In undertaking a strategic assessment, we focus on three major topic areas: technical, business/economic, and regulatory considerations. This is something of an arbitrary classification since there is a very clear interrelationship among these areas, as the discussion will demonstrate . Technology is the one piece of the puzzle where the vast majority of the user community has virtually no interest whatsoever, except that it must be reliable, robust, and secure; in short it must be bulletproof and as transparent as possible. There is no question that technology is not sufficient, but it is necessary to mobile banking, and we begin with it.
Disentangling the technical considerations from user and market considerations is somewhat problematic , but we have approached the topic by looking at the major technical issues such as: analog/digital questions, delivery standards, application interface protocols, device alternatives, competing technologies, interoperability, and security.
There is a traditional technology joke, one old enough to have been featured in a poster of the mid-1980s: "The great thing about standards is that there are so many to choose from". The rapid evolution of mobile communications has done nothing to improve this situation. At the present time there are serious differences in the technology standards in place internationally and even nationally to the extent that these differences act as a barrier to the implementation of applications that depend on the standard, including mobile commerce. The objective of this section of the chapter is to examine some of these issues.
Analog systems are not, in general, powerful enough to support the functions of m-banking applications and they consume valuable radio spectrum that could be used more efficiently by digital infrastructure. There is no question that it is expensive for service providers to maintain parallel systems ‚ one for analog cellular telephones and one for digital data delivery. Currently as many as 21 million users in the United States and Taiwan ("Analog phones keep up", 2002) still use analog technology. Partly because of cost and partly because there is less demand for that form of bandwidth, there may possibly be better service and access, at least in the urban environments. It would take something in the order of 5 years in the USA to turn down these analog systems, assuming the market would support the switch. In the meantime, analog users are not candidates for data-driven mobile services, including m-banking.
Competing digital standards in the underlying delivery protocols, such as code division multiple access (CDMA), time division multiple access (TDMA), and global mobile systems (GMS), continue to be a problem for several important reasons (Varshney, 2000). First, it is simply a barrier to adoption for users, most of whom have no interest in such matters. Second, competing standards create problems for the interoperability of devices and applications. Third, heterogeneous standards prevent travelers from accessing networks on a single device in different parts of the world.
Currently, there are three main competing 2G (second generation) standards for wireless delivery: CDMA, TDMA, and GMS. GMS, used mainly in Europe and somewhat in North America, provides capability for short message service (SMS) in addition to and during phone calls. TDMA, used mainly in North America, supports multiple simultaneous calls by time-sharing a single frequency of the bandwidth. CDMA, used largely in Asia, supports simultaneous calls by using multiple frequencies of the bandwidth. Both TDMA and GSM are circuit switched while CDMA is packet switched, the latter providing superior performance for data delivery.
The next generation of wireless standards is classed as 3G, third generation, standards. The 3G standards resolve many of the issues related to current incompatibilities and lack of interoperability. First, 3G systems should deliver data in the range of 384 Kbps to mobile users and 2 Mbps to stationary users. Second, a new standard from the International Telecommunications Union (ITU), the IMT-2000, defines a set of harmonized standards for wireless carriers that includes compatibility targets to guide future evolution of a wide range of existing standards (ITU, 2002). The current investment in infrastructure and marketing makes simple migration to a single standard difficult to imagine in the short term . The acceptance of an international umbrella standard, such as the IMT-2000, would, however, provide a basis for software transformations of data transfers between systems worldwide.
GPRS (general packet radio service) is a 2.5G, or transitional, standard (Buckingham, 1999, 2002) that can be deployed on existing GMS networks to provide higher bandwidth up to 115 Kbps. In addition, GPRS provides alwayson service, a feature that is critical for widespread use of m-commerce. The current requirement of connecting and reconnecting to a telephone network to conduct transactions discourages multiple transactions as well as smaller or spontaneous transactions or queries. Web browsing and Web transactions are not likely to interest consumers in North America at any speed below thirdgeneration technology. In other words, bandwidth is a make-or-break issue for transactions more complex than short messages or e-mail.
