Cynthia Karena
June 25, 2012
The Age
iWallet, PayPal, apps may grow faster than banking innovation.
The banking industry has been given a warning: beware of new competitors stealing traditional financial services via technology.
Consumers with mobile devices have the potential to access financial services outside bank offerings, says Bob Hayward, a keynote speaker at the Retail Financial Services Forum in Sydney last week.
Non-traditional banking organisations are offering consumers everything from payments to insurance to investments, he says. Hayward is the chief technology and innovation officer at IT services company CSC Australia which counts Westpac as a client. He is a former KMPG director and Gartner research fellow.
“We’ve already seen PayPal delivering services that used to be done by financial services. It’s broadening its horizons and moving into traditional payment markets. In the US, Home Depot stores allow people to pay with a PayPal pin. You don’t need anything physical like cash or credit card.”
PayPal solutions are taking over the traditional ground of banks, agrees Ovum research director Kevin Noonan. “We’re starting to see the banks (moving) but PayPal has stolen the march as online transactions have exploded.”
Apple has developed an electronic payment system for its iTunes and App stores, and Hayward is convinced it will make “a clear move” in finance services with the iPhone 5. Many observers believe the upcoming phone will have an iWallet app to replace cards and cash.
The good news for banks is that Apple’s strategy is not to become the number one payment provider, says Christophe Uzureau, research vice president of Gartner banking & investment advisory aervices. “It’s more about taking control of payments for their own products, and reducing their fees.”
However, the mobile banking market is ripe for the picking. According to Gartner, worldwide mobile payment transaction values will surpass $171.5 billion in 2012, a 61.9 per cent increase from 2011. It forecasts a market worth $617 billion with 448 million users by 2016.
The banks have allowed more nimble competitors in the mobile banking space because they were a little complacent in years gone by, says Ovum’s financial services technology research director, Denise Montgomery.
“They have allowed telcos and other digital media companies in the space. I don’t think they counted on the size of their competitors. They were looking at other banks, not at digital and telco giants.”
But now mobile banking is a high priority for banks, she says. The Commonwealth Bank’s Kaching app allows people to pay anyone by using their mobile number, email address or through a Facebook friends list, r via PayPass.
CommBank has done some “cool” and innovative things, agrees Hayward. “CommBank thinks more about being a technology firm than a bank. It wants employ the type of people who work for Google.”
Uzureau cites Westpac’s Cash Tank app, which allows people to quickly check the balance of a pre-selected account, as another example.
“Consumers are looking for specifics. Cash Tank is a very simple app that responds to a specific need, instead of an app that provides all different functionalities. It’s not about providing a sophisticated complex solution. Westpac has created a more targeted and specific application. This is a new (way of thinking) for banks.”
Leveraging the numbers
There’s a blurring of financial services – Google, Apple, and Facebook all have customer relationships,” says Tony Ritchie, vice president technologies, Asia Pacific, American Express, which has a Facebook presence.
“The challenge for (traditional) financial institutions is to respond more quickly than the rate at which organisations such as Google and Facebook introduce their services.”
American Express is forming partnerships with social media companies, including Twitter and Foursquare, and investing in new technologies and ventures, so it can introduce disruptive technologies, he says.
Hayward says the membership size of Facebook, Amazon and iTunes are a big consideration for the banks.
“Any one of these has more than ten times the customers as all the banks in Australia added together.”
However, Gartner says only 1 per cent of US online consumers prefer Facebook as a digital wallet provider. Customers don’t think their financial information is secure in the hands of a social media company, says Uzureau. “Consumer trust in Facebook is very limited.”
This gives financial institutions a clear opportunity to capitalise on existing consumer trust, and focus on security and financial control, he says. And “Facebook (and others) don’t have the financial skill set. Mobile banking is not a core competency.”
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