[Dave Birch] Just as mobile proximity payments start to slide into the trough of despair, their inevitable trajectory before they climb slowly to the plateau of productivity, the tension at the heart of the current non-market is again under discussion.

For carriers, the benefits of offering mobile banking are ambiguous. Though companies like Verizon Wireless, AT&T and Sprint facilitate the service, mobile banking does little more than provide a marginal boost to data ARPU at this point. That may change down the road as features like contactless payments and the multi-mode mobile wallet become a reality, providing revenue opportunities for banks and carriers alike. Carriers will be able to use payment-enabling near-field communication (NFC) chips as a way to upsell customers on handsets while boosting data ARPU.

[From Mobile Banking Poised for Takeoff]

Without a decent mobile offering, which must be something more than getting texts with your account balance in them, there is no way for banks to bring in the next generation of customers. But if it is carriers who use payment-enabling NFC, how is that going to help banks? Banks don’t control the handset, the SIM or (thanks to the GSMA’s sterling work in the standards space) the NFC interface either. It’s not like banks can just ignore mobile, write it off as a “nice to have” channel but a low priority in difficult economic times. Mark Schwanhausser of Javelin kicked off a nice piece about the need for banks to make mobile central to their strategies with a lovely “sign o’ the times” fact:

Santa Clara University shut down 1,300 land lines in its dorms Tuesday, saying they’re unnecessary because virtually all students have cell phones now.

[From Javelin Strategy and Research » Technology + Investment + Adoption = Ubiquitous Mobile Banking]

This is a generation that banks simply will not be able reach, influence or service without an effective mobile offering. I can tell you from personal experience that my teenagers never, ever use fixed line telephony and they almost never use e-mail and they hadly use the web (they use Facebook, and YouTube and BitTorrent, but not the web itself, if you see what I mean). So what does this mean for payments? Well, for one thing it means that something is going to have to change in the relationship between banks and mobile operators because the current stalemate isn’t serving either of them. There is an enormous market out there and it it’s not being served properly under current arrangements.

Informa Telecoms & Media forecasts that in 2013 almost 300 billion transactions, worth more than US$860 billion, will be conducted using a mobile phone – a twelve-fold increase in gross global transaction values in just five years.

[From 300 Billion Transactions Worth $860 Billion by 2013, Says Informa Telecoms – WIRELESS AND MOBILE NEWS]

Wow. No small potatoes. But read the small print, and you’ll find a crucial qualification around the NFC projections (added emphasis is mine)…

Informa predicts that if the key players collaborate effectively the mobile payments and banking market offers a shared annual revenue opportunity of over US$10 billion in five years time.

[From 300 Billion Transactions Worth $860 Billion by 2013, Says Informa Telecoms – WIRELESS AND MOBILE NEWS]

That’s what we found too in our study for the Infocomm Development Authority in Singapore. Collaboration of course means more than carving up a number of very small pies: it means creating an interoperable infrastructure so that customers and service providers can connect over any network. It’s self-evident that an “open” market contributes more to the net welfare than a closed one, but it can be difficult to work out how much more, because you have to look at business that do not currently exist and make sensible estimates as to how they might perform. Nevertheless, the big picture is undoubtedly correct.

The IDA claims ubiquitous consumer access will spur businesses to deploy NFC services. The authority cites a study it commissioned from Consult Hyperion which suggests a fully interoperable NFC environment would generate a market size approximately eight times that of a non-interoperable environment.

[From Finextra: Singapore moves towards interoperable NFC infrastructure for m-payments]

I don’t think that’s a particularly hard call to make: look at the size of the non-interoperable text market compared to the interoperable text market on the size of the non-interoperable payment card market compared to the size of the interoperable payment card market. So, you might reasonably ask, why isn’t the whole world singing along in harmony. Well, it’s a new technology, a new business, and it depends on conservative, well-established, stakeholders making changes to their long-term strategies. It’s inevitable that it’s going to take time. The mobile operators are uncomfortable about simply adding NFC to handsets and letting things evolve.

The present remains a world where the carriers do control the interaction between customer and handset, and in turn the technology that gets placed on the handset. The primary tide the carriers are looking to stem is that of irrelevance (if I had a nickel for every time I heard the phrase, ”…don’t want to be dumb pipes” when referring to a carrier).

[From Javelin Strategy and Research » The Mobile Wallet — Conflicting Business models and Evolution]

So carriers don’t want to be dumb pipes, just like banks didn’t want to be payment utilities, despite the fact that if each of them did stick to their knitting we might all be a lot better off. I’m beginning to wonder if there isn’t a new arrangement round the corner to break the current statemate. Suppose that there is, indeed, a return to “narrow banking”? I don’t see payments as part of narrow banking, which to me means savings and loans, essentially. But a tripartite “narrower banking” plus “narrow mobile operators” plus “payments utility” might optimise in the right ways and generate the high volume, low margin transactions of a mature marketplace that serves to increase the net welfare.

I’m looking forward to hearing some great stuff about the next steps for mobile payments at the Future of Mobile Payments in Vienna on 3rd-5th June 2009, where I will be running a workshop looking at tmobile proxmity payments and sharing some of our experiences in practical implementation and thoughts for the next steps in evolving working business models.

Incidentally, the magnificent people at Jacob Fleming have given me a delegate pass for this event — worth an astounding XXX Euros — to give away on this blog as a competition prize. So if you are going to be in Vienna on those dates and you’d like to come along to hear some of the leaders in the field discussing mobilepayments, then all you have to do is be the first person to respond to this post with the name of the American lawyer who is generally credited with the invention of the modern payment card.

In the traditional fashion, this competition is open to all except for employees of Consult Hyperion and members of my immediate family, is void where prohibited and is almost salt free. The prize must be claimed within three months. Oh, and no-one can win more than one of the Digital Money Blog prizes per calendar.

These opinions are my own (I think) and presented solely in my capacity as an interested member of the general public [posted with ecto]


  1. I think it will take a non-bank, non-provider, non-device-maker to break this cycle. All of those groups have reasons to wait-and-see, and that’s when the market is ripe for a disruptive innovation to come in ans bring it all together. My money is on Google… I think Apple (though they may be considered a device-maker) could make a good play in the space too.

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