What Drives Mobile Banking and Payments?

Across the globe, one segment of consumers, called "smartphonatics" by researchers at Aite Group, is driving the demand for mobile payments and banking.

The differences in mobile payments and banking behavior between Smartphonatics and other consumers are significant.

In 2012, 70 percent of "smartphonatics" worldwide have used their mobile device to make a payment, and 80 percent have used their device for banking purposes.

In contrast, less than a quarter of other consumers have made a mobile payment, and only a third have completed mobile banking transactions.

But the relationship here is correlative, not causal, Aite Group suggests."The smart phone is simply an enabler, not a driver, of changing behavior," Aite Group researchers say. In other words, heavy mobile payment and mobile banking behavior is not "caused" by smart phone ownership.

Rather, some people who own smart phones are more inclined to find value in doing so. The notion of "early adopters" is relevant here, as well as the notion of customer segments and value. Where banking is difficult, and a smart phone enables convenient banking, smart phone users will adopt at high levels.

Where banking infrastructure is highly developed, smart phone users do not have as much incentive to use mobile banking or payments products.

What Drives Mobile Banking and Payments?

Across the globe, one segment of consumers, called "smartphonatics" by researchers at Aite Group, is driving the demand for mobile payments and banking.

The differences in mobile payments and banking behavior between Smartphonatics and other consumers are significant.

In 2012, 70 percent of "smartphonatics" worldwide have used their mobile device to make a payment, and 80 percent have used their device for banking purposes.

In contrast, less than a quarter of other consumers have made a mobile payment, and only a third have completed mobile banking transactions.

But the relationship here is correlative, not causal, Aite Group suggests."The smart phone is simply an enabler, not a driver, of changing behavior," Aite Group researchers say. In other words, heavy mobile payment and mobile banking behavior is not "caused" by smart phone ownership.

Rather, some people who own smart phones are more inclined to find value in doing so. The notion of "early adopters" is relevant here, as well as the notion of customer segments and value. Where banking is difficult, and a smart phone enables convenient banking, smart phone users will adopt at high levels.

Where banking infrastructure is highly developed, smart phone users do not have as much incentive to use mobile banking or payments products.

U.S. Android Version of Google Maps Adds "Offers"

"Selling things" and "helping retailers sell things" have been the underlying rationale for location-based services for some time. Google Play Google Play now has a Google Maps  6.7 release that integrates "offers" into the app.

In the U.S. market, users can tap on “Maps” to open the dropdown menu and then tap on “Offers."  Google Maps also has added indoor walking directions in the U.S. and Japan, plus 360-degree interior photos of businesses.

In U.S, Market, Prepaid Pressure Grows

Most larger mobile service providers are not especially fond of prepaid retail plans, for the simple reason that postpaid average revenue per user is higher. On the other hand, many mobile service providers who have targeted cost-conscious customers, and most mobile virtual network operators, tend to rely on prepaid packaging.

In fact, AT&T Mobility and Consumer Markets President CEO Ralph de la Vega has said the growth opportunity in this country is in postpaid data, not in prepaid voice. AT&T's revenue growth of over $1.2 billion in 2010 for example, was more than twice the revenue growth for the entire U.S. prepaid industry. 

But consumer demand for prepaid continues to grow. In the U.S. wireless market, mobile service providers appear to have lost subscribers from contract-based plans for the first time in the first quarter of 2012.

That doesn't mean demand for mobile service is declining, only that demand is shifting towards prepaid plans.

The seven largest U.S. phone companies, representing more than 95 percent of the market, lost a combined 52,000 subscribers from contract-based plans in the January to March period, according to a tally by the Associated Press Associated Press.

According to The NPD Group, prepaid now is a major reason even smart phones are gaining traction.

Top U.S. Smartphone Manufacturers	Q1'12
Apple	29%
Samsung	24%
HTC	15%
Motorola	10%
LG	7%
RIM Blackberry	5%

The rise of the pre-paid market contributed to Samsung’s growth in the first quarter of 2012. Android devices accounted for 79 percent of the prepaid smartphone market in the first quarter of 2012, for example.

