I used to be in awe of the telecoms industry’s ability to rate complex voice calls, diverse content and disparate data usage. No matter how complex or convoluted a charging scenario could be, it was always billable and virtually nothing slipped through that the net. We used to joke that nobody could, or would bother to, generate a call charge of less than one cent, but those cents used to add up.
Financial service providers (FSPs), on the one hand, seemed to have it much easier, making the bulk of their revenues from interest earned on loans with some account charging. But things have changed since those heady days. Interest rates have dropped, and so have the margins they had become accustomed to. FSPs have had to resort to transaction fees and service charges to make up the shortfalls and this has required them to dramatically improve their basic accounting systems to cope with levels of sophistication needed to charge at granular levels.
Most common strategies for cost controls directly depend on online and mobile channels including: virtual banking, paperless adoption, self-serve options, and mobile deposits. How banks approach these initiatives range broadly from one-off solutions to comprehensive operational transformations designed to establish centralized, integrated and flexible banking services delivered consistently across all interaction channels.
Today, many financial institutions are adopting charging models that match, and even surpass, those in the CSPs that used to be so awe-inspiring. Many have done away with simple fee structures opting for a mix of value-based fees, fees based on the number or value of transactions, variable fees based on when a transaction is made and fees discounted for high-value, premium customers. Even loyalty systems have made their way into banking!
No longer are the FSPs bound by the limitations of their own legacy accounting systems and this is helping them to become potential competitors to CSPs in the ‘direct operator billing,’ ‘mobile banking’ and ‘billing as a service’ spaces. Card issuers have even learnt the value of offering pre-paid debit cards to the same people that CSPs have been serving for years. But their debit cards allow for online purchases with any merchant that already accepts Visa, MasterCard, etc.
While the profitability of mobile financial services is still under study, the ability to transact payments via mobile devices is critical to the growth of mobile commerce and mobile banking provides an enticing opportunity to not only CSPs, but also banks, for revenue and profit growth. The TM Forum predicts that in the coming years, mobile banking will develop into one of the biggest profit generators for mobile operators so the banks will be keen to get a piece of that action as well.
For CSPs, mobile banking is an incremental service to be offered within their portfolio, offering a potentially major revenue stream without significant additional cost of operations. However, simply applying typical telecom pricing models to banking services may diminish success.
Mobility in financial services is inevitable; however, there are inherent challenges ahead in the convergence between these two large and radically different industries. The mobile sector may well become the battleground where these two massive sectors clash for whatever mBanking, mPayments and mFinance business can be generated, and it could get messy.