Bandwidth capacity has two important impacts on the potential success of m-banking. First, the bandwidth must support data delivery at rates that are high enough to satisfy general consumer expectations, not just for m-banking. In other words, m-banking is not the killer application that is going to drive the growth of mobile digital connectivity. Applications such as downloading images, games , ring tones, searching for the nearest restaurant, and exchanging short messages are far more compelling. Second, there needs to be sufficient bandwidth to support greatly increased volumes of transactions, especially for a huge number of micro-payments such as might be expected in the high volume period before Christmas (Clark, 2000).
Wireless communications continue to have wide variability in the areas of accessibility, reliability, and security as well as interoperability. In the areas of accessibility and reliability, mobile devices continue to have mixed performance in some physical spaces deep in concrete structures such as parking structures and outside of major centers where the combination of distance and low population density affect the infrastructure investment in that locale.
The interface layer exists above the data delivery layer and is responsible for how the data is used by the actual applications. Again, differences in the protocols used in the software at this level lead to incompatibilities and loss of interoperability. The wireless application protocol (WAP) is widely used in Europe and North America while i-Mode dominates the wireless applications available in Japan. One significant difference between the software tools underpinning WAP and i-Mode is that while WAP is an open standard, DoCoMo's i-Mode is a proprietary one. i-Mode has become a de facto standard because of the overwhelming commercial success it enjoys in Japan. Wireless industry participants look to this success as a possible model for rolling out services elsewhere.
Although the success of i-Mode and DoCoMo in Japan has largely been a function of its dominance in the marketplace , there are other contributing factors such as the much lower level of home Internet in Japan. For many Japanese consumers, Web browsing on a small portable device is a reasonable choice compared to no access at all. This has created a very large critical mass of users and a demand for the applications offered , particularly SMS. To date, i-Mode has not made much inroads into the North American market, but the recent NTT DoCoMo's US$9.8 billion investment in the ATT wireless business might change that (ATT, 2000). Middleware or software solutions can be used to transform, with some degree of success, data markup to allow access between these systems (Saha, Jamtgaard, & Villasenor, 2001).
The proliferation of mobile devices constitutes something of a complication for both developers of m-banking applications and for the consumer. Consumers can choose from among cell phone, PDA, interactive pager (e.g., Blackberry), handheld computer, smart card, and e-tablets. It is not uncommon to see individuals with more than one such device. At the same time, most North Americans have access to e-banking through the regular wired Internet, whether at home or at work or both.
The current generation of m-commerce applications are based on the premise that the cell phone will be the primary platform. However, there is some increasing pressure in favor of multifunction devices based on the larger screen of the PDA, handheld computer, or even interactive pager (Nielsen, 2001). The consensus is that the screen size of the current cell phone is just too small.
Screen real estate counts for great deal from the perspective of the user experience and algorithms have been developed that facilitate access to applications designed for small screens (Schilit, Trevor, Hilbert, & Koh, 2002). Reading and navigation are both problematic on the small screen for anything except relatively small amounts of text and simple applications. Reductions in screen size have been shown to dramatically reduce the speed of reading and to reduce effectiveness for nontrivial tasks (Dillon, Richardson, & McKnight, 1999). Small screen devices with small input areas make navigation more difficult because of the reduction in space available for clues and context and because the pixel area for input is also more restrictive , resulting in higher error rates. As a result, data may be fragmented and spread across multiple screens (MacKay & Watters, 2003), which increases the mental or cognitive overhead of the user. The user's ability to perform tasks involving lookups in even modestsize tables deteriorates significantly when screen size is reduced (Watters, Duffy, & Duffy, 2003). Furthermore, small mobile devices introduce significant challenges for input using small keypads or single-handed operations, especially operating them effectively while in motion or in environments with high noise levels or distractions (Kim, Kim, Lee, Chai, & Choi, 2002).
Banking transactions are predominantly text, numeric, and table based and as such are not likely to consume a huge amount of bandwidth per transaction, but additional data requirements will not be long delayed. The Bank of Montreal Veev system (Jessop, 2000), for example, experimented with mobile banking and provided "premium content" such as weather, sports scores, stock market tracking, and horoscopes. Premium content also includes "various services including e-mail, bank details, weather forecasts, transportation schedules, data searches and news updates" (Barnes, 2001; Funk, 2000). The premise that premium content is needed invites questions for the financial services industry, such as what is their core competency and what business are they in? The premium content delivered on a wireless device would arguably have to compete with similar content experienced by most North Americans through high-speed access. Trying to deliver a mobile Internet experience that competes favorably with the Internet experience enjoyed by most North Americans (at home and/or at work) is simply not yet possible because of the bandwidth and screen limitations.
