ANALYSIS AND PREDICTIONS

Given the rich history of failed technology predictions (we can recommend The Experts Speak: The Definitive Compendium of Authoritative Misinformation by Christopher Cerf and Victor Navasky, 1984, as a start), we are naturally reluctant to offer radical visions of the future in mobile banking. In the following sections, we provide some preliminary analysis and short- term predictions for m-banking, m-payments, and m-commerce.

Challenges

The general principle that emerges from our review of the literature is that m-banking specifically and m-commerce generally are not compelling reasons to acquire a wireless device. The key challenge for success in this space will be aligning each of the following contributing factors until there is enough synergy to warrant m-banking:

wireless access to compelling content;
content evolution, including and especially premium material;
communication technology, especially in terms of communication speeds and security;
the device technology, especially the screen size and data interface; and
the business model.

For those who have hopes of marrying m-commerce with marketing and merchandising , wireless will continue to leave a lot to be desired as a consumer experience.

In the financial service industry, technology should not be confused with strategy. Leading-edge technology is one way to differentiate one organization from another, but implementing the technology in the absence of a clear business model is particularly risky. The early adopters of ATM technology certainly had a competitive advantage, but a competitive advantage based on technology is very difficult to sustain.

Maintaining a competitive position for financial transactions is key for the banking industry. In the case of international banks, they will have to have geography-specific strategies. Retail bankers in Europe will be implementing wireless banking and payment systems there long before North America. Maintaining the competitive position means looking in two directions: 1) other financial services institutions (and this includes near banks such as credit unions, as well as life insurance companies) and 2) telecommunication carriers . This is one of the strategic elements underpinning the South Korean Woori Bank's early adoption of mobile banking (American Bankers Association, 2002).

Technology innovation has solved a great many problems over the last 20 years , making possible e-commerce and 24/7 banking through the Internet and ATMs. But technology issues are still very much present in m-banking. Financial Sector Technology magazine reported ("You can bank on it", 2002) the fact that NatWest bank of the UK "withdrew its mobile banking service due to technical issues". At the time of this writing the Royal Bank of Canada Web site reported a similar situation. Other banks such as the Bank of Montreal in Canada and Egg bank in the UK have also suspended their wireless operations, as has Wells Fargo bank in the USA. In the case of Wells Fargo bank, the infrastructure costs to offer the service were not justified by the 2,500 active customers (Wolverton, 2002).

The contrast between the Internet experience of most people in North America and the prospective experience of the wireless experience, even with GPRS, is not going to attract many consumers in North America. Gartner, Inc. predicts GPRS will be "a great technological disappointment until capacity, device, and application challenges are overcome " as reported in the M-Commerce Times (Peretz, 2002, p. 1). The breakeven timetable reported for GPRS in this article is 2009-2011.

International variations in technology maturity, imbedded systems, and cultural practices muddy the picture considerably. Looking at differences in practices and how they have changed in less than a decade is a lesson (see Committee on Payment and Settlement Systems, 1999a). At the end of the day, the usual questions still apply: What services with what value proposition to what volume of customers at what cost to these customers and at what cost to the institution? We agree with the general sentiment of the Gartner, Inc. view expressed above, except that the timetable for m-commerce adoption will vary geographically , as well as by sector, with the business community, not the banking community, leading. M-banking will be a lagging application among most of the wireless applications.

Discussion and debate around the m-banking topic often generates the apparently simple question ‚ Which of the above problems and challenges is the greatest impediment to the promise of the technology? The answer depends on the marketplace being served . Our assessment is that Japan is the most promising prospect for early adoption since they have fewer technology problems because of the dominant presence of i-Mode. The incremental ability to do wireless banking seems a small step for a community that is relatively comfortable about using small devices for Web access. In part this is influenced by the presence of the necessary wireless bandwidth infrastructure.

Japan is also well positioned to roll out m-payment systems. For small payment transactions, DoCoMo already has a billing and tracking infrastructure currently used to charge for data usage, ring tone downloads, and SMS. It seems likely on the face of it that extending the functionality in this environment is more favourable than in any other market. There are also fewer cultural barriers since credit purchases are the exception rather than the rule. Finally, such a development does not have to compete with an extensive infrastructure that provides competing technologies such as debit and credit cards.

North America will be highly problematic for mobile banking and mobile payments in the near to medium future. The major impediments in the United States are the limited high-speed wireless bandwidth, the highly fractured banking system, and the strong use of a convenient competing technology, credit cards. Our assessment for Canadian m-banking prospects is even more pessimistic given the relatively strong use of debit cards, credit cards, and online banking services.

Europe represents something of a middle ground given the population density, the existence of reasonable wireless infrastructure, and the traditional research and development history in the area.

Opportunities

The future of m-banking and m-payments can be seen through three sets of eyes: the service providers, the retail consumers, and merchants .

Service providers

The key for service providers must be found in the business model. Banks do not want to be in a position of building systems to make the wireless operator rich through download fees of data supplied by the banks, whether this data originates from traditional banking or new products and services not yet invented. Telecommunication carriers do not want to be forced into the position of delivering low margin, price-sensitive commodity products. Mobile data services will be a viable and profitable business, and one day it will include mobile banking, but it will likely require the collaboration of both industries.

The business model could be based on a number of different approaches: transaction based, content based either by premium or by data volume, advertising, mobile spam, commission based, or part bundled. Whatever the case, we expect that there will be many permutations and combinations before the various players find out what works. We also expect that what works will depend on the culture in which the service is imbedded.

Retail customers

When it comes to the Internet, what counts for users is speed, accessibility, reliability, desirable content, and effective services. We expect that users will look to mobile data services for the same attributes. Mobile banking and mobile payment contribute very little to this equation, so the rollout of these services will depend on the evolution of other wireless products. We do not expect m-banking will be a killer application for many people.