In Africa, Mobiles are Banks

A new survey of global financial habits by the Gates Foundation, the World Bank and Gallup World Poll found 20 countries in which more than 10% of adults say they used mobile money at some point in 2011, the Economist reports.

Of those, 15 are African. In Kenya, Sudan and Gabon half or more of adults used mobile money.

In contrast, in countries with more developed financial systems, the share of adults who use mobile money is tiny, such as in Brazil and Argentina, where use of mobile money is only about one percent of adults.

Screen Size Seems to Dramatically Affect E-Commerce Behavior

Before the iPad came out, very few shoppers at OneKingsLane came from the iPhone or any mobile device, according to Doug Mack, CEO of OneKingsLane.

After the iPad came out, mobile sales shot up, he says, and now account for more than 20 percent of OneKingsLane's revenue.

The obvious question is "why" shopping volume changed. Some would argue that screen size is the big change, and then there is a follow-on or "halo" effect. The argument is that little e-commerce was mobile originated from mobiles because screens weren't big enough to navigate, and too small to allow the appealing visual presentation that drives interest.

The tablet changes all that. And since the iPad has been the dominant device in the tablet segment, and since it is likely most iPad owners also own iPhones, there likely has been a pull-through from the iPad to the iPhone. A reasonable theory, you might say.

Confusing Correlation with Causation

When conducting any type of analysis, it is important to distinguish between activities that are correlated, with activities that are causally related. For example, it remains difficult to say for certain whether widespread use of broadband access "causes" economic activity, or whether places where there is a lot of economic activity drive use of broadband.

That can matter quite a lot whenever businesses or policymakers have to allocate capital for the purposes of stimulating economic growth, for example.

ABI Research has found, for example, that mobile users who download a retailer-branded app said the app caused them to visit the store more (45.8 percent), buy more of the store/brand’s products and services (40.4 percent), tell a friend about their store shopping experience (35.8 percent), and encourage friends to visit the store (30.8 percent), according to ABI Research.

The issue is whether those respondents already were patrons of stores who provided an app. It might be that the greatest benefit of a particular retail app to a particular shopper is the fact that the shopper already was spending significant money at a retail outlet.

In that case, the app does not cause shopping behavior, but only increases engagement with a retailer that already had high significance for the user. But a reasonable conclusion would be that a mobile app can increase spending and engagement, under some conditions, when a relationship already exists.

When Should You Post on a Social Network?

Each major social network seems to have a distinct pattern where it comes to maximizing user traffi, an analysis by Bitly suggests. 


For Twitter, posting in the afternoon earlier in the week is your best chance at achieving a high click count (1-3pm Eastern Time, Monday through Thursday). Posting after 8pm should be avoided. Specifically, don’t bother posting after 3pm on a Friday since, as far as being a gateway to drive traffic to your content, it appears that Twitter doesn’t work on weekends.

The peak traffic times for Twitter are 9am through 3pm, Monday through Thursday, bitly suggests. 

Facebook has a different pattern. Links posted from 1pm to 4pm EST result in the highest average click throughs. The peak time of the week was on Wednesday at 3pm. Links posted after 8pm and before 8am will have more difficulty achieving high amounts of attention. As with Twitter, avoid posting on the weekends.

Facebook traffic peeks mid-week, 1 to 3pm. While traffic starts to increase around 9am, one would be wise to wait to post until 11am. Traffic from Facebook fades after 4pm. Despite similar traffic counts at 8pm and 7pm, posting at 7pm will result in more clicks on average than posting at 8pm.

Tumblr also shows a drastically different pattern of usage from Facebook and Twitter. One should wait until at least 4pm to post. Also postings after 7pm on average receive more clicks over 24 hours than content posted mid-day during the week. Friday evening, a no-man’s land on other platforms, is an optimal time to post on Tumblr.

