On the move: mobile payments systems

8 July 2014

Mobile technology edges further into our lives on a daily basis, and the realm of financial services is no exception. Mobile banking is changing how customers access their accounts, manage money, and pay for goods and services. Future Banking speaks to Deniz Güven of Garanti Bank about how these changes are influencing the services banks provide and how mobile payments systems are gaining traction.

The mobile phone, and increasingly the smartphone, is a key enabler of many people's lives, defining their social activities, their contact with family and friends, their working lives and the management of their money. Banks have invested heavily in ramping up digital channels and are more intently focused on mobile services than ever before, though the pace required to keep up with customers' expectations is always quickening.

Among the most important targets is the ability to transact mobile payments, whether through digital wallets or through mobile payments systems such as Paym in the UK that link directly to customers' accounts. While such functionality brings clear benefits to the customer, banks must approach it carefully to ensure that benefit is mutual. The key is to look at mobile payments not as a stand-alone offering, but as part of a broader platform of digital services.

"Our digital channels are very important to us. They operate as a separate business unit with their own P&L, and their own KPIs and profitability targets. Our aim is to provide a platform, not just a mobile payments solution," says Deniz Güven, senior vice-president of digital channels at Garanti Bank.

As one of the leaders in mobile and online banking services in Turkey, Garanti Bank has been introducing innovative concepts into its home market for the past seven years. It now has 2.8 million unique online users for its internet banking services, and last year sold 2.1 million products through its online and mobile channels.

"The first real mobile banking platform came out in 2007, and Garanti Bank has been able to get a big share of the market in Turkey. Two years ago, we created our omnichannel strategy, which was not easy to implement, but by integrating all channels in terms of technology, design and products, we have been able to provide better services to our customers, who can access all our products and services through all channels," says Güven.

"Customers' behaviour is changing and mobile is an increasingly important part of the new breed of connected customers. When I say that, I do not mean just the younger generation. Around 2% of our customers are over 70 years old and some of them are using mobile banking services rather than going to the branch or calling the contact centre. I know one customer of 74 who does everything through his smartphone. So, it is not about targeting just one type of customer, it is about providing mobile services that suit everyone in the context of an omnichannel strategy."

The magic of mobile

To move successfully into the mobile space, banks must not only replicate their existing product and service offerings through the mobile channel, but also understand the unique opportunities that this channel affords them. Mobile phones have the advantage of going wherever the customer goes, so with the right data analytics in place, banks have an unprecedented opportunity to design bespoke services.

"Everyone is talking about big data, and this is where mobile services come into their own. It is possible to follow the customer everywhere and build contextual banking services through mobile applications. For instance, if we know a customer's location, then we can send alerts about local merchandising or discounts. We can also offer banking products, such as loans, that are appropriate for the customers' financial situation at any given time," says Güven.

"The services delivered by banks are changing and there is a move towards 'living' services like many apps that people use on their mobile phones. Boondoggle is a good example," he adds.

Güven is referring to the Boondoggle Winter Wake-Up app, which incorporates diverse data streams to wake users up at a time that helps them start the day better. For instance, it checks weather forecasts and wakes the user up earlier than planned if there is snow, in order to allow time to prepare the car or to beat heavy traffic.

"That is the kind of thing we have to replicate with mobile banking services. We have to use customer data to create 'living' services that improve people's lives. With that, mobile payments will also be an important area of innovation," he says.

Mobile wallets are gaining popularity, and a recent report from Juniper Research entitled 'Mobile Wallets: Strategies for Developed and Developing Markets 2014-19', estimates that by 2018, around one fifth of mobile handsets will have mobile wallet functionality, which is double the current level of one in ten.

The report suggests that two different models will drive the mobile-wallet market. The first is stored value accounts (SVAs), which allow unbanked individuals to access financial services for the first time, and which could be an important model in developing economies.

In North America and Europe, there is likely to be accelerated growth in contactless payment functionality, which could well be boosted with the launch of Apple iWallet later this year, as well as through host card emulation-based near-field communication (NFC) services.

The report estimates that over 50% of wallets in developed markets will feature contactless payment functionality by 2018.

"In 2008, we announced the first NFC payment applications in Turkey on credit cards. Now, out of seven million credit cards in Turkey, over four million are ready for contactless payment. But, we see NFC as a bridge technology that not many people want to use. Remote services that allow money to be sent to other people, whether or not they are with the same bank, are increasingly important, and banks are looking to develop services that are more like PayPal," says Güven.

"We have a system that allows payment to be sent just by entering a mobile phone number and choosing the card from which to send the money. The customer then gets a message from Garanti Bank, allowing them to accept or decline the payment. This Bonuspay service is for online purchases and we have 420,000 customers using it. We are constantly adding more merchants, and we find that people really want to use it."

In developing Bonuspay further, the bank has integrated barcode-scanning functionality, but the core concept is the ability to perform transactions through a phone without entering a PIN. The bank has also developed a mobile wallet - iGaranti - in which the core service if provided by Card.io, which is now part of PayPal.

One of the most fascinating features of iGaranti is that it connects with Facebook, Twitter and FourSquare to enable users to send money to friends and family. The system, created in partnership with design consultancy Fjord, comprises 23 applications designed to make mobile banking more user-friendly.

"The service offers simplicity. Customers can scan many types of card - credit or debit cards, or even loyalty cards - to add them to the wallet. They can easily aggregate all of their cards. The market for this kind of service is not mature yet, but maturity is coming. Banks are trying to open their arms to embrace external applications including their biggest competitor - PayPal," explains Güven.

Building the future together

There are many factors that feed into the development of a market for mobile banking services and the rate of adoption of smartphones is of critical importance.

"Smartphone penetration is a crucial factor in growing the market and rates vary widely across Europe. In Turkey, it is almost 30%, while in Spain it is almost 60% and in the UK it is just over 50%. Another important factor in customers' minds is security, but in reality, this is not really an issue. There are risks from viruses or attacks in all digital channels, of course, but the internet is more vulnerable than the mobile channel," says Güven.

More important for the maturity of the mobile banking market is the ability of banks to respond quickly to customers' changing needs. Increasingly, this means finding ways to work together. In the future, mobile services are likely to be developed less as competitive differentiators and more as collaborative platforms through which to deliver consistent customer service in an omnichannel environment.

There are numerous examples of financial institutions, technology vendors and telecommunications companies working together to ensure that banks remain relevant in the mobile space, and Güven thinks this is the path the industry must follow.

"Banks have to understand competitors like PayPal and create collaborative ways to use them. You see banks cooperating with each other in the UK to create services like Paym and we see similar moves across Europe. Banks must collaborate to give customers what they want," he believes.

Deniz Güven, senior vice-president of digital channels at Garanti Bank.