The "electronic purse" is another technology with a clear connection to m-commerce and m-banking. Such a "purse" can be embedded into a mobile phone or onto a separate card with a chip. A number of communities have attempted to implement this approach, such as in the Netherlands. Although half the population there possesses such a card, it is used remarkably little as a means of payment (Netherlands, 2000).
The question of the electronic funds transfer point of sale (EFTPOS) devices, i.e., debit card devices, is a particularly important one. The Bank for International Settlements (Committee on Payment and Settlement Systems, 1999a) has published data on the change of EFTPOS penetration in a number of countries from 1990 to 1997. In Canada, the number has changed from a handful to about 11,000 per million people. By contrast, in the USA the penetration was less than half of this number. By 1999, the Canada debit cards terminal devices reached over 13,000 per million and the USA over 8,600 (Committee on Payment and Settlement Systems, 1999b). In Japan, however, EFTPOSs were virtually absent.
The consequences of these data are quite important. In Japan there is almost no existing electronic direct debit payment system that would act as a barrier to implementing a new mobile-enabled technology. This is not the case in North America and Europe, where any new device interfacing with the consumer's mobile device would face competing established technologies.
Furthermore, past experience shows that feature proliferation of devices does not always increase the value of the device. ATMs are an excellent example of this. Peffers (2001) observed that the earlier marketing of ATMs promised that:
ATMs would distribute welfare benefits, stamps, movie tickets, and a variety of other information products, providing vast new revenue streams for the banks. Of course ATMs have been designed, built and installed to perform all of those tasks at one or another time and place, but, after more than 30 years since the first ATMs were installed, customers really value only one ATM service, convenient , around-the-clock access to cash. (p. 12)
The caution of this example applies to m-banking. Even though m-banking has an intuitive appeal , to be successful it must have to displace existing processes: cash, debit card, credit card (with its attendant loyalty incentives), as well as online and telephone banking services, including bill presentment and bill payment.
We have touched on the topic of interoperability in the device discussion above, but the topic is serious enough to warrant separate treatment. Wireless technologies are beginning to come to terms with this question both in the short message (SMS) market and in the drive towards 3G protocols (Rola, 2002).
When a user makes a long-distance telephone call across national boundaries to someone in another continent , they expect a fully seamless and technologically transparent process. Consumers do occasionally expect differences in convention in the common banking transactions; for example, ATMs in foreign countries might have the keypads organized in a different layout. One might expect there could be some unanticipated problems connecting with a bank in Halifax, Canada, when one is using a cash machine in Mumbai, India. But consumers reasonably expect that a given messaging technology will be interoperable at least within national or geographic boundaries. Currently, however, applications such as short message service (SMS) developed for WAP or i-Mode are not interoperable without third-party middleware. This is an ongoing issue for everyone from the device suppliers and network operators to the end user. This is reminiscent of the 19th century differences in rail gauge standards, and it creates a level of uncertainty for consumers who are used to interoperability and technological transparency.
The argument might be made that it will be relatively simple to have middleware that provides a common interface and interoperability between various devices and various banking systems and thus enables m-banking worldwide. While this may be possible for specific aspects of mobile banking, it is neither practical nor feasible in the wider context of the wireless world. Mobile banking is not the killer application that is going to drive user demand for the technology. Rather, it is a facility that will coattail on all of the other useful and fun things customers will be able to do while wirelessly connected. It is those other useful and fun things that will have to be interoperable too.
One of the most important barriers to Internet e-commerce in general and m-banking in particular is security concerns on the part of consumers (Mann, 2000). Security considerations include the need to be able to guarantee integrity, authorize identification, ensure privacy, and support non- repudiation (Turban et al., 2002). Encryption achieves these objectives to a certain degree for both Internet transactions and mobile ones. Digital signatures provide one solution to guarantee identity but require a large public key infrastructure (PKI) investment (Gutman, 2002). PKI is an administrative and technical system that permits public key encryption to secure e-payments, enable digital signatures, and enable message integrity (Turban et al., 2002). Digital signature technology and SMS can be viewed as necessary and complementary technologies (McCarthy, 2001), and when both of these technologies become fully functional and interoperable, the foundation for m-commerce will be much more attractive. Digital signatures, encryption, and PKI, however, all make greater demands on both bandwidth and processing power, with certificate information alone adding 10-15 Kbytes per transaction.
