‘Tis verily the season of mobile banking predictions.
Shortly after the Boston Consulting Group surprised even the optimists with a $350 billion possible market-size for mobile transactions in India in four years, Gartner has come out with a forecast warning of lower than expected growth in developing markets.
At present, the Indian mobile transaction (also called mobile banking) market is only around Rs 1,000 crore ($0.22 billion) a year. Another survey result conducted by KPMG found that banking and retail industry officials felt mobile banking will take four years to become mainstream.
Gartner, though it did not make a future predictions but noted that the overall GLOBAL market size for mobile payments this year would be $86.1 billion, up by a strong 76%. In terms of people, 141.1 million will use it this year, compared to 102.1 million last year, the research agency said.
That is the good news. The bad news is that in many markets, mobile payments has not taken off as expected.
Many Indian companies, such as State Bank of India, Bharti Airtel, Bank of Baroda and others have invested heavily promoting mobile banking, but have found the going hard. The biggest hurdle has been concerns that if the mobile phone falls into the wrong hands, it may be used to clean out the owner’s bank account.
The lack of growth is despite successful adoption in countries like Philippines and Kenya.
“In developing markets, despite favorable conditions for mobile payment, growth is not as strong as was anticipated. Many service providers are yet to adapt their strategies to local requirements, and success models from Kenya and the Philippines are unlikely to be translated to other markets,” said Sandy Shen, research director at Gartner.
The primary motivators for mobile payments has been the need to pay for purchases done on the mobile phone — such as a song download, or the need to send money to someone who does not have a traditional bank account or is far from one.
Another big hurdle, in a country like India, is that the Western model cannot be easily replicated here. Gartner pointed out that 90% of all such transactions in North American and 70% of all the transactions in Western Europe are carried out over mobile-data connectivity, such as GPRS, 3G etc..
In India, a majority of the phones do not either support mobile data or the subscribers have not activated such services. According to industry estimates, 10% or less of Indian mobile subscribers subscribe to data plans, though some operators are starting to turn the service on by default under rent-free plans.
“Gartner expects Short Message Service (SMS) and Unstructured Supplementary Service Data (USSD) to remain the dominant access technologies in developing markets due to the constraints of mobile phones,” the agency said.
However, using SMS messages to transfer money comes with its own attendant risks, especially if stolen. New technologies, however, use special programs that are installed or downloaded onto phones and add a layer of security to SMS-based banking.
The difference between the developed World and the developing World is not restricted to the technology used. In North America, 90% of mobile transactions are ‘normal’ transactions — where the customer is paying for some good or services.
In Eastern Europe, the Middle East and Africa (EMEA) region money-transfer accounts for 54% and mobile top-up for 32% of all transactions 2011, according to Gartner. In other words, people would rather pay by cash or card if possible.
Gartner therefore warned that a strategy based on copying the mobile banking strategy in other countries onto developing markets such as India may not work.
“While developing markets have favorable conditions for mobile payments, such as high penetration of mobile devices and low banking penetration, this is no guarantee of success, unless service providers adapt their strategies to local market requirements,” it warned.
Another ‘hot trend’ in mobile payments is making payment from device to device, without having to ‘add’ the person to whom the money is being sent as a beneficiary, know his account number etc..
This is done by implanting special (NFC or near field communication) chips, similar to the tags in super-markets, on the mobile phones. The phones can then be ‘waved’ at a connected-counter which will deduct the required amount — much like a credit card is used today. The trend is most advanced in Japan.
Gartner, however, said this will take another four years to gain acceptability in most places. “We believe mass market adoption of NFC payments is at least four years away.. The biggest hurdle is the need to change user behavior by convincing consumers to pay with mobile phones instead of cash and cards,” it pointed out.