How Big are the Opportunities in Mobile Payments?

Observers sometimes are not quite aware of why there now is so much activity and hype about mobile payments, mobile commerce or mobile wallets. As always, the reason for all that activity and speculation is that some rather-large revenue streams now are poised for potential disruption, precisely at the point that many large entities are casting about for brand-new fields to conquer, because their own legacy revenues are declining, or are about to decline.

Consider the revenue streams potentially in play. Interchange fees, the transaction fees paid by merchants to process a credit card or debit card transaction at a retail location, typically are in the range of tow percent of the transaction for credit cards, less for debit cards and a bit more for many new mobile payment services.

Typically paid by merchants, interchange amounts to tens of billions of dollars across purchase volume of nearly $2 trillion worldwide, according to Caribou Honig, QED Investors partner.

There also are fee elements. Credit card issuers essentially make $600 billion in loans. A mobile payment platform could capture some of the interest and fees currently charged by the credit card banks, though there is at present much less interest in this revenue stream, compared to interchange.  The reason is simply the risk of holding those payment obligations.

Google, of course, eschews any interest in interchange or the lending function, and clearly is interested in the advertising and loyalty business. Total ad spending in the U.S. market alone exceeds $150 billion.

Apple, on the other hand, will likely want to figure out how any mobile commerce, payment or wallet operations allow it to create big new device revenue streams.

In other regions of the world, transaction fees also are the primary revenue driver. Globally, for example,  the World Bank forecasts remittances in developing countries was about $349 billion in 2011. The issue for mobile operators and other application providers is how much of that could be shifted to mobile means. 

The reason that matters is the revenue associated with transaction fees to send money from one person to another, in country or across borders, using the mobile device.


In India, for example. remitting money using India Post costs five percent of the amount sent, and then many respondents reported another one percent in addition for bribes, tips and other indirect costs. Other remittance channels also represent out of pocket costs. 

What Might Apple do in Mobile Wallet, Mobile Payments or Commerce?

Apple is in some ways the contestant in mobile payments or mobile commerce that probably would strike many as the most likely to take an unusual path. Whether Apple thinks it is important to do so probably is the bigger question.

Up to this point, Apple has shaken up device markets. Unless Apple changes tack for the first time, it is likely to approach the whole subject of payments and commerce as a feature that drives sales of more devices.

That arguably means Apple faces more challenges than PayPal, Intuit or Square, for whom transactions directly drive business models built on transaction fees, or Isis and Google, which see advertising and marketing as the revenue model.

For PayPal, Intuit and Square, the revenue upside is immediate, and tangible. When merchants use their mobile card readers in conjunction with their own smart phones or tablets, PayPal earns a fee of 2.7 percent of the purchase price for all types of credit and debit cards  Square earns 2.75 percent of the transaction amount.

For Isis and Google, which eschew such fees, the revenue model has to be created on something else, hopefully advertising and promotion revenues in the form of loyalty offers, targeted advertising or other marketing services provided to third parties. Isis partners and Google sell devices, to be sure, but the revenue model is built on services or advertising enabled by the use of those devices. Mobile transactions create the opportunity for those revenue streams, but transactions, as such, are not the revenue model.

Apple always has taken a different approach, namely creating services and selling content so it can sell more devices. That indirect monetization approach is more akin to what Isis and Google hope to accomplish, and far harder to create, in some ways.

The volume of all types of mobile payments will top $200 billion by 2015, up from $16 billion in 2010, according to research and advisory firm Aite Group. So the direct, transaction fee approach is highly quantifiable.

The aggressive response by MasterCard, Visa and American Express in the mobile wallet and mobile payments businesses is is the latter case an effort to protect existing revenue from market share losses to PayPal, Intuit and Square, and in the former case an effort to build a new advertising or marketing business, an angle that tends to be overlooked.