Finally, mobile devices capable of downloading and storing application software are also at increased risk of virus attacks and hacking. This contributes to uncertainty on the part of prospective users who may already be uncomfortable with security on the Internet. It will be some time before users achieve the necessary level of comfort using wireless technologies (Daignault, Shepherd, Marche, & Watters, 2002).
Given the rate of technological change, it is quite conceivable that neither WAP nor i-Mode will prevail in the way that VHS prevailed over Beta video. In the end, some other standard or technology may displace them both, especially given the discussion emerging around research into fourth-generation wireless technologies (4G).
In any event, there are two unpleasant consequences to the rapid advance of mobile technology research. First, people interested in wireless data services are faced with the difficult decisions of when would be the right time to acquire mobile technology and which technology. Second, those who took the plunge early have ongoing decisions about when to upgrade their technology. Obviously there are a number of direct and indirect costs associated with this technology churn, including the unanticipated environmental problem of discarded cell phones and the batteries containing heavy metals (O'Connor, 2002). According to the New York Times , within three years 130 million cell phones will get thrown out per year, mostly ending up in dumps or, perhaps worse , getting incinerated.
From a technology perspective, the situations in each geographic region are significantly different. M-banking and m-commerce are much more likely to emerge in Japan in the medium term than they are in North America because of higher degree of technology standardization and therefore higher interoperability. Japan has a more advanced implementation of high-speed wireless networks in urban networks and a greater propensity to embrace these kinds of technologies. Finally, there is less of an installed base of EFTPOSs to act as a barrier to the rollout of m-banking technology.
However complex the technical considerations, they are somewhat more controllable than the business and economic considerations of m-banking. In the following section of this chapter, we will consider issues related to:
thinking about the user;
the trust relationship; and,
We begin, naturally enough, with the most important piece of the puzzle: the user.
M-commerce and m-banking will never be successful unless they take user considerations fully into account. Front and center in this discussion is the question of security perceptions . With respect to e-commerce transactions, consumers demonstrated initial reluctance to do business over the Internet. Reports of hackers getting access to long lists of credit card numbers and media coverage of Internet fraud contribute to the overall sense of unease, and this feeling is still somewhat the case. As an example, for a period the most frequently e-mailed article from the September 2002 Business 2.0 issue featured fraudulent transactions on eBay. Increased experience online and offline have helped people recognize that there are risks in every environment. Giving a credit card to server at the local pizzeria whereupon it disappears for 10 minutes has its own risks. The convenience of some kinds of e-business has been well documented in the success of Amazon.com and the performance of Lands' End online businesses (Turban et al., 2002) to the extent where security concerns are a secondary consideration in the transaction. What does seem clear is that it takes time for such fears to abate and trust to be established and that this uncertainty delays commercial technology uptake.
The demographic considerations for both m-commerce and m-banking are likely material. Young people appear to be more willing to embrace new technologies, especially when their parents are paying for it. There are certain benefits of providing a cell phone and/or pager to a teenager, beginning with the obvious ones, for reducing parental anxiety and for emergencies. The hypothesis is that as teenagers grow older, the mobile phone will simply be an artifact of their culture, completely unremarkable to them (Rockhold, 2001). This may result in a gradual substitution of mobile phones and other mobile devices, replacing landlines entirely. If this is the case, it may become practical to extend the functionality of the device and achieve greater penetration of m-commerce.
The demographic argument has some weaknesses, most notably where consumer segmentation meets value proposition. Young people generally speaking are not likely to need sophisticated banking transactions such as account transfer features, online trading, or investment alerts. If the highest transaction volume in the demographic sector most likely to have a cell phone is low-value payments, there is already a technology in place that is well used by young people in North America, payment cards such debit cards.