Consider this thought: "Banking via WAP (wireless application protocol) has proved to be a frustrating and time-consuming process for the customer" (Sangani, 2002). While this quote from the literature has the flavour of blaming everything on the technology, in our assessment, technology is a major impediment for user acceptance in North America but not so much in Japan.

We predict that the uptake of m-commerce in North America and Europe will parallel that of e-mail from 1995 to 1999. The vector for dissemination of this application began in the workplace. Once there was a critical mass of working people who were familiar with the technology and its benefits in the workplace, the demand for this functionality migrated quickly to personal life. The major short-term opportunities in m-commerce will be in compressing the supply chain and reducing administrative overheads in industry. Automating business-to-business payment processes and integrating mobile technologies have direct cost-benefit potential and indirect potential to act as a pathfinder for retail m-banking.

Merchants

Obviously mobile payment and mobile banking have to be enabled on both sides of the transaction, including the merchant. Our prediction is that in the short to medium term, credit/debit cards will prevail certainly in North America. As for the use of the mobile device to pay for vending machines purchases, this holds little attraction since vending machines in North America typically deal with low volume sales of low value goods (Peffers, 2001) and the penetration would have to be very widespread for this to work. Given the cost to convert vending machines and the current value proposition to the customer, we judge this to be unlikely in the next decade. Stored value cards such as those present in closed environments like universities will continue to be successful.

We note that mobile payment is currently a combination of technologies ‚ the simple wireless card on the consumer's side (e.g., credit or debit card) and a sophisticated one on the merchant's side (e.g., a secure wireless device operated by the taxi driver or the pizza delivery person). In effect, this is what happens with when one returns a rental car at a major airport in North America. In the case of some pizza delivery and car rental operations, they have implemented specialized forms of mobile payment. It will be a long time before these organizations have to think about adapting their systems to accommodate more sophisticated mobile devices in the hands of consumers.

Summary

There is an old rule of thumb for corporate and management planners (attributed to both Arthur C. Clarke and J. C. R. Licklider, who authored ; Libraries of the Future , MIT Press, 1965) that we consistently over-estimate what we can achieve in a year and consistently underestimate what we can achieve in 5 to 10 years.

Mobile banking in North America is not ready for prime time, but it will be eventually, possibly in a 10-year horizon. One of the most telling pieces of evidence for this conclusion is the Halifax Banking Web site (http://www. halifax .co.uk/mobilebanking/home.shtml). Two of the four bullets describing the benefits of mobile banking are directions to a bricks -and-mortar facility of the bank. In tests of mobile banking in Canada, the pilot community regularly traded stocks, had incomes in the top 5% of Canadian taxpayers, and used the so-called "lifestyle features" (i.e., news, horoscopes, and weather) as much as the financial services on offer (Kiesnoski, 2000). Mobile financial services will have to appeal to a much larger community of users before it is truly viable and that will take a long time.

Mobile banking is not inevitable, not as it is currently conceived. Some applications and technologies simply do not survive. The Minitel in France was leading edge for its time but failed due to low functionality, small screen size, and poor data entry interface (Nielsen, 2001), a set of attributes very familiar to most mobile device users. In 1986, the Japanese produced a handheld photocopier the size of an electric shaver. Each of these examples failed to produce a sustainable value proposition.

There will have to be a compelling business case for rolling out high-speed wireless, and it is highly unlikely that mobile banking will provide the driver for such a business case. McKinsey and Company (Datta, Pasa, & Schnitker, 2001) write that the experience in Asia and Europe suggests that there may be more of an opportunity in "emerging markets", based on the argument that the ratio of mobile phones to landlines is higher. In our assessment, it is not a question of the number of mobile phones, but the functionality of those phones in the Internet setting in comparison with the Internet functionality that might be easily available elsewhere, such as at work.

There is another barrier to the development of advanced data services ‚ the availability of investment capital to explore the opportunity. The bursting dot-com bubble might have a chilling effect on the willingness of investors to pile onto the m-commerce bandwagon at least in the near to medium term.

Recommendations

The answer to the question of what to do about mobile banking and mobile commerce depends on the marketplace being served. Japan seems to us to be a candidate for a strong foray into mobile banking and payment systems. There is strong uptake of mobile data services, a solid set of well-imbedded technical standards, virtually no competition from debit card systems, and a demonstrated lack of enthusiasm for using credit cards as implemented there.

Europe presents a mixed picture. There are some communities such as Finland that have a track record of innovating in the area of mobile devices. We suspect that there is a reasonable case for undertaking research and development there.

North America is going to be a difficult market to penetrate . We believe the strategy of choice will be that of "early follower". In other words, service providers will want to avoid the "bleeding edge" of research and development for mobile banking in the near to medium future until there is much more evidence that the appropriate infrastructure (bandwidth, device interoperability, and device utility) is in place and that consumers have a compelling reason for mobile data. From the perspective of both banks and telecommunication companies, we would preserve positional flexibility. The early implementers have not been able to demonstrate a sustainable critical mass or business case for mobile banking yet, but it is conceivable. Both of these industries should monitor developments elsewhere in the world, making adjustments for complicating factors such as culture, institutional factors, telecommunication infrastructure and cost, and competing technologies such as debit/credit card trends. Both banking and telecommunication industries have a significant presence of legacy systems constantly in the process of being upgraded or replaced . In this process, we recommend these core systems be made ready for XML- and IP- related technologies. Wise organizations will ensure the Internet experiences of their customers are as seamless and worthwhile as possible first (American Bankers Association, 2002), before making advances on the mobile front.