10 July 2015

Mobile payments: Felicitous timing as emerging markets grow

Mobile banking services have been available for a while in the global commercial banking space but the bigger mobile payments picture has been incomplete.

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One of the most striking points about mobile payments is their ubiquitous relevance, irrespective of business size or location. Anyone, ranging from the global treasurer of a major multinational, to the owners of small businesses stand to gain.

Mobile payments also have a broader significance in the way in which they complete the mobile banking jigsaw and are therefore likely to drive further new functionality that was previously impossible without access to the entire payment process.

However, the maximum advantage will fall to those users whose banks have a deep understanding of their client's business and can fully integrate that with the right mobile strategy in an end to end process.

Present momentum

The demand for mobile payments is certainly evident. For instance, in the last six months of 2012 client payment instructions sent via HSBC's corporate banking mobile application, HSBCnet Mobile, grew by 204 per cent. Furthermore, while corporate treasuries are normally fairly conservative organisations when it comes to new technology, many are now using HSBCnet Mobile on a regular basis.

As one might expect, individual motivation for using mobile banking technology varies considerably. Some regard it as a valuable disaster recovery tool that can be used if office-based systems go down. At the other end of the spectrum are those treasurers who see it as an integral part of the way they perform their job and are hungry for any new functionality that further facilitates this. They are often out of the office visiting business units and so the ability to check balances and execute payments while travelling has considerable value for them.

Treasurers of larger corporations that deal with multiple small retailers (such as carbonated drink manufacturers) can also see a major opportunity in regards to receivables. Mobile payments can be a useful way of converting these retailers from cash payments, which in turn dramatically reduces processing costs as well as boosting auto-reconciliation of accounts receivable. A similar situation applies in the case of e-commerce companies who see mobile payments by customers as a less costly alternative to credit cards.

An essential component underpinning this demand is the wider dissemination of mobile payment services across all sizes of business. This essentially moves mobile banking from being a corporate treasury tool to a universally applicable business management tool. In certain emerging markets where mobile usage predominates, this extension opens up a vast new demographic for electronic payables/receivables for both 'many to one' and 'one to many' transactions. Once functionality such as payment creation, bill payment creation and account transfers are all available on mobile, users will have minimal reason to be tethered to their desks, as they will no longer merely be reacting to alerts but will have direct control over their cash flow.

Travelling treasurers

One could argue that this mobility is in fact also a cause rather than just a consequence of mobile payments. This trend is also only likely to persist in the future, in line with technology and innovation and in the light of new opportunities. The treasurer's role has changed fundamentally over the past decade. Rather than purely focusing on financial risk and guardianship of the balance sheet, treasurers now play a far more active consulting role across the business in general and have a far higher profile. One important consequence of this is that they have become far more mobile as they travel to meet and assist business units face to face and as mobile payments mobilise businesses as a whole.

This trend has also been accelerated by globalisation. Corporations have hugely expanded the geographic range and sophistication of their sales and supply chains and have therefore had to learn to deal with the complexities of working in multiple currencies and countries. This has added further scale to treasurers' travel plans, which has in turn seen them expecting more in terms of mobile functionality that allows them to operate efficiently while out of the office.

Mobile collections

While treasurers will clearly welcome the opportunity to have the entire payment process available on a mobile device, a potentially even greater opportunity beckons for both themselves and the business in general. The ubiquity of mobile technology across a huge business demographic makes mobile collections a very real prospect that will in turn boost electronic payments and auto reconciliation rates. Moreover, it will also boost the productivity of others - especially sales personnel in many emerging markets who also undertake collections.

At present these sales people are often paid in cash and for security have to bank this during the day - perhaps on several occasions. Apart from the aggravation and costs associated with this, the number of sales calls that can be made in a day are also reduced. If on the other hand their customers are prepared to pay by mobile device, then they can be sent an electronic request for payment. They then acknowledge that they wish to pay this and the bank automatically debits and credits the appropriate accounts accordingly. Comprehensive remittance data is thus available for auto reconciliation, security risks and costs are reduced and the sales person has increased productivity, as they no longer have the distraction of collecting physical cash and can therefore focus on marketing their firm's products.

The significance of this productivity opportunity has prompted a growing number of non-treasury departments from corporations to approach their banks and seek assistance in developing mobile payment solutions specifically tailored to their own customers.

Infrastructure and hardware

The good news is that a lot of the building blocks needed to deliver enhanced mobile payment and banking functionality are now available. A major enabler of the greater use of mobile payments for business is the quality of mobile networks in general, but especially in emerging markets. In many countries in regions such as Asia and Africa fixed line telecoms infrastructure lags far behind that of more mature markets. However, the later development of these emerging markets has meant that they have played leapfrog when it comes to mobile telecoms. For example, India is expected to overtake the US and become the second-largest mobile broadband market in the world (behind China) by 2016, with 367 million mobile broadband connections[1].

