We noted late last year that there had been an explosion in emerging mobile payments platforms. Since that time we have seen a lot more announcements by the handset manufacturers, credit card companies, the major banks, Google, PayPal and the occasional Silicon Valley start-up (Think: Square) about how the mobile phone has the potential change the way we shop and pay our bills.
There are an estimated 4 billion mobile phones in the world. So what happens to the banks and the credit card companies when their customers are no longer using cash, debit or credit cards but their mobile phone to buy everything?
After all, do the bank’s customers really need a bank charging them monthly fees to manage the money that may well be residing in their mobile phone account in the future?
Does the “New Plastic” represent a threat or is it a unique opportunity for the world’s largest Financial Services Providers to secure an even larger share of the Customer’s wallet?
What ever the answer, it is time for the Financial Services Industry to re-evaluate how it is going to plug into their customers’ increasingly fragmented mobile lives. They need to start thinking about new ways of profiting from the everyday transactions and exchanges that will be conducted across this mobile platform.
The mobile phone is changing the way the world thinks about buying, selling and exchanging money. They have become versatile financial tools that offer a broad range of payments capabilities.
As I have said before the first wave of the Internet was all about generating traffic. Traffic was King and the underlying assumption in the market today is that Traffic will also be King in a Mobile World. Successful web business models will translate into successful mobile web business models. The web’s market leaders of today will be the mobile leaders of tomorrow.
The problem is the next wave will be all about turning “Traffic into Customers” and as Google has recently discovered with the Nexus One Phone converting online Traffic into “Real World” Mobile Customers is extremely difficult.
The core business of Retail Banking was, and still is, a volume game. Most retail customers have high transaction accounts with small account balances. The only way to profit from this sector is to increase your fees and/or reduce your costs of doing business. Online banking was, and still is, helping retail banks achieve this.
However once the customer becomes traffic then you no longer have a relationship. You have an audience and the Banks that continue to focus their energies on turning real world customers into Mobile Traffic will not only miss an opportunity secure an even larger share of the Customer’s wallet they will also put their relationship with the customer at risk.
As we have identified previously the decade old strategy of reducing Customers to Traffic may have allowed Banks to do more with less but it has also opened the door to a new breed of Financial Services Provider.
Leading Retailers like Tesco and Wal-Mart are now leveraging their “face to face” customer relationships to provide Financial Services to their customers. Package Tesco’s Banking, Mobile, Insurance and online offering together and you’ll discover that these fledgling services now account for 15% of Tesco’s Group Profits.
This means a revolutionary “High Touch” Mobile Banking Strategy that assists customers to broker their increasing fragmented mobile lives will go a long way towards addressing the growing belief in the market that Banks just don’t “get it” anymore.
The strategic objective of the first wave was to profit from doing more with less by turning Customers into Traffic. The strategic objective of the next wave will be to profit through stronger relationships.
The Mobile Phone – the New Plastic – will be the platform which brokers these customer relationships. Therefore owning the platform will be pivotal in brokering the customer relationship moving forward. Put another way, if you own the Mobile Platform you broker the relationship and everyone else who is plugged into the Mobile Platform will just broker traffic.
The strategic challenge today is a lot more complex than just building a mobile banking app for the iPhone
Strategy is more about asking the right questions than having the right answers. For example; would the Yellow Pages have lost its directory business to Google if its strategic planners had been originally tasked with solving the BIG PROBLEM of owning the future of business referrals rather than just the SMALL PROBLEM of putting the Business Directory online?
Tasked with solving the big problem they would have discovered a new business model more aligned to that of AliBaba.com than Yahoo! or Google and today they would be profiting from an aggregated domestic B2B and B2C transactions network rather writing down the market value of an increasingly obsolete directory of phone numbers.
Today the SMALL problem for the Strategic Planners in the Financial Services Industry is how do we reduce our costs by providing our customers with a Mobile Banking App?
The BIG Problem is how do we profit from brokering our customer’s increasingly fragmented mobile life?
Moving forward the Financial Services Industry has two clear strategic options.
There are significant cost savings to be achieved through the migration of your internet banking service on to the mobile phone. Some industry analysts put the average Transaction Processing costs for Mobile Banking at 10% of those of Internet Banking.
However the key problem with the simple idea of moving your internet banking service on to the mobile phone is it is not that simple to do. There are 5 Key Mobile Phone operating systems and some 1200 different handsets on the market today.
Launching a high profile iPhone Banking Application means you have made a commitment to service just 2.5% of the world mobile handsets. Migration of your internet banking service on to the mobile phone is only simple when all of your customers have the same handset.
The most profitable way to solve this problem is to provide all your customers with the Mobile Banking Handset when they sign up to your branded mobile phone network.
