Smart phones are increasing in popularity. Hold on, that’s quite an understatement: Recent research by Gartner predicts the total number of smart phone and tablet users across the world to touch the one billion mark by 2015. Obviously, then, the all pervasive nature of smart phones has already thrust significant changes to many industries and sectors. The finance sector is one of them and smart phones impact the banking industry in a big way. Some of them may have sounded like a Utopian vision only a short while ago – yet today, they have become part of our everyday reality. Let’s take a closer look at the developments that are about to change the world as we know it.
Ecommerce and Mobile Wallets
Smartphones have already made a significant shift in consumer buying habits. Online purchases have made a big dent in traditional brick and mortar shopping. Online payments for such ecommerce activities using PayPal, Amazon payments or even the customer’s bank account have already familiarised the smart phone user with Internet banking and increased awareness of the convenience such payment mechanisms pose. In the near future, innovations building on these improvements, such as mobile wallets powered by the smartphone are sure to effect a paradigm shift in the way the banking industry operates.
Mobile Wallets, also known as virtual wallets or online wallets, are a new payment mechanism distinct from cash, cheque or credit card. Consumers use the balance stored in the mobile SIM card to make payment, using Near Field Communication (NFC) and SMS as the connectivity medium. Mobile wallets are already in widespread use to pay for digital content, to make transportation fares and for the purchase of many hard goods as well. As technology develops the convenience it offers looks set to displace other payment modes: Juniper Research estimates the combined market for all types of mobile payments to exceed $600 billion globally by 2013. This would be a 100 percent increase from the 2011 levels.
Even without ecommerce or payment activities, smartphones increase convenience for the customer indulging in banking transactions. Smart phones facilitate most of the normal banking transactions such as checking balance, making bill payments and making cash transfers. Using a smartphone increases one’s convenience, as customers can do these transactions when on the move. Banks save considerably on real estate and staff costs as customers prefer such automated interfaces rather than visit their branches. Safety concerns need to be taken into consideration (see the closing paragraph), but digital protection is sure to make giant steps forward over the next decade, turning even mobile banking into a perfectly secure process.
The Intuit Financial Services 4th Annual Financial management Survey reveals that consumers using online services from their financial institution have increased from 11 percent since 2009 to 38 percent in 2011. 76 percent of the consumers do not visit their bank branch as often as they used to owing to the availability of online banking tools. Big banks such as CitiBank have already launched dedicated apps to cater to the ever growing smartphone and tablet users. In the future, such apps will most likely become the norm for all banks and a significant chunk of all routine banking transactions would shift to such apps. Already today, companies offering online-versions of basic bank accounts, which eliminate overdraft facilities, but replace them with 24/7 access and budget support tools, have built a stronger followership based on a very similar model.
Easy accessibility of the banking app from smart phones throws open the bank to the customer anytime, anywhere. This leads to customers forging a better relationship with the bank and interacting more – banks may yet turn into brands with a positive image after all.
The biggest bugbear of widespread adoption of banking through smart phones are security concerns. Malware has been on the rise constantly over the years and now deadly programs such as Zeus specifically target the financial sector and banks. The popularity of smartphones has resulted in cyber criminals rolling out dedicated malware for these devices. Such malware may steal banking information and make unauthorised transactions, causing severe losses for both the bank and the customer. This is in addition to the numerous Phishing attacks and scams that eke out customer’s financial information and steal money from their accounts.
The future of banking through smart phones will therefore depend largely on how the industry manages to overcome the challenges posed by cyber criminals and other fraudsters. If banks can come up with convincing safety solutions – and there is every reason to believe they will – then the future may look pretty promising to them. Or should we say that’s another major understatement?
Born in Liverpool, William Masters located to London during his university years and has quickly established himself as a respected finance journalist. His favourite topics include consumer protection, credit card safety and the effects of the digitisation on the finance industry.