Banks’ payment revenue may be at risk as the mobile payments value chain evolves, according to the new KPMG report.
As payments made from mobile phones and other mobile devices increasingly become a popular preference over checks, cash and even debit cards, many banks around the world are rapidly re-evaluating and evolving their business models. New competition from non-traditional sources such as Apple, Google and PayPal is forcing banks to move quickly in order to preserve their payments revenues and take advantage of emerging mobile platforms, according to new report from KPMG International.
“Regarding mobile payments, I think that bank interests coincide with customer interests. On one hand, it is convenient for banking customers to use mobile devices, such as mobile phones, for basic banking operations. On the other, our analysis shows that processing mobile payments costs banks ten times less than transactions using a PIN pad, and fifty times less than using traditional channels such as bank branches.” said Alexander Sokolov, Partner, Head of Financial Services, KPMG in Russia and CIS. “In terms of the Russian market, I believe that many banks will adopt a "wait-and-see" approach, and will not start offering such a service until it is clear which mobile technology platforms are most effective for payments.”
With almost 85 percent of respondents to KPMG International’s survey of banking and financial services executives saying that mobile payments will have significant importance to their business within the next one to four years, a select group of banks are quickly moving ahead of their peers by leveraging mobile platforms to gain customer loyalty, reduce costs and – ultimately – secure their place in the mobile payment value chain.
“Our survey shows that – around the world – banks tend to fall into two camps: those that see themselves as innovators, and those who prefer to be followers.” said David Sayer, Global Sector Lead for KPMG International’s Retail Banking practice. “And while a number of barriers still stand in the way of the mass adoption of mobile payments today, both camps will need to focus on overcoming these challenges if they hope to maintain their hegemony over the payment value chain.”
Significant Challenges Ahead
In the report "Monetizing Mobile: How Banks are Preserving their Place in the Payment Value Chain" respondents highlighted a number of significant and evolving challenges that are hampering the adoption of mobile payments. More than 70 percent of banking and FS executives cited security concerns as their biggest challenge, an issue that has only been accentuated by a spate of recent high-profile online security breaches.
“The security of transactions on mobile devices is certainly an important consideration, and banks will need to take security very seriously.” said Mitch Siegel, a partner with KPMG in the US and co-author of the study. “But adoption will also be driven by demand as consumers increasingly look to use their mobile devices to accomplish everyday tasks such as buying their lunch or paying for a taxi.”
The survey also revealed that that a lack of technology standards and infrastructure are also posing major barriers to the wide-spread roll-out of mobile payments. And while very few respondents to the survey were willing to categorically endorse any single payment technology, most pointed to the emergence of Near Field Communication (NFC) as the technology with the most promise and ease-of-use for customers.
New Competitors Vie for Market Share
The report also found that many banking executives were becoming acutely aware of the growing risk of competition in the mobile payment arena. Some cited the potential of mobile network operators (MNOs) working with device manufacturers to develop a system independent of the traditional payment infrastructure. Others, however, foretold of an even more serious threat in the form of new market entrants, such as specialist online payment players and online service provider giants.
“There’s been a flurry of activity in this space, not only from banks, but also from mobile network operators and other non-traditional and alternative payment providers like Google, Apple and PayPal.” said Fred Schneidereit, a partner with KPMG in Germany and a co-author of the study. “For retail banks in particular, a lot is riding on the direction that mobile payments take in the future.”
Nevertheless, banks are still expected to play a strong role as the mobile payments value chain evolves, according to a large majority of respondents from the technology, telecommunications and retail sectors.
Consumerization on the Horizon
Regardless of the complexities and challenges that the industry faces, there is an overwhelming confidence that mass-consumer mobile payment systems are on the horizon. More than 80 percent of respondents to the KPMG International survey suggested that mobile payments is or would be mainstream within the next four years, with 36 percent those expecting mass adoption in the next two years.
“The strategic business decisions around technology will need to be solved within the next 12 to 18 months,” said Andrew Dickinson, Head of Banking Asia Pacific, KPMG in Australia. “Once that happens, banks will look to combine their mobile payment solutions with value-added services such as loyalty cards, couponing and location-based advertising. At that point, it really will be a ‘killer app’.”
© 2017 KPMG Audit LLC, the Mongolian member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.