With the increasing penetration of Internet & embracement of IT, every company is transforming into the Digital Age. Banking and digitization are two sides of the same coin. An industry which is dominated by information and where the products and services are in a sense virtual is ideally suited to the digital revolution. Many large banks today already have a larger payroll of IT staff and software developers than the largest standalone IT companies. The latest phase in the global banking sector’s ongoing digital revolution is the current mobile banking wave. The ubiquity of smart phones in developed markets (DM) and mobiles in emerging markets (EM) is creating opportunities and disruptions across many axes.
Incumbent commercial banks in developed markets can use digital to boost efficiency via the reduction of branch networks and staffing levels. Online commerce companies such as PayPal can disintermediate traditional banks in the e-commerce and now m-commerce space. In India, non-bank players such as telecom operators can reach new, previously unbanked consumer markets. In Feb-2014, 8.8 Mn Mobile Banking Transactions were conducted in India with Value of Indian Rupee being transacted at Rs 2.63 Bn.
Mobile payments have expanded at a fast pace in the last few years, driven by the global uptake of mobile phones, replacing physical wallets. Players like PayPal and Amazon have been early entrants in the m-commerce space following their success in e-commerce. In order to capitalize on the evolving mobile wallet technology, payment providers like Visa and Mastercard have also launched versions of their mobile wallet called V.me and Masterpass respectively that directly compete with physical credit cards. Developed markets including the US and Japan are expected to have the highest mobile payment volumes by 2016 owing to stronger penetration of smartphones and customer acceptability.
Mobile payments can be segregated into 3 types as under.
Remote Mobile Payment – consumers do not interact directly with merchant’s physical point-of-sale (POS) but instead use mobile browsers, SMS or dedicated apps to make payments remotely. Commonly driven by m-commerce, bill pay and mobile recharge
Proximity Mobile Payment – consumer needs to be physically located at retailers’ store during the transaction. Proximity payments rely on bar codes, QR codes, or chip-enabled payment technologies like near field communication (NFC).
Peer-to-Peer Payment – allows individuals to pay one-another through a third party where payments can be processed using an e-mail address, phone number or account ID internationally. PayPal is a leader with its Internet payment network.
Overall, digital money is a bigger opportunity for new entrants in EMs vs DMs, and hence a bigger disruptive threat to EM consumer banking. This is due to relatively superior mobile and dealer network penetration compared to traditional financial systems, including commercial banks. Mobile operators and technology companies
may create new m-payments and m-banking markets cutting out traditional banks that have yet to enter markets where an informal economy may be the norm.
The bottom line: competition from digital players, mobile operators and payment providers is eating away at the potential banking revenue pool, especially in terms of future upside growth in EM consumer banking and payments.