Field of dreams: mobile banking

Earlier this year, inhabitants of the Spanish town of Sitges became guinea pigs in an experiment. Visa, in collaboration with domestic bank La Caixa and mobile operator Telefónica, supplied 1,500 of the town's residents with a Samsung smartphone, each embedded with a chip containing the user's bank card details. In turn, 500 retailers were given adapted sales terminals at which mobile payments could be made. Although adjusting to the new payment method took some time, feedback on the trial, which ended in November, has been positive.

Mobile payments accounted for more than half of transactions carried out at the town's main supermarket, and around 90% of participants have said they will continue to use the technology. Most tellingly, perhaps, the average spend per transaction stood at around €31, well above the €20 threshold after which it is necessary to input a PIN code. This suggests that mobile technology was not just used for quick, low-value purchases, but came to play a fundamental role in the habits of those under observation. In the view of Guido Mangiagalli, vice-president of innovation at Visa Europe, this is merely a sign of things to come.

Up until a few months ago, Mangiagalli was leading the cross-continental rollout of the company's payWave contactless programme. This allows customers to pay for low-value goods at a range of outlets by touching a special payment card or an adapted mobile phone on a card reader. Mangiagalli's team took the principles of payWave and applied them to the creation of a unified 'portal for payment' capable of handling a range of payments and transfers.

This smartphone application can accommodate proximity payments aided by near field communication (NFC) technology, which allows short-range, high-frequency data exchange money transfers and mobile commerce through a single channel. With NFC-enabled handsets already being released by major players such as Nokia and Samsung, and Apple having announced similar plans, the technological push appears to be growing in force.

"With this application, users can transfer money to a friend, make a cross-border payment or browse on Amazon without the need for a 16-digit PIN code," Mangiagalli explains. "We wanted to create a single application, a unified consumer experience, with a registration process that only has to be carried out once before the user is able to use the application at the point of sale."The new application also benefits from a number of integrated value-added services. Visa's mobile alert service sends cardholders instant confirmation of transactions to their mobiles whenever they use their debit, credit or prepaid card. These alerts state the time, location and amount of each transaction, making it easier to keep on top of expenditure. For phones with GPS capabilities, such as those based on the Android platform, the application can take advantage of GPS mapping applications to help the user pinpoint their nearest merchants.

"Consumers will be able to check their balance, receive a real-time alert for a transaction or set up a transaction limit," Mangiagalli explains. "Also, our R&D team has collaborated closely with our loyalty team to imbed offer functionality. When lunchtime comes, I might look at my phone and find that I've received a coupon for a €1 discount at Starbucks. Why not take advantage of it?"

In development

It is the value-added aspect that, in Mangiagalli's view, will take on increased importance, particularly when it comes to expanding mobile payment presence in developed markets. Emerging markets have adapted quickly to the technology, out of necessity as much as anything else. With limited banking infrastructure and the security risk of carrying large amounts of money, it is no wonder that countries such as the Philippines and Kenya have led the charge.

The developed world, with its range of payment options and sophisticated banking infrastructure, has proven somewhat difficult to win over. Success in Europe will be dependent on offering genuine value to the customer, turning mobile payments into a superior proposition.

"Emerging markets are leapfrogging existing technology because they have no real alternatives," Mangiagalli says. "If we want consumers in the developed world to embrace new technology, we need to go to market with something that's better. We have seen that solutions driven by technology, rather than consumers, invariably fail."

Like any technology that looks set to change the way people behave, the product cannot sell itself. A true consumer experience needs to be created and the right level of information must be made available to nudge people in the right direction. In addition, Mangiagalli believes the application's NFC capabilities can provide an effective gateway to more sophisticated forms of payment.
"For many years to come, a majority of transactions will be at the physical point of service and so introducing people to NFC is important to our vision," he explains. "We must enable people to purchase the application, help them to use that technology, and, most importantly, get them to trust it before we move on to more advanced functions. We genuinely believe that mobile is better - it brings down the price of telecommunications. But we must make people see that."

