Banks tend to look at competitors in mobile payments with a wary eye, but they would be better off working with one segment of this group–telecommunication network providers, suggests Ernst & Young’s new report “Mobile Money 2011 (see report).
Banks and telcos are co-dependents after a new source of income through mobile payments–to supplement dwindling debit card fees and rising regulatory costs on the one side and flat phone and data plan sales on the other.
The Ernst & Young report reiterates Gartner’s estimates last year that mobile payment services will reach $245 billion worldwide by 2014. This represents 340 million users, 5% of all global mobile subscribers.
The most successful mobile-payment services have originated in developed Asia, where mobile contactless services are well established. The next-best programs are in the Philippines and Kenya.
In Kenya, telco Safaricom rolled out a mobile payment system in 2007 that circumvented banks (see story).
At SourceMedia’s Mobile Banking and Emerging Applications Summit in June, Michael Joseph, former CEO and strategic advisor to Safaricom, pointed out that banks’ efforts to thwart the telco’s plans did not turn out well.
“Banks tried to stop us; they formed a committee,” Joseph recalled. “We were saved by the minister of finance, who said M-Pesa was fully compliant” with Kenyan laws although he never performed an actual audit.”
The M-Pesa service was supported by a lack of rules governing nonbanks providing funds transfers, according to the Ernst & Young report. “Going forward, regulation will be a key facilitator of a successful transition to new payment channels, providing clarity for service providers and end users,” the report authors say.
Later, after M-Pesa became popular, the local banks embraced it. “If they didn’t embrace it, they would go out of business,” Joseph said. Today, about 70% of all transactions in Kenya use M-Pesa.
Numbers gathered by Ernst & Young suggest one advantage telco operators have–direct access to mobile subscribers. According to the report, the number of mobile subscribers in North America grew to 3.5 million last year from 1.9 million in 2009. In Latin America, the total grew to 8 million from 5.1 million; in Western Europe, to 7.1 million from 4.5 million; in the Europe/Middle East/Asia region, to 27.1 million from 16.8 million; and in Asia Pacific, to 62.8 million from 41.8 million.
Various countries have attempted to regulate mobile payments, the report notes. Although the G20 Financial Inclusion Experts Group has advocated a “test and learn” approach, the Chinese government, concerned that a move to e-money could accelerate inflation because of the increased velocity of transactions, has begun asking e-money organizations to register. In the Philippines, the government has set maximum monthly load limits.
In the United Kingdom., Her Majesty’s Treasury has issued a consultation document on how it should regulate e-money institutions and what level of guarantees should apply. The UK government has worked to promote the entry of mobile phone operators into the e-money market and to promote the development of new forms of as yet untested e-money services, the report says. In South Africa, by contrast, e-money issuance is restricted to banks only.
Other countries seem to be ahead of the U.S. in terms of collaboration among mobile payment players. In China, 18 Chinese banks, card association China UnionPay, China Telecom, China Unicom and device vendors formed an alliance to create a single, open platform for mobile payments. In the Netherlands, the top three retail banks have formed a joint venture with the country’s three mobile-network owners.
“Such high levels of participation translate into wider coverage of both mobile subscribers and bank customers, boosting the addressable market for mobile payment,” the report says.
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