Like many other big, established businesses, transaction processors face significant gross revenue and profit margin challenges, partly from regulatory action and partly from growing competition.

So there is a defensive angle to their mobile payments efforts, but also an offensive element to their mobile wallet gambits.

Apple has to figure out how any move into either mobile payments or mobile wallet helps it sell more devices, or create new markets for devices it can sell. As always, Apple will try to figure out how existing processes can be revolutionized, but it also has to figure out how changing the experience of “paying” for things and “buying” things also helps it create new markets for  devices.

To be sure, iTunes and the App Store already have Apple involved in payment operations related to mobile devices that help it sell devices. What Apple has to do is figure out whether some broader approach to mobile payments and commerce could create a significant new product category, or allow Apple to take significant share in some existing product category.

The iPod and iPad essentially created new categories, while the iPhone and earlier Apple and Macintosh devices essentially reshaped an existing category of devices.

It isn’t yet clear whether Apple has a clear vision, yet, of what big opportunities exist, or whether the approach is to create a new category of devices, or reshape an existing category.

Sometimes Apple has created a brand new category, and at other times has reshaped an existing category. Apple’s continually-rumored interest in TVs is another example of “reshaping” an existing category, for example.

If Apple stays true to form, it will try to understand what is “broken” about e-commerce, mobile shopping and payments, and work from there on a solution. In fact, broader e-commerce might be the approach, rather than “mobile payments” in a direct sense.

Mobile Banking Has Passed the Inflection Point

Sometimes one can almost predict an explosion of buzz about certain topics. Over the last couple of years, awareness of the building momentum in mobile banking, mobile payments and mobile commerce has been building steadily. One of the indicators is increasing use of the mobile banking channel by financial institutions.

So we now can predict the next stage. There will lots of hype about mobile banking, and then people will hit a point where the inevitable "has it failed" stories begin to be written, with the angle that the impact has not been great.

That already has happened with "near field communications" as a communication channel for mobile payments, which is conceptually distinct from mobile banking. The current tenor of stories about NFC generally concerns "how slow and how hard" adoption has become. That always was going to happen, as huge new infrastructures have to be built before NFC as a communications channel can drive significant transaction volume.

Mobile banking, and then mobile commerce, will have their own hype waves, the intermediate term disillusionment, and finally mass adoption. But it will take time.

There is a significant difference between developed and developing regions, though.

In developed markets mobile banking primarily is a customer service and convenience tool, with scant opportunity for incremental revenues. But mobile banking is important because consumers increasingly want it, and lack of such features could drive customers to other competitors if it is lacking.

For the most part, mobile banking in developed markets is designed around information access, such as the ability to check accounts, as well as simple transactions, such as the ability to move money between accounts or deposit a check or make a payment.

In developing markets the upside is greater. In regions where the banking infrastructure is undeveloped, the mobile device itself becomes a combination automated teller machine and banking location, allowing users to send and receive money. Typically, at the moment, this involves the use of basic test messaging and third-party retail locations where money is physically deposited and withdrawn, with the information about a payment being sent by text message.

Has U.S. Mobile Business Reached Saturation?

The seven largest U.S. mobile providers, representing more than 95 percent of the market, lost a combined 52,000 subscribers from contract-based plans in the January 2012 to March 2012 period, according to a tally by the Associated Press. The companies have a combined 220 million devices on such plans, accounting for about two-thirds of the total number of devices, according to the Associated Press. 


In a sense, that isn't a surprise. Mobile service providers now bank on mobile data plans to drive growth. But many mobile subscribers also are choosing more-affordable no-contract and prepaid plans.


In the first quarter, some two million consumers bought no-contract servivce. That figure, however, is down from more than five million in the same quarter a year ago.

Location-Based Services Used by 74% of Smart Phone Users

Some 74 percent of smart phone owners get real-time location-based information on their phones as of February 2012, up from 55 percent in May 2011, according to the Pew Internet & American Life Project.

