More Than Just a Branch In Your Pocket


Talk of mobile financial services and most people will automatically think of payments, either services such as iZettle and Square that allow small merchants to take card payments, or using your mobile instead of a credit card to pay for your shopping. But to do so is to miss the far bigger picture. Mobile is set not simply to allow us to pay for things in new ways — it is enabling the creation of a range of new financial products.

Not that payments is a trifling market. Analyst firm Forrester Research predicts that the U.S. mobile payments market alone will be worth $90 billion by 2017 — up from $12.8 billion in 2012.

But there is far more to mobile finance than mobile payments. Indeed, skepticism remains around just how big technologies like NFC (near field communications — a contactless radio technology that can transmit data between two devices within a few centimeters of each other) will actually be. A 2012 report by Forrester questioned the idea: “We don’t believe the majority of consumers will use mobile contactless payments before the end of the decade, even in the most developed countries. For now, mobile contactless payments provide only marginal improvements to established systems like cash and credit/debit cards … the overall user experience throughout the purchase and payment process isn’t necessarily simpler, safer, or cheaper.”

Loyalty 2.0

Focusing on substituting one form of payment for another is missing the point, says Udayan Goyal, founder of Anthemis Group, a digital financial services investment and advisory firm. Mobile wallets are about reducing merchant costs and creating new opportunities based on harvesting purchasing data.

The data collected by processing and understanding transactions allows banks and other bodies to build a far richer understanding of our needs, and so provide targeted offers based on our previous purchases, our location and our previous behavior, says Goyal.

“We don’t believe the majority of consumers will use mobile contactless payments before the end of the decade, even in the most developed countries.”

Forrester Research

“You can replace the old business model and old economics with a new business model which is built around targeted offers that are integrated into the data collected, he says. “I call this Loyalty 2.0.”

But, says Michael Dooijes, Head of Strategy and Innovation at Dutch bank Rabobank, while banks may have some transaction data, they don’t have the detail they need to offer truly personalized services. They may know you went into, for example, Starbucks, but they don’t know you bought a double espresso. To help fill these gaps, the bank acquired an 80% stake in MyOrder, a local start-up, in August 2012. Dooijes is also now the CEO.

Back Office For The New Players

“MyOrder is a remote ordering payment,” he says. “You use the app to order your cappuccino, you pay for it and you pick it up. Now I know you go to Starbucks and that you drink cappuccino. I need to enrich the information that the bank has and then I can provide value to both consumers and merchants. MyOrder does that.”

Dooijes is critical of the approach that financial institutions have taken to date with mobile. “Banks have a transaction mindset. You want a loan, I give you the money, good luck with it. You make a payment with your debit card, we process the transaction, thank you and goodbye.”

“We are so focused on the transactional [that] if we don’t look out we will just be the back office for the new players.”

Matthias Kröner, CEO of Munich-based Fidor Bank: “Banks transported their boring branch banking onto the Web and thought that was it.”

Instead he says banks need to find ways to help add value for their customers. “The banks are the only ones that have the deep customer relationship with both consumers and merchants.”

That view is shared by Matthias Kröner, CEO of Munich-based Fidor Bank, one of Germany’s newest banks — it got its banking license in 2009. He urged mobile financial services not to look to the banks for inspiration. “Don’t make the same mistake that banks did when they entered the Web space,” he says. “They transported their boring branch banking onto the Web and thought that was it. It was a digitized branch offering, which was useless. Don’t ‘mobilize’ your branch.”

Kröner suggests banks need to understand how mobile fits into a consumer’s life. “How many people are going to be trading stocks from their bus? I might check my stocks, I might ask my community about upcoming developments that I could use to make investment decisions, but I would never do asset allocation sitting on the bus.”

Customers Don’t Want Mortgages, They Want Houses

David Hodgkinson, Principal Advisor at consultants KPMG, suggests banks need to think about how they can make themselves relevant in the lives of their customers. “We will start to see context-relevant financial services,” he says.

“A customer does not want a car loan, they want a car. No one wants a mortgage, they want to buy a house. The payment mechanism will follow you around. You see something you want, scan a bar code and you instantly get some loan options, or some kind of consumer finance — or your bank says ‘it is three days before payday and you are a bit short of cash — you can put it on your credit card, or why don’t you pay with your Avios points?'”

Australia’s Commonwealth Bank has a house-buying app that offers augmented reality to enable users to search for properties while walking down a street, calculate monthly home loan repayments if they like a property, and then contact an agent or home lender directly. Halifax, part of the UK’s Lloyds Banking Group, has a similar service.

Mobile not only allows for different sorts of financial services — it results in a very different pattern of consumption, says Yoni Assia, CEO of eToro, a social investment network that allows its users to follow the financial trading activity of other users and copy them. “[Mobile] requires a different way of interacting,” says Assia. “No longer is a user connected only at specific times — but during the whole day. That requires a different form of habit creation.

Harnessing The Power Of Small Data

“If you look at the login numbers — we have seen the amount of times that a user logs in to the system on mobile versus desktop would be six times more often on mobile than desktop. It is an engagement of small bites. The time the user is with you is significantly shorter, so you need to be a lot quicker.”

“We are drawing on crowd wisdom and applying it to quantifiable future unknowns”

Arjun Hassard, co-founder of Myriada Systems

But what of services that are not just mobile versions of existing services? What about things that are completely new?

“We are drawing on crowd wisdom and applying it to quantifiable future unknowns,” says Arjun Hassard, co-founder of Myriada Systems. “Everything from the revenue of a start-up in one year to the price of gold tomorrow to the number of downloads an app might have. Any kind of metric that aids an investment — our system is able to process the estimations of that and produce a more accurate answer as per the statistical theory of crowd wisdom.”

While other start-ups are trying to harness the power of Big Data, Hassard is going the other way. “We are avoiding the noise by understanding our users’ strengths. Small data can be more valuable if you have a system that is designed to capture that,” he says.

Users not only have to input their estimate for whatever metric they chose to comment on, they also have to say how confident they are in their prediction. “The ability to calibrate yourself is almost as important as the accuracy of your predictions.”

The free service rewards users by giving them access to the data.

“Have we seen the financial killer app? No.”

The service is only available on a mobile device (currently iOS only). “In a single motion the user can input their estimation and their level of confidence.” According to Hassard the nature of the data, the way users interact and the slickness of the interface mean it would be impossible to get the same kind of interaction on a desktop.

“It is going to be really difficult to build that interface on the Web,” he says.

“Have we seen the financial killer app?” asks eToro’s Assia. “No. Do I believe it is out there? The answer is 100% yes.”

But it is clear, says KPMG’s Hodgkinson, that whatever form it takes, the killer app is not going to be a mobile payment service. The Next Big Thing will have to be “a bit more useful than just splitting a bill in a restaurant. I don’t think that solves a real world problem.”

Picture: Mark Ramsay (Creative Commons)