A world where phones are used for banking isn’t far off. As hard as it might be to imagine, a day when our mobiles will double up as bus passes, credit cards, and debit cards – a ‘mobile wallet’ – appears increasingly likely.
And the transition has already started. A distrust of the financial sector amid the economic crisis has given mobile companies the impetus to jump into the sector, starting with launching their own debit cards.
In July, O2 announced it was launching two prepaid debit cards in partnership with NatWest, one for the teenage market – a ‘pocket money’ card; the other for a broader group looking to better manage their spending.
When Phones 4u launched its own prepaid cards one month later, further signs emerged that the financial services sector was an area that mobile companies were evolving towards. Phones 4u’s service is slightly different. The first card is similar to O2’s pocket money card and is aimed at teenagers. The other, however, is aimed at the ethnic/migrant worker market and allows consumers to transfer money abroad.
Both are also premised on people with no or bad credit histories, taking advantage of the increasing move into a ‘cashless society’ and internet shopping. Many people are also choosing to ditch credit cards in favour of prepaid cards because they don’t trust themselves not to run up huge bills.
Nokia is the latest company to make the move. It announced last week it would launch its own version of mobile banking, called ‘Nokia Money’, using its stake with mobile platform Obopay.
Nokia is primarily targeting emerging markets, and the move represents the manufacturer’s first major play in finance, despite continuing rumours that it is entering Near Field Communications (NFC) – technology that allows an exchange of data over a distance of around 10cm, known as ‘contactless payments’.
CCS Insight analyst Ben Wood says: ‘Everyone is looking to add services around their core propositions and financial services is a big one.’
O2: ‘better retention’
‘O2 is adding value to retain customers. The deal is brilliant. Other cards have top-up charges, but O2 is free,' adds Wood.
But how is O2 making money from this and why is it doing it? O2 is keen to get consumers accustomed to the idea of mobile companies and finance before it makes a bigger play of getting people to use their phones to pay for things. For now, it is using the prepaid Visa cards to acquire and ?retain customers.
It is seen as a positioning step to make its brand progressively more credible for financial services. The bigger attraction for O2 is that the churn level in financial services is so low – mobile operators must look at this rate with a combination of awe and envy.
By wrapping a financial service with a mobile phone offering, the vision is that customers will be embedded deeper into the company and significantly less likely to leave.
O2’s head of business development and financial services, Fraser Campbell, says: ‘We have said we want people to join O2 and this is for that, and retention.’
O2 has been heavily promoting its cards in shop windows and with advertisements in newspapers and on TV, underlining what a major part of its business it is pencilled in to be. One shop front in O2’s Oxford Street store is littered with advertising, featuring the strapline: ‘The new cash manager card. Your money is in your hands.’
Although customers cannot buy the cards in store, they are able to register at a counter and will then be referred online.
Campbell adds: ‘There is a very clear segment of people who need to do this. We have a mobile market that we are very strong in, and financial services is something we can add to that. It was a logical step for us.’
Meanwhile, O2’s partner, NatWest, has its own strategy. Roy Vella, director of mobile at NatWest, told Mobile: ‘The mobile industry has high churn and low margin, while the banking industry is low churn and high margin, so it fits.
‘Our research has found that consumers don’t trust an operator to hold their money, and didn’t think a bank had the technology for mobile payments.’
First step to mobile wallets
The reality of NFC on phones drew closer last week (effectively enabling handsets loaded with money to pay for goods like newspapers and snacks), when the Home Office released rules (see box) on how best to police the move. Vella says: ‘With NFC, there have been enough trials to make it obvious that it’s going to happen.’
Campbell confirms payment cards are the ‘first step’ for the operator, adding: ‘We believe in NFC but we need to change attitudes. We continue to look at it, it’s an area we are very interested in, but the market needs to be ready for it.’
Although NatWest currently only works with O2, Vella admits: ‘We have been speaking to other operators about possibilities.’
He predicts the two sectors will ‘see continued convergence’ in the near future: ‘The industry will give more control to the end user and they will do sophisticated things. We will see more partnerships around this.’
Phones 4u’s prepaid cards
Phones 4u’s proposition, in partnership with Mastercard, is slightly different in that it aims to create a financial services business to support its core (but declining) retail revenue. The card aimed at the ethnic market, called ‘Escape’, will cost the consumer £20 with a £10 top-up.
The service is already available in some stores and will extend to cover all of the larger Phones 4u shops. Staff said the service was ‘doing well’ so far, with an average of around three sales per day. Unlike O2, Phones 4u is not heavily advertising the service. One staffer told Mobile: ‘If customers don’t know about it when they come in, they do when they leave the shop.’
The type of customer looking for such cards fits well with Phones 4u’s typically young, urban customer profile. The retailer is picking up revenue through merchant fees where the cards are used, and is hoping to build a valuable customer base.
It is currently unclear how much potential there is in this meeting of the mobile and financial worlds. However, most analysts agree that other networks will follow O2, believing it is a natural convergence given the intimacy of mobile and wallets in people’s lives, and the subscription dimension to mobile phones.
Nokia’s move also demonstrates that broader mobile services such as music, browsing and mapping will almost inevitably require transactions and possibly financial services. Wood says: ‘Look at GPS – they need to invest in it. But why would Nokia do it without the services to support it.’
When O2 launched its cards, UK CEO Ronan Dunne hinted about O2’s future with dreams of a ‘mobile wallet’. The first big steps are being taken now.
Government presses on fraud concerns
Criminals will be prevented from using new mobile phone technology, ‘which allows [phones] to be used like credit, debit and prepay cards’, after new rules were set out by the Home Office.
The guidelines on mobile and card payments industries, released on the back of fraud concerns, have been agreed by the Government and intend to make sure consumers are not put at risk when the technology starts to be used more widely. They include:
• Ensuring the functions, Sim cards and phones are disabled as soon as possible after the contactless payment phone is reported lost or stolen.
• That any transactions above the maximum contactless payment value (currently £10) will require verification such as a pin code.
• Any customer who signs up for a contactless payment phone will be encouraged to add their details to the Nation