The mobile channel is playing a bigger part in the financial services industry than ever before, and there’s every reason to expect that trend to gather pace over the coming years.
Smartphone ownership has been rising consistently for years and shows no signs of slowing down. Pew Research Center released figures in January 2017 showing that 77 percent of Americans now own a smartphone, up from 35 percent in 2011.
The same firm published research in February 2016 revealing that, in 2015, 54 percent of consumers in emerging and developing countries reported using the internet at least occasionally or owning a smartphone. That proportion was up from 45 percent in 2013, with much of the growth driven by large emerging economies such as Malaysia, Brazil and China.
According to recent insights, it could be developing markets such as these that hint at what the future may hold for mobile money, with smartphones gaining prominence not only for payments, but as the primary channel for consumers to manage their financial affairs.
Kenya and China leading the way?
In their report The Future of Money, Oxford Economics and Charney Research stated that Kenya and China “offer a preview of what the rest of the world may look like as mobile money matures”.
The firms surveyed some 2,000 consumers and found that these two countries stood out as “the biggest mobile money enthusiasts” of any nation in the study. More than four out of five Kenyans (83 percent) and 70 percent of Chinese make some sort of mobile transaction at least once a week. The proportion of monthly spending conducted via mobile is 21 percent in Kenya and 14 percent in China. In both cases mobile has filled a gap not covered by traditional payment methods.
For the Kenyan mobile money market, the watershed moment came in 2007. Recognizing that the number of people with phones outnumbered those with bank accounts, telecoms groups Safaricom and Vodacom launched the mobile-based financial service M-Pesa, with a focus on person-to-person remittances that were difficult for many consumers. Today, half of Kenya’s citizens use the service and a quarter of national GDP flows through it. Nearly six out of ten people in the country (59 percent) now see mobile money as the safest form of payment, compared with just two percent of consumers in the UK and one percent in Japan.
Growth of mobile money in China has been aided by the fact that, unlike in the western world, the emergence of Chinese fintechs was not seen as a disruption of the market. Zennon Kapron, founder of Shanghai-based research and consulting firm Kapronasia, told the Future of Money report: “Fintech here was really focused on fulfilling a need.”
Services such as Alibaba’s Alipay allow Chinese consumers to not only make mobile payments, but also complete tasks such as calling taxis, purchasing cinema tickets and making restaurant reservations on their phone.
Is there a risk of moving too fast?
There are many benefits to be gained from embracing mobile financial services – such as cost and efficiency improvements for banks and maximum convenience for consumers – but does the industry need to be wary of placing too much emphasis on this channel?
One pitfall that financial institutions need to avoid is focusing so intently on mobile that other crucial channels – self-service ATMs, for example – are overlooked. ATMs and cash remain extremely important components of the global financial system, particularly in emerging markets where financial exclusion is a concern.
In February 2017, Retail Banking Research released data showing that Chinese ATM usage grew by 23 percent in 2015, partly as a result of financial inclusion initiatives. China accounted for some 24 billion ATM withdrawals – almost a quarter of the global total – so is clearly a long way off making a wholesale move to mobile money.
Furthermore, the Future of Money report showed that 85 percent of Chinese consumers are concerned that mobile money puts their personal data at risk, while 77 percent worry about hackers stealing their funds. Globally, more than half of consumers expressed the view that mobile wallets are less secure than cash, while only 13 percent identified mobile as the most secure payments channel.
Whether these views are accurate or not, it’s clear that we have not yet reached the point where consumers are ready for mobile to be the focal point of their entire financial lives. But mobile will be a significant channel with different use cases in different markets, making the job of managing the channel mix more complex for financial organisations.