Proving its value to a difficult market is not the only obstacle. Although cities such as London are seeing growth in contactless infrastructure, with increased numbers of chain and coffee shops adopting new systems, a much wider selection of compliant retailers is needed to make mass-market adoption possible. Moreover, Mangiagalli believes the business model for mobile payments in Europe is not yet fully defined. While regulators and banks have been particularly proactive in accommodating the new technology, there has been confusion among the larger commercial players over how best to bring these products to market.

"At the moment we're seeing different approaches in different markets," he explains. "We've seen some operators and banks following a more collaborative approach, and then there are others that are more competitive."

He confidently believes, however, that this problem is to be expected while the technology is in its infancy and that it will dissipate once a larger market presence is established. Considering that Portfolio Research estimates that the number of mobile subscribers is hovering around the five billion mark, the fact that only around 83 million people made mobile payments during 2009 is rather underwhelming. Nonetheless, this is predicted to rise to 490 million by the end of 2014, covering 8% of all mobile subscribers.

"Difficulties in forming a business model are to be expected as volume is still low," Mangiagalli explains. "When the device comes to market, merchants will see the opportunity to drive usage at the point of service through loyalty and improved customer satisfaction. The barrier will disappear."

Flexible technology

Possibly the biggest issue in the minds of the public is security. The idea that all of someone's personal data can be lost in a single unfortunate incident is a scary one and, in Mangiagalli's view, handset manufacturers and application developers must always be looking to raise the bar.

"I have been driving innovation with Visa for a few years now and, with every new development, we have either matched or bettered our existing security level," he explains. "We make a point of never going back."

Unwilling to rely solely on the inbuilt security features that smartphones already possess, Visa's payment application and all of the customer information it contains is stored on a piece of hardware that exists outside of the phone's main operating system. This could be a SIM card or a chip on the motherboard of the handset, allowing users to easily transfer the hardware from one handset to another. This isolated secure element also allows banks to interact directly with the application and enact a number of security processes.

"If you lose your phone, you can call your bank and they can use SMS to erase the application completely," Mangiagalli says. "You don't have to wait three or four days for a new one like you do for card delivery. The application is put into the new phone and securely stored.

"In many ways, a phone is more secure than a card. To stop a card, you need to have it again at the point of service before the issuer closes it down. With a phone, you don't even need for it to be brought back to that point of sale."

In the short-term, Mangiagalli sees increasing numbers of handsets and applications being developed and the network of places that can handle them growing. However, he believes the process of adoption will occur in two distinct stages, with increased usage of valued-added features paving the way for the adoption of more comprehensive payment technologies.

"The first stage is to get the consumer to use value-added services," he says. "They can check their balance, see when a payment is due, and just gain more control of their accounts. Even if payment is still being mainly made by card, value-added services allow people to grow accustomed to using their mobile phone in a different way."

Mangiagalli sees mobile payment one day becoming a dominant form of transaction technology, overtaking bank cards in the same way that they pushed cheques into the margins. He believes that for the developed world, however, this process will be evolutionary and not revolutionary in nature.

"All the other forms of payment won't disappear. I will retire from this business and we will still be using cash," he says. "But if we manage to deliver a well integrated and rich experience, then there is no reason why mobile payment can't become the dominant format."

The mobilisation of banking

• Worldwide, it is said that 1,000 new mobile phone users are signed up to networks every minute, with the number set to exceed five billion over the next few months, according to Visa.
• In 2013, approximately 11% of all mobile handsets shipped will be NFC-enabled and more than 178 million mobile subscribers will be regularly using NFC-enabled phones to buy physical goods and services at the point of sale, according to Informa.
• The global customer base for mobile banking will reach 1.1 billion by 2015, according to a report from Global Industry Analysts. There are 65 mobile money systems worldwide and a further 82 about to be launched.
• Informa predicts that the number of mobile banking transactions will reach 300 billion by 2013, with their value reaching $860 billion.