It is also clear that establishing the technology infrastructure for mobile commerce is not cheap. Who will pay for such enhanced features? End users are sensitive to banking fees to the extent that "excessive monthly fees" are the number one reason that experts offer for consumers who are thinking about changing banks (Leuchter, 1999; Royal & Brown, 2000). It might be a question, of course, of who gets blamed for the fees ‚ the banks, the merchants , or whether they are visible at all. The question of the fees associated with a mobile transaction may be less if they are part of a bundle of services sold by the bank, as is the case with the debit card. The business model associated with offering potential mobile banking services in North America and Europe is not at all clear. For example, if checking a stock quote is a "banking transaction", then how are the banks going to charge for it, especially if the bank owns the brokerage.
There may be less resistance to this in Europe, where consumers are used to metered telecommunication charges. Microcharges might also be problematic with consumers (such as young Internet users) who have a culture of expecting the Internet to be free. Collecting micropayments for wireless banking services is also problematic, probably more so in North America, where consumers think of it as being "nickled and dimed to death". In some jurisdictions this is managed by charging users for the volume of data downloaded instead of the connect time, but in both scenarios, it is the carrier that is collecting the revenue. It is also possible to build a two-part revenue model, one that charges based on downloads, such as MP3 files, and one that charges for "premium content", whether that is data related to a particular stock the user is tracking or pictures of rock stars and custom ring tones.
Expectation management and the customer is a material concern. It is common for corporate mission statements to say they will meet or exceed customer expectations. This is a sensible if somewhat uninspiring objective that can be met either by delivering in a particularly effective way or by lowering expectations. In the general area of mobile data services, the expectation and performance have shown a distinct gap. The overly optimistic deployment schedule of third-generation wireless (3G) has produced unrealistic expectations, especially for users in North America (Valentine, 2001), who already have access to Internet services either at home or at the office.
The perception of the value proposition for wireless services in general and m-banking in particular for the user varies by cultural community. With respect to wireless data services such as SMS, its popularity in Japan is understandable. Cell phone usage costs in Japan have historically been 17-20 cents per minute (Sutton, 2002). An SMS communication might cost a few cents while few conversations would cost less than 10 times this amount. Voice in North America is so cheap that SMS is not really a communication substitute but an add-on service. This results in a poor value proposition for many people in North America, which contributes to the very low consumer awareness in that market. Having said this, younger consumers demonstrate a willingness to use SMS even when cell phone use is relatively cheap simply because it offers them another, and different, way to communicate with their community of peers (Carroll, Howard, Vetere, Peck, & Murphy, 2002).
Wireless data services need broad demand from the public to be viable as a platform for banking. Such demand will have to go well beyond banking and payment services and well beyond SMS in North America. "M-banking, rather than driving m-commerce, will in fact be driven by the increasing availability of mobile-focused, user-friendly content" (Kountz, n.d.).
The business model for m-banking may be based on: 1) consolidation, 2) location-based services, 3) immediate product payment, 4) bill payment, 5) systemic interoperability, and 6) non-credit-card users.
Consolidation: Applications that provide consolidated financial views across institutions have value for those people who have banking relationships with more than one financial institution. Such an application would be able to consolidate all assets and liabilities in one view. Visual confirmation of such transactions is one of the attractive features of Internet banking and trading, as the user sees the complete transaction all at once. As described earlier, the restricted screen size of mobile devices is a challenge for this type of visibility, certainly in the near future.
Location-based services: One clear advantage of mobile technology is identifying and using the actual physical location of the user. This provides an opportunity to customize both data and services by taking into account personal factors and location-related factors (Hightower & Borriello, 2001). There is no problem imagining a host of examples of location opportunities, such as providing a user with a list of the closest fast food restaurants or ATMs. One can also imagine entering a universal product code (UPC) or possibly scanning it and having an application service provider confirm price and availability somewhere other than the store you are standing in. This might counter the emerging practice of having location-specific pricing (i.e., where through data mining, the retailer identifies lower pricing sensitivity to a product in a given store and raises its price only in that store). Currently, providing and using location-specific information is possible with a wireless device. What is less clear are the costs and benefits of this functionality to all of the parties involved and the risk that users may be reluctant to have their movements recorded in this way.
Immediate product/service payment: Mobile devices afford the opportunity for consumers to purchase goods or services and draw the payment directly from their bank accounts in a manner similar to the debit card in North America. A survey report from March 2002 (Jupiter Research, 2002) analyzed the responses from 5,600 mobile phone users in Japan, Europe, and the United States. Approximately 44% of the survey respondents reported an interest in making small transaction payments using their cell phone. We do note the important marketing caveat when considering these data ‚ there is a significant difference between enthusiasm and commitment on the part of prospective consumers. In other words, expressed enthusiasm is not nearly enough to guarantee the success of a product or service.
