This post was originally published on 26-November-2014 on Linkedin (click here). The evolution of financial payment systems has been a long but interesting journey characterised by sudden changes in underlying technology.
Financial payments and banking started in a very inefficient and traditional way which was slow but still acceptable to the customers due to the stage in the information age. Initially, almost all the fun and joy in terms one double zero percent in shape of activities in the financial services (Except Non-Banking Services) space was attributable to banks with all the revenue being collected by the same entities.
With advancement in technology, artificial intelligence, organisations outside the banking industry diversified and demystified financial services by targeting small & succinct margins in the space. These were organisations servicing millions of customers through broad distribution channels, be they mobile operators, mobile handset manufactures, retailers or on-line merchants. By the time advancement in machine learning got in and machines became intelligent machines, deep learning caused huge disruption in the info security and made machines super intelligent (off-course artificial super intelligence and machine consciousness is not the discussion here as these are still almost 80-100 year far from today). Artificial consciousness also known as machine consciousness or synthetic consciousness, is a field related to artificial intelligence and cognitive robotics which is outside the scope of this article.
The phrase mobile commerce was originally coined in 1997 to mean “the delivery of electronic commerce capabilities directly into the consumer’s hand, anywhere, via wireless technology Singapore’s e-commerce market will hit US$2.99 billion while m-commerce will reach US$1.18 billion by end-2014, clocking an annual growth of 38 percent and 65 percent, respectively, between 2011 and 2014, according to the latest stats released by PayPal with the average consumer forking out US$1,861 a year on purchases. By 2018.
In the early days, banking services were basic; covering deposits, withdrawals, loan processing and interest capitalisation. These transactions were conducted in-branch and one had to physically visit a marble banking hall to conduct the banking transactions also same branch hall all the time. Access to banking services was restricted to the banks operating hours. Slowly, transactions evolved from being intra-bank to interbank with settlements being conducted through a settlement partner. The introduction of magnetic stripe technology upped the tempo by allowing transactions on ATMs and POS machines through debit and credit cards. ATMs brought about 24×7 access to banking services and the underlying technology evolved from simple cash dispensers to deposit handlers which allow customers to perform a multitude of transaction sets which were previously confined to a brick and mortar banking hall.
The internet age brought about an era which took banking to the comfort of one’s home or office. However, internet banking was quickly coupled with mobile banking which was SMS based in the initial days. Mobile banking paved the unity and collaboration between mainstream banks and telecommunication companies. This fusion brought about the rise of mobile financial services. The most common form of mobile financial services is mobile money – Empowers a service provider with a set of distinct features that provides an intuitive and convenient way for managing service channels with various interfaces under single roof and covers airtime purchase, peer to peer transfers, bill payment and merchant payment. With these advancements, the mobile handset has become a critical channel to accessing financial services.
Due to the heavy involvement of regulators in this space, most mobile money services focused on the banked customers. Mobile money services in Kenya, Zimbabwe, Tanzania and many other African countries took a radical move and focused on the under banked segment of the market. Most of these operations were successful due to the extremely low banking penetration rate, flexible regulation, market need and low trust in banks. Today, mobile penetration has reached levels equal to or surpassing population levels of multiple countries across the globe. Financial services is a key need of any human being and it makes sense to enable multiple sets of financial tools and features on mobile phones.
Mobile Money Solution has got the edge over existing solutions in this domain because of it’s economical and ubiquitous, Flexible & Scalable nature. Singapore’s e-commerce sector will further increase by 13 percent annually while m-commerce will grow 15 percent. To continue its growth and begin to fulfil the promise of an e-money economy, industry stakeholders must work together to unleash convergence, drive customer acquisition, and refine enable technology. Mobile money must have a clear appeal to consumers, the public sector, and the private sector. The Mobile Money system identified a number of key lessons for all of the industry’s stakeholders. Primary among these was that mobile money’s development value rests in its ability to facilitate financial sector inclusion.
To do so will require financial institutions and Mobile Network Operators (MNOs) to work together with regulators on a country-by-country basis. Smartphones, tablets, and, in the near future, watches, eyewear and other wearables, will emerge as new points of sale. Online retailers with a well planned, flawlessly executed, and tightly integrated mobile presence stand to gain the most. More impulse buys come from mobile, with clothes, books, and music noted as leading impulse buys. In 2014, mobile commerce was expected rise to $57 billion (Google as source). By 2017, mobile is poised to represent nearly a third of all digital sales at $115 billion (Google as source). In 2013, physical and digital retailer, Target raked in 43 percent of its digital sales from mobile-only users(www.internetretailer.com)
Savvy mobile shoppers use their devices for more than just clicking the “Buy Now” button. According to a 2013 survey from Deloitte, smartphone owners used their devices to find store locations (56 percent), check and compare prices (54 percent) and get product information (47 percent). Mobile is disrupting the way we browse a store’s showroom. Over a third of users report consulting mobile devices in-store to compare retailers and one out of five go mobile in the store to view products on the store’s website. More importantly for retailers, mobile shoppers were prepared to spend 27 percent more on holiday gifts than non-smartphone owners.
The mobile movement isn’t just for traditional retailers. By integrating mobile into insurance claims processing, the process has become 30 percent more efficient. Looking ahead to 2015, over 80 percent of insurers plan to be using mobile technologies in claims, customer service and field sales (base milage) On a lighter side Recession & Depression are not synonyms as use of them are way apart like if you don’t make money in business thats recession and if your neighbour makes money from same business thats depression. Banks lost out on revenue from mobile transactions as MMS became increasingly popular.
Major success factors of MMS being the flexibility to transact at anytime, anywhere and with access to make payments to utility bill companies, airtime sellers and merchants. To maintain relevance, banks started working on technology based payment solutions in collaboration with card companies and opened their doors to all customers and services. This brought about the merger of mobile money services, mobile financial services and mobile banking services. With this fusion, cross border remittances, peer to peer transfers, payment for water, DTH, electricity, internet subscriptions, income tax transactions can be completed within seconds.
Conclusion – Technology is moving beyond 24×7 access so the MFIs (Cross Border & Oceans Remittances, micro loans, micro savings, micro insurance, share trading and ecommerce) should consider occupying this scape. If we evaluate payment channels we see that mobile handsets (via SMS, USSD, NFC, QR Codes, WAP, APP), ATMs, POS, internet, debit/credit card companies and money transfer agencies are widely accepted and available for payments along with Money Transfer for Inter/Intra banks/cities/currencies/countries/continents. Of late, we have seen companies like Apple bringing NFC functionality on mobile handsets in a bid to claim a share of the mobile payment industry. Whenever an entity outside the telecommunications industry offers a joint payment service with an MNO, the resultant is a hybrid mobile financial and banking service.
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