July 26, 2011
As payments made from mobile phones and other mobile devices become a preference over checks, cash, and even debit cards, many banks around the world are rapidly re-evaluating and evolving their business models.
New competition from nontraditional sources such as Apple, Google, and PayPal is forcing banks to move quickly in order to preserve their payments revenues and take advantage of emerging mobile platforms, according to new report from KPMG International.
With almost 85% of respondents to KPMG International’s survey of banking and financial services executives saying that mobile payments will have significant importance to their business within the next one to four years, a select group of banks are quickly moving ahead of their peers by leveraging mobile platforms to gain customer loyalty, reduce costs, and—ultimately—secure their place in the mobile payment value chain.
“Our survey shows that—around the world—banks tend to fall into two camps: those that see themselves as innovators, and those who prefer to be followers,” said David Sayer, global sector lead for KPMG International’s Retail Banking practice. “And while a number of barriers still stand in the way of the mass adoption of mobile payments today, both camps will need to focus on overcoming these challenges if they hope to maintain their hegemony over the payment value chain.”
In the report, “Monetizing Mobile: How Banks are Preserving their Place in the Payment Value Chain,” respondents highlighted a number of significant and evolving challenges that are hampering the adoption of mobile payments. More than 70% of banking and financial services executives cited security concerns as their biggest challenge, an issue that has only been accentuated by a spate of recent high-profile online security breaches.
“The security of transactions on mobile devices is certainly an important consideration, and banks will need to take security very seriously.” said Mitch Siegel, a partner with KPMG in the U.S. and co-author of the study. “But adoption will also be driven by demand as consumers increasingly look to use their mobile devices to accomplish everyday tasks such as buying their lunch or paying for a taxi.”
The survey also revealed that a lack of technology standards and infrastructure are also posing major barriers to the widespread roll-out of mobile payments. While very few respondents to the survey were willing to categorically endorse any single payment technology, most pointed to the emergence of near-field communication as the technology with the most promise and ease-of-use for customers.
The report also found that many banking executives were becoming acutely aware of the growing risk of competition in the mobile payment arena. Some cited the potential of mobile network operators working with device manufacturers to develop a system independent of the traditional payment infrastructure. Others, however, foretold of an even more serious threat in the form of new market entrants, such as specialist online payment players and online service provider giants.
“There’s been a flurry of activity in this space, not only from banks, but also from mobile network operators and other nontraditional and alternative payment providers like Google, Apple, and PayPal,” said Fred Schneidereit, a partner with KPMG in Germany and a co-author of the study. “For retail banks in particular, a lot is riding on the direction that mobile payments take in the future.”
Nevertheless, banks are still expected to play a strong role as the mobile payments value chain evolves, according to a large majority of respondents from the technology, telecommunications and retail sectors.
Regardless of the complexities and challenges that the industry faces, there is an overwhelming confidence that mass-consumer mobile payment systems are on the horizon. More than 80% of respondents to the KPMG International survey suggested that mobile payments is or would be mainstream within the next four years, with 36% of those expecting mass adoption in the next two years.
“The strategic business decisions around technology will need to be solved within the next 12 to 18 months,” said Andrew Dickinson, head of Banking Asia Pacific, KPMG in Australia. “Once that happens, banks will look to combine their mobile payment solutions with value-added services such as loyalty cards, couponing, and location-based advertising. At that point, it really will be a ‘killer app’.”