This increase coincides with a rise in smart phone ownership overall (from 35 percent of adults in 2011 to 46 percent  in 2012, which means that the overall proportion of U.S. adults who get location-based information has almost doubled over that time period, from 23 percent  in May 2011 to 41 percent  in February 2012, Pew says.

Is "Toll-free" Video Streaming a Net Neutrality Violation, or Just Retail Packaging?

Verizon Communications CTO Tony Melone now has floated the idea of "toll free" data access. "There is room for an 1-800-type of service where certain destinations could offset the cost of the network to get customers to those destinations," he said. AT&T also has talked about the concept.

Basically, the offering would work as toll-free calling now does, where a third party pays for calling charges. In principle, the idea, as applied to video content, would be that a content provider would subsidize the bandwidth charges incurred by an end user, rather than having the consumption count against that user's bandwidth cap.

In principle, that is simply a retail charging mechanism; one of many service providers might embrace. The rub, of course, is that such practices strike some as violations of network neutrality, even if the deals might be offered to all video streaming providers, without exception.

The argument requires a bit of stretching. The proposed "toll free" plans would not necessarily require any packet prioritization at all. The only innovation here is that a video provider could ensure that use of a particular video service did not count against a user's normal bandwidth cap.

Verizon has not said it would offer packet prioritization, only that video suppliers would defray the usage on behalf of their customers.

Comcast has stirred similar concerns by considering a similar plan whereby customers of its video subscription services also could view some of that same content using streaming, without likewise having that usage applied to the customer's bandwidth cap. The issue is whether the methods used to identify such streaming usage are, in and of themselves, a violation of network neutrality, if in fact Comcast does not provide any prioritization on those packets, but only identifies them for charging purposes.

Current network neutrality rules prohibit the use of packet prioritization for consumer broadband access services. But Comcast and Verizon do not seem to be proposing to do so, only to identify packets for purposes of charging.

Nor would network neutrality rules prohibit any lawful charging mechanisms modeled on "toll free" principles, or even advertising-supported principles.

How Much Demand for Superfast Broadband?

BT's "Openreach" fiber to the home network now has reached about ten million premises across the United Kingdom, ahead of schedule. This is some months ahead of the original deadline for this figure that was the end of 2012. The FTTH network is expected to enable access speeds up to about 80 Mbps.

By some estimates, there have been 570,000 sales so far, both by BT and all wholesale partners, representing penetration of 5.8 percent. Of course, early in the deployment of any new fixed network, sales efforts necessarily are circumscribed as most of the work goes into physical construction.

To be sure, some will argue that BT and others have not moved fast enough. 


But making "superfast" broadband available is only part of the adoption story. There has to be demand, at prices consumers think are "fair," and that suppliers can afford to offer.


Only about 14 percent of respondents to a survey currently see a need for speeds of 50 Mbps or higher, about five percent of the total 3,000 customer sample, and would imply a total nine percent penetration of super-fast broadband when added to the four percent who already have speeds over 50 Mbps, the Marketing Directors says.

Among the 35 percent who want a higher broadband speed, there was only a modest willingness to pay more. Around 42 percent of those who want a faster speed would not be prepared to pay more for it. 


Another 25 percent would be prepared to pay up to €5 a month for their desired faster speed. About 15 percent would be prepared to pay over €15 a month for their desired faster speed. 

Only about 35 percent of broadband owners currently see a need for faster broadband speeds, and only 20 percent are prepared to pay more for it.  Of the 35 percent who do want faster speeds, about half would like to see their broadband speed double within two years.


Keep in mind "doubling" would generally be from about 7 Mbps, a typical capability for many customers. 


Only 15 percent of respondents said they were dissatisfied with their current broadband speed, as well. That doesn't mean expectations will not change in the future. Almost nothing is more certain than a gradual increase in bandwidth consumption over time. Perhaps it is certain that users will demand more access bandwidth over time, as well. 


The point is that the market now appears to be more of a supply push than an end user pull.