Bill payment: How important is wireless bill payment versus bill payment online in North America when both are available to consumers? One of the arguments that favors the use of a wireless device in many situations is to satisfy the need for urgency. A cell phone is often invaluable in the case of emergency, which is by definition urgent and time sensitive. Generally, there is not much urgency or time sensitivity to bill payment transactions or most other bank transactions, with the possible exception of the minority of investors who are active traders (Kiesnoski, 2000).
Systemic interoperability: Consumers look for uninterrupted service with an uncomplicated interface between the customer, the device, the wireless service, the network, the merchant, and the bank. This systemic interoperability is a key user consideration. Consider the interoperability of cash. It is fast, usually reliable, with good geographic interoperability at least within a national region. The creation of the Euro was a way to increase geographic interoperability, as well as to reduce currency friction in multinational transactions. Cash continues to be the preferred payment choice in Japan, where the maximum withdrawal limit of an ATM is ‚ 2 million, something in the order of US$18,000 (Mann, 2002). So even in Japan, with its high penetration of cell phone usage, there may be powerful factors ‚ in this case, cultural ‚ that inhibit the rollout of m-payment services. Nonetheless, m-banking does offer the potential for a portable payment/banking system that provides systemic interoperability.
Non-credit-card users: In North America and Europe, the payment mechanism of choice for medium- sized payments is the credit card. Mobile banking and mobile payment schemes would have value for those people who do not have a credit card, such as the teenagers, children, or poor credit risks. If this functionality is delivered through facilities developed by the telephone companies, which will aggregate charges onto the telephone bill, the technology could actually contribute to the disintermediation of the banking industry. Banks could, of course, offer a similar micropayment aggregation function. There is some question of which industry is best positioned to do this. Is it the organization with the close connection to the customer's bank account or the organization with the close connection to the communication network?
Over the last 100 years banks have gradually increased their direct involvement in the transactions of the economy. In 1902 we speculate that the average number of transactions between an individual and the bank might have been less than 25 per year, probably fewer. Many people in a community would not have had a bank account. Over the years, banks and financial services institutions more generally (such as credit unions, finance companies, insurance companies, automated clearinghouses, etc.) have grown to have a greater and greater involvement in the lives of the average person. Digital technologies have helped to reduce the cost of delivery while improving the effectiveness of the service. On the other hand, these same digital technologies have enabled the emergence of new financial intermediaries such as PayPal. Its connection to VISA on one side and eBay on the other makes for a formidable combination.
Banks must be looking over their shoulders these days with the emergence of PayPal and Paybox. In less than two years, PayPal handled almost $3 billion for almost 10 million users (Hoffman, 2001). Banks large enough to respond have begun to offer similar services. It will be interesting to see if the connection between eBay and PayPal is now well enough entrenched to prevent the traditional financial service industry players from succeeding with competing offerings. The economic realities have forced PayPal to begin moving customers to fee-generating accounts (Wolverton, 2001). This should improve the competitive position of banks in delivery-equivalent services since there is a natural inclination to use a credit card facility to complete the person-to-person transaction.
There are some who characterize PayPal and its ilk as a kind of unregulated entry into a service industry that is highly regulated for traditional suppliers, with all of the attendant costs and complications. This issue may yet reach the desks of regulators. In the meantime, banks are responding. It turns out that people who pay bills online prefer to have their bank as the intermediary (Saliba, 2001). As long as the banks "fast follow", they may recover this opportunity. Saliba reports that banks have a lower churn rate among their customers and that may give them strategic advantage in this market space. This has direct relevance to the m-commerce evolution on two fronts. First, making the assumption that the banks recover a decent position in this evolving payment mechanism, we might naturally assume that mobile banking might be a reasonable channel for delivering such a service. Second, banks have a stronger relationship with their customer base.
There might seem to be a significant difference between mobile banking versus mobile payment, suggesting the question ‚ Is m-commerce a connect or a disconnect for the financial services industry? As we have noted, historically banks have gradually had more and more to do with the electronic commercial transactions, whether person-to-businesses or business-to-person. From the banks' perspective, the argument in favor of electronically enabled credit card transactions (as opposed to the traditional fully manual credit card approach of 25 years ago) was reduced costs, higher security, and faster velocity of money. Banks simply make more money in their credit card operations through increased automation of the processes. What might the argument be for investing in mobile banking or mobile payment systems?