Not only does it help you to reduce your transaction costs and keeps your customers sticky it also delivers to you a new and highly profitable revenue stream.
Having said that it will be a lot easier to develop a branded Mobile Banking Application for 1200 different handsets than it will be to set up and operate a branded mobile phone network. Only the world’s largest Banks will be able to embrace this strategy.
This however is where the core of the opportunity is for the credit card companies. If either VISA, MasterCard or Amex can deliver a global “plug in today and profit tomorrow” Branded Mobile Phone Network solution for all the Banks then it will provide a win:win scenario for all its customers.
The strategy is to reconfigure the mobile phone value chain so the credit card companies and their partners (banks and merchants) surround the customer with a compelling customer experience that keeps them in the front of mind and increases their share of the customer’s wallet. At the same time delivering new revenues streams for both your Financial Services Partners and the Merchants.
Downstream of the value chain the credit card companies can provide media and applications developers with a global mobile media and applications platform with a built-in secure payments platform. Upstream they could provide their Merchants with a secure Mobile Commerce Platform and your Banking Partners with a secure Mobile Banking Platform and a share of the Mobile Phone Call, Data, Advertising, Media and Apps revenues.
Put quite simply, if the credit card companies managed and operated the global mobile commerce network of tomorrow then they have significantly raised the barrier to entry for any new competition… and that as they say is “game over”.
Today there are an estimated 2.5 Billion China UnionPay, VISA and MasterCard Plastic Cards in circulation. Tomorrow there could be 4 Billion Mobile Phones connected to VISA, MasterCard or maybe even China UnionPay’s Global Mobile Network.
Why the credit card companies?
Today it’s all about owning the Platform. The problem is there are so many Platforms to choose from.
There is the Wireless Network (AT&T, Vodafone), the Mobile Device Platform (Apple, RIM and Nokia), the Mobile Apps Platform (Microsoft, Apple, Facebook), Mobile Social Network Platform (Facebook, Twitter), the Mobile Advertising Platform (Google, Yahoo!), the Mobile Content Platform (Yahoo!, AOL, MSN, Newscorp), the Mobile Exchange Platform (eBay, Amazon AliBaba), and finally the Mobile Payments Platform (Visa, MasterCard, PayPal).
Each platform offers a unique key that will allow the market leader to profit from the convergence of Media, Banking and the Internet onto the mobile phone network. Some platforms are more valuable than others. The media platforms are generating monthly ARPU’s that can be counted in pennies. The Telecoms and Exchange Platforms generate tens of dollars. (e.g. Facebook’s ARPU is estimated to be 1/600th that of the Telecommunications Network Operator).
To help you understand the potential value of each platform the diagram below displays in the center of the wheel the relative ARPU of each platform in the convergence landscape. Around the edges of the wheel are the relative weightings of the platform strategies of the industry leader for each platform.
As you can see it’s the Telecoms industry that is profiting from the highest ARPU but their cross platform strategy are the least mature. The most mature cross Platform strategies are operated by Apple (Devices) and AliBaba.com (Exchanges). However, neither of these two corporations are the market leaders in their core Platform.
By adopting a comprehensive Global MVNO strategy each of the credit card corporations have the opportunity to deliver the most complete cross platform strategy available in the Mobile Communications convergence landscape today. And, if it achieves this strategic objective it should be in a position to profit from high value revenues flows from integrating all of the 8 Platforms into a single Mobile Communications and Exchange Platform.
This is why becoming a Global MVNO is such a unique opportunity for the Global Credit Card giants.
They can become the undisputed market leader across all eight Mobile Communications and Exchange platforms simply by offering its existing customers the opportunity to swap their credit card for a Mobile Phone.
Further Reading: [Updated 9-9-2010]
- IPCommerce Platform Overview
- Mobile Intent – RudderFinn
- NFC-Forum – Home Page
- NFC Payment and Beyond
- NFC Technical Architecture
- NFC Chip Demo – Video
- Visa Introduces a Credit Card on a Phone – NY Times
- Mobile contactless payments in Europe: reality beyond the NFC hype – Forrester
- Visa and Nokia have signed a deal to embed Visa functionality in the NFC – The Register
- Nokia’s newest Near Field Communications (NFC)-enabled handset, the Nokia 6212 Classic – rfidjournal.com
- Visa and Wells Fargo Testing NFC Payments – rfidjournal.com
- MasterCard’s App Development Portal
- Device Fidelity’s iPhone app – Pymnts
- MasterCard Releases Person-To-Person Payment App MoneySend for BlackBerry – RWW
- MasterCard Takes on PayPal on Mobiles – JKontherun
- Apple Could Finally Bring NFC to the Masses – Gigaom