Even where countries lack a comprehensive power grid they still have high quality mobile networks and a vast number of citizens with mobile phones. For example, in Africa only one person in three has access to electricity – but far more than that have a mobile phone, with an estimated 700 million SIM cards on the continent. Africa is also the fastest growing region for mobiles in the world, and the biggest after Asia, according to the GSM Association[2]. This trend is also likely to persist, as China's massive transport infrastructure investment in Africa to support natural resource extraction has been accompanied by a similar investment in mobile telecoms.

Another important catalyst has been the improving quality and capability of user interfaces, particularly on smartphones and tablets. These now combine ease of use, intuitiveness and substantial screen real estate to a level far beyond conventional mobile phones.

This is clearly reflected in the extensive use treasurers already make of these devices for mobile banking. For example, while many treasurers may use their BlackBerry for email/messaging, 75 per cent of HSBCnet Mobile users use an iPhone for mobile banking, while 18 per cent use an Android smart phone and only the remaining 7 per cent use a BlackBerry or other type of mobile phone.

This is entirely understandable. Those making business critical decisions or authorising multimillion dollar wire payments obviously will feel reticent about doing so on a traditional mobile phone with a small screen and keys where the increased risk of an error could have expensive consequences.

The infinitely preferable alternative offered by larger screens and better Graphical User Interfaces (GUIs) is also blurring the line between browser based and mobile app based banking.

The overall result is that limited mobile technology no longer shackles users to their desks when it comes to electronic banking. Furthermore, this situation is only likely to further improve in the future. The ongoing huge acceleration in mobile processor performance and sophistication also means that the business/financial analytics users wish to run no longer require a treasury workstation.

This opens the door to far more sophisticated mobile services. For instance, a treasurer might be able to run scenario modelling to select an appropriate FX hedging strategy (which might include evaluating multiple option valuation models) and then execute their chosen strategy immediately with their banking partner.

However, the improved performance of mobile devices and networks puts the onus on banks to step up to the plate and deliver this sort of innovative mobile banking functionality; those who could once drag their feet by citing mobile hardware and infrastructure limitations will now find that excuse no longer available.

Legacy technology and standards

Although mobile hardware and infrastructure promise great things for mobile banking and payments, there is something of a technology dichotomy here, because they still have to be integrated with legacy banking/clearing technology, while also complying with regulation. To users accustomed to seeing the end result via a slick intuitive GUI it all seems simple, but in practice it is anything but.

While banks in general are accustomed to dealing with vast amounts of data, it is often held and processed through technology that was designed perhaps fifty years ago. Many clearing systems are a classic example, as they were designed when the limitations of the available hardware meant that reference data fields had extremely restricted capacity. So while today's smartphone might be able to display a list of the one hundred invoices a payment covered, the clearing system may have junked all but the first eight digits of the first invoice number on the list.

If banks have the ability to find workarounds for this type of issue there is now a standard in XML that can render this data accessible to the end user. As a flexible and powerful mark up language, this provides the ability to share data across providers as well as blending it with other data sources.

Conclusion: more than just technology

It is apparent that an understanding of mobile payments and the value they have to offer as part of a mobile banking service is now essential. On the one hand, treasurers can benefit directly in terms of their own efficiency and strategy. On the other, mobile payments also have the potential to improve the collection process radically, as well as boosting the productivity of other parts of the business, such as sales. Therefore, corporations that can act upon these opportunities by using mobile payments should enjoy an important competitive advantage.

Nevertheless, the extent of this advantage will be heavily dependent upon how holistically individual banks implement mobile technology. Technological advances may bode well for mobile payments (and mobile banking more generally) but these alone can deliver only partial value. However slick the interface, it is what lie behind and how it can be deployed that will really count. At one level this relates to the bank's ability to manipulate and deliver the right data in a globally consistent fashion, but it is also about doing this in a manner relevant to the individual client and with support that is based upon a long-term approach to relationships. Those banks that take the trouble to really understand their clients' businesses will have a major advantage when it comes to delivering mobile services that provide complete value. Those who merely focus on bells and whistles will not.

[1] HSBC Global Connections - Mobile payments: Felicitous timing as emerging markets grow

[2] Digital revolution lights up Africa with maps, mobiles, money and markets

Disclaimer: This article is not intended to constitute any advice or an offer. Any forecasts or projections are indicative only. HSBC or any of its affiliates accepts no liability, whether express or implied, arising out of or incidental to contents forming part of the article.

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