Of course, there already are mobile payment systems ‚ debit cards, credit cards, stored value cards ‚ and all are wireless, for the consumer at least. The penetration of cash/debit cards in some countries such as the Netherlands is particularly high, with 94% of the population having such a card in the autumn of 1998. Older people, those with a lower education level, and lower income groups use these cards less frequently than other groups in society (Netherlands, 2000). To see the overall penetration of these systems over the years, the Bank for International Settlement reports on the ratio of cheque to electronic transactions in noncash payments and how they have changed between 1990 and 1997 (Committee on Payment and Settlement Systems, 1999a). For example, in the reported period, the percentage of noncash payments in Canada executed by cheque dropped from 63% to 31%. In the USA the drop was substantially smaller, from 82% to 74%, but more recent data from 1995-1999 inclusive indicates strong growth for EFTPOS transactions of over 30% compound annual growth.
Japan is problematic as a model for how this area might evolve . First, their culture continues a very high level of cash transactions (Mann, 2002) to the extent where EFTPOS data is not a consideration (Committee on Payment and Settlement Systems, 1999b). Second, there already exists a unifying technical standard (i-Mode) and a high-speed wireless network that might favor wireless m-payments.
The literature collectively agrees that electronic wallets and stored value cards are not very popular. Stored value cards do work in closed environments such as universities, mass transit systems, and libraries (photocopying services), but their prevalence is low on volume and value measures. In summary, there already exists effective quasi-mobile payment system (i.e., credit and debit cards) that any new mobile system would have to displace in North America and in much of western Europe.
It seems clear that there is a minimum volume and value of transactions in the m-banking domain that will be necessary to support the development and operation of the delivery infrastructure. There are other critical mass considerations such as the number of mobile phones and other devices through which such services might be delivered. The volume of mobile phone shipments in the USA alone is quite impressive ‚ almost 82 million in 2001. There were also approximately 24 million other mobile devices such as PDAs (Datamonitor as cited inValentine, 2001). Obviously, many of these must be replacements units since, at these rates, it would take less than 5 years to equip every single person in the USA. Our assessment is that there is no shortage of enabled hardware in the hands of end consumers in any of the major markets.
What is required for a strong uptake of m-commerce is a different critical mass ‚ a critical mass of users, applications, and functionality. The users involved will be banks, enough merchants, and enough consumers. M-commerce generally and m-banking specifically will depend on the emergence of a synergy with other mobile data systems and capabilities such as SMS and premium content. There is a key connection between the quality of the content and the number of subscribers, to the extent that in Japan, content providers build for i-Mode first because of the number of subscribers, and i-Mode attracts subscribers because of the quality content (Funk as cited in Barnes, 2001).
There are two primary ways of achieving a critical mass: 1) with the "killer application", such as the spreadsheet for the personal computer or e-mail for the Internet, and 2) with an adequate accumulation of value-chain contributions that individually would not justify uptake. The PDA is an interesting example of the latter. Each user selects from a myriad of available functionality enough value to make the whole purchase worthwhile, thus creating the necessary value proposition. When it comes to a wireless device, mobile banking is not a killer application. Mobile payment is probably not a killer application. Mobile brokering is not a very important application, except possibly for a relatively small number of people actively involved in trading who are also mobile. We conclude that the critical mass necessary to implement m-banking in North America involves a set of services and content outside of banking and payments per se.
One of the key factors driving innovation is the cost-benefit consideration for parties on each side of a given transaction. The cost-benefit case for m-banking and m-payments is not at all clear. Wireless banking transactions will surely cannibalize existing electronic channels. Is a mobile banking transaction cheaper than an online banking transaction for the bank? We suspect that it is not. This means that someone has to pick up the incremental cost of such a transaction, and it is not likely going to be attractive for the user, given the sensitivity to banking fees already. The alternative is to bundle this facility into some other package of services and charge for the data download. We note that Internet banking continues to grow but mobile Web access "has seen negligible take-up" (Lamb, 2002), raising the question of whether there is any genuine value for anyone in the mobile space.
