American Chamber of Commerce in Romania

Monetizing Mobile: How Banks are Preserving their Place in the Payment Value Chain

As payments made from mobile phones and other mobile devices become increasingly popular, 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 a new report from KPMG International.

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 for their business within the next one to four years, a 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.

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.

“As discovered by KPMG’s Report, the security of transactions on mobile devices is certainly an important consideration, and banks will need to take security very seriously.” said Mihai Rada, Senior Manager Management Consulting in KPMG Romania. “But adoption will also be driven by demand as consumers increasingly look to use their mobile devices to purchase relatively low price products and services.”

The survey also revealed 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.

The big question mark that is still open is what this new ecosystem will look like: who will drive the development of new business models that lie at the cross-border between two giant industries: banking/financial services and (mobile) telecommunications? Since (re)modeling the payments value chain involves embracing new, emerging technologies and understanding of ever changing consumer behavior, investing too early in “yet to be standardized” solutions can be risky for the first movers. But the benefit of capturing a significant position in such a promising emergent value chain, and thus monetizing its huge expected potential, is most probably worth assuming the risk.

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, predicted 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 Mihai Rada, Senior Manager Management Consulting in KPMG Romania. “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.

Despite a yet limited commercial success of the mobile banking and mobile payments solutions deployed in the Romanian market starting the early 2000s, both consumers and business users are now prepared to widely embrace new, emergent technologies and turn the new payment services into mass market success stories. The mobile penetration rate has stabilized in Romania to a mature 115% and legacy devices are increasingly being replaced by smart phones and other “smart” mobile devices (including mobile tablets). That combined with the convenience of using these personal devices “whenever, wherever” turn the mobile into the channel of choice for a breadth of payment services: POS payments, e/m-commerce and P2P remittances (to name just a few of the most promising services worldwide so far).

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 will be mainstream within the next four years, with 36 percent expecting mass adoption in the next two years.

“We at KPMG are prepared to assist our clients and the regulatory bodies cut through the complexity of this new payments ecosystem, help them make the right technological choices and define sound business models where stakeholders’ risks are well understood and thus rewarded accordingly.” said Mihai Rada, Senior Manager Management Consulting in KPMG Romania.

ENDS



Note to editors about the report
The report, Monetizing Mobile: How Banks are Preserving their Place in the Payment Value Chain is based on a survey of 145 retail and commercial banks, payment processors, acquirers, card services providers, retailers and payment technology vendors, as well as 20 in-depth interviews with executives and mobile channel leaders across 12 countries. The survey and interviews were conducted in the first calendar quarter of 2011.

About KPMG
KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. We operate in 150 countries and have 138,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

KPMG in Romania and Moldova operates from six offices located in Bucharest, Cluj-Napoca, Constanta, Iasi, Timisoara and Chiºinãu. We currently employ more than 600 partners and staff; Romanians and Moldovans as well as expatriates.


© 2011 KPMG Romania S.R.L., a Romanian limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Romania.