients within the next few years. These executives are also aware that the barriers to utilising smartphone data network solutions are much lower than with SMS based solutions that require collaboration with the telecom providers. Consequently some organisations are intent on initially addressing this channel through the implementation of a browser based mobile presence designed for smartphones. There is a clear understanding that consumers are migrating from older generations of mobile phones to smartphones and that the App revolution is a pull factor that fuels the migration. Just as mobile phone penetration grows and the number of landlines shrinks, we expect to see some consumers abandon their fixed internet connections in favour of 3G and 4G smartphones on the basis that maintaining two internet connections will be cost prohibitive. The combined device pull and cost push factors will drive consumers to rely on their mobile devices for a greater number of day-to-day tasks which, for clients of financial institutions, includes mobile banking.
Without a telecom champion (that enables homogeneity and security via control of each device’s SIM card) and with an onerous financial services regulatory landscape we see continued fragmentation within the smartphone internet banking environment. Inter-bank transactions will continue to be facilitated through the use of traditional proprietary and SWIFT based payment systems, while the switching of consumer transactions will continue to take place in the context of the global ATM and POS networks, coupled with a growing inventory of smartphone applications that may or may not utilise near field communications (NFC) technology. In order to provide a mobile internet banking experience Gresham has built its own full-function lightweight mobile browser client for the users of its Radius Internet Banking product. A browser based client reduces the cost and risk associated with developing mobile apps for several platforms in significant states of flux. In our opinion it is probable that, through sheer inertia (established payments networks, standards, policies and regulatory licenses), the banks will end up controlling the mobile payment for goods and services through the largely secure networks underpinning ATM and POS devices. There are still several aspects of this mobile payment model that are in embryonic stages of development: standardisation, NFC and security (establishing identity, transaction limits, etc.) being three of the more important ones.
The future is bright
While the future is bright for smartphones in the Caribbean, there are many pieces to the mobile banking puzzle that won’t be settled for some time to come and mistakes are being made on the way. As the market settles around data enabled smartphones the opportunity to serve both the “banked” and “underbanked” in the fragmented Caribbean market may justify the risk of developing a Killer App to do just that.