From the perspective of the bank, adding new channels typically has an effect on the performance of the old channels. For example, had we done a per transaction cost comparison of in-branch transactions before and after the implementation and take-up of ATMs, we suspect there would have been a significant change. Prior to automation, the average transaction cost in a branch would naturally reflect a very high number of routine transactions compared to complex ones. The implementation of automation moves the simple transactions out of the branch and onto a machine. The average complexity of manually handled transactions rises, and therefore the apparent cost per manual transaction rises too. In other words, the economics of adding new channels are not necessarily straightforward.
In the case of mobile technology, the kinds of transactions offered by the institutions still in this business are very much like the transactions offered through Internet banking. There is no evidence to suggest that a significant number of in-branch transactions are likely to migrate onto some technologyenabled mobile platform. Therefore we speculate that there will be additional cost to banks in adding the channel.
One of the key assets of banks is that they enjoy a strong trust relationship with their customers. Surveys in North America report that trust in banks compared to other financial industry participants, such as mortgage companies, insurers, etc., has actually increased (Monahan, 2002). The trust connection is a very valuable one in the context of m-commerce and m-banking since these services can conceivably be enabled and provided by a number of different players, such as telecommunication companies. The banking trust relationship may be an important differentiator from the relationship that telecommunication companies have with their customers. It is interesting to note that two of the three examples of "little lies" in business in a recent short article were taken from the telecommunications industry (Chevron & Glowatz, 2002). Given the uncertainty about security in the wireless environment, the trust relationship banks enjoy with their clients is an asset banks have to leverage in order to preserve their position when and if wireless banking services evolve.
What is the strategic imperative for banks to operate in the mobile market space? First, there is a risk from the telecommunications companies, once they get their own financial houses in order. Clearly there is an incentive to include mobile financial services features from the perspective of the telecommunication carrier. It increases volume on the infrastructure and adds another "reason" to buy a cell phone or to upgrade the one the consumer already has. This situation produces an opportunity to back into the financial services industry with new services such as the consolidation of micropayments onto the carrier's bill.
The literature documents a significant difference of opinion about the strategic importance of m-banking and m-commerce in the context of other potential suppliers. On one hand, banks may choose to implement systems as a preemptive step to keep out the competition from establishing a separate trusted financial relationship at the risk of eroding the banks' relationship. The other position holds that mobile banking is just a fool's errand, especially given the current unstable state of the technology.
It is tempting to make a connection between the growth in Internet usage and wireless usage. Until the user interface and screen improves , this is an unwise connection. In the meantime, who is going to drive the m-commerce evolutionary process? The banks? The telephone company? The device manufacturers? Our view is that it will be all of the above because none of them will be able to live without the other if this innovation is going to be successful. We also note that there is a very strong argument to suggest that the evolution of m-commerce, m-payments, and m-banking will be quite different in its various marketplaces .
A comprehensive review of banking regulation factors and their impact on the implementation of the various electronic and wireless possibilities is well beyond the scope of this chapter, but there are a few regulatory considerations that deserve a special nod. Money laundering seemed to be a risk related to the emergence of mobile banking, but on reflection the risk seems to be limited to two considerations. First is the stored value capability of a mobile device, a risk currently limited by interoperability problems in multiple currencies on a cell phone as well as limitations to stored amounts. Second, mobile phones might make it possible to transfer relatively small amount transactions in large volume as a way of hiding large dollar transactions that attract law enforcement attention. It is a much higher likelihood that the major problem with m-commerce will be new forms of cyber-fraud, not money laundering.
Of major concern in the mobile data services business is privacy, especially in respect for location and transaction tracking. In marked contrast to cash transactions, it is possible to record the location of the individual at the time of the transaction. Restricting technologies for identifying location has created a significant debate with the privacy professionals on one side of the argument and the security/public safety professionals on the other. Mobile telephones account for a large proportion of the 911 emergency calls in the USA. Existing emergency systems are built around inferring the location of the call from the service address of the landline . This obviously does not work for mobile phones, and in the heat of the moment, callers with emergencies are often unable to give helpful location data. There are a variety of technologies in place that make it possible to narrow the location of a mobile device more accurately than some GPS receivers. It is a regulatory question of whether to permit (or even require) such tracking and, if so, whether to permit the collection of time and location data.