Consumer trust could be key to banks staking a claim in the growing market for mobile payments, according to a panel of finance sector experts, though legacy IT infrastructure could create a barrier to product development.
With smartphone adoption continuing to grow, demand for payments via mobile devices is booming. Analysts IDC recently forecast that £1 trillion in transactions will be made through smartphones by 2017, mostly driven by mcommerce, and leading payment provider PayPal has seen sales made through its mobile app rocket in recent months.
In contrast, financial institutions in the UK have been slower to embrace mobile payment technology. Despite some movement to innovate around mobile money transfers - such as Barclays, which has won plaudits for its Ping-It app - UK banks are yet to offer full transaction services from customer to retailers through a smartphone app, and have focused primarily on delivering banking services such as viewing account and balance information.
Payments infrastructure provider Vocalink announced eariler this year that it will attempt to create an industry-wide mobile payments, with banks such as RBS, Barclays and Lloyds signing up for the UK Payments Council backed Zapp platform, running on Oracle's databases and SPARC hardware. But the mobile payments platform, due in 2014, will not require a mobile wallet platform to make payments.
However according to a report launched by mobile payment software provider Monitise on Wednesday, banks should be looking to expand on existing mobile banking apps and begin to offer wider services that could see them rival the likes of PayPal with full mcommerce solutions.
The research conducted alongside Future Foundation, found that over half, 57 percent, of the 500 UK smartphone users surveyed would be more confident in making mobile purchases through a mobile payment platform delivered by their bank.
With smartphone ownership expected to rise to 65 percent in 2018, providing mobile payments will enable offer banks a way to expand their services into new areas. the M-Commerce: What Consumers want from Financial Institutions report claims.
The report showed that there is still some way to go to become the prefered mobile payment platform, with PayPal still considered the most trustworthy company to carry out transactions.
Banks adding value to mobile payments
The report also states that by moving into mobile payments, banks would be able to offer a range of services in addition to updating on balance transfering funds. Leveraging the masses of customer transactional data collated, banks are in a strong position to expand on their more traditional services by adding personalised purchasing suggestions or a loyalty schemes, for example, with 22 percent of customers keen to receive recommendations based on their past transactions.
This view was echoed by Sandra Alzetta, SVP at Visa Europe, speaking at as part of a panel at the launch of the report in London.
"The good news is that the banks have a huge amount of data, and assuming that they can get the opt-in from customers and can explain why a proposition is interesting, they are in a superb position to provide to their customers hugely value-adding offers," said Alzetta.
However, she added that banks would need to be subtle in any offers or deal suggestion made by banks in addition to a payment service, or risk damaging the trust with customers by bombarding them with promotional information.
"Trust is a huge differentiator for banks. From a payments perspective customers really do fundamentally trust the bank, and so my message would be to do nothing to impair that trust - it is the biggest asset banks have."
Also speaking at the event Ben Green, head of mobile at Santander UK, said that as numbers of mobile banking customers has swelled past 10 million in the UK, the large banks are now prepared to move into the mobile payments market, following a slow start.
"The big challenge for banks will be how to tie mobile payments into a product proposition if it is really going to meaningful. I know many [banks] are thinking about it - as ever the devil will be in the execution."
"I think you will see the first fledgling steps [into mobile payments] later this year."
Legacy IT challenges
However banks face a number of challenges in delivering a mobile payments platform. Although third party mobile payment platforms are available, banking firms face a decision about whether to buy in or build their own software. While purchasing a system could be simpler in comparison to developing in-house, handing over responsibility for core software brings its own problems, with reliance on a separate vendor to continue delivering the platform potentially used by millions of customers.
Furthermore, the complexity of banks' legacy core IT systems will make it difficult to interface with a new mobile payments platform.
"There is a lot of complexity in integrating a lot of this stuff," said Benjamin Ensor, Research Director at Forrester Research. "A simple example is that on your mobile phone you expect information to be real time, but a lot of banks are still running batch systems. If you have got batch processing you are immediately setting up a mismatch between what the customer expects and what you can deliver."
This could create complications in adding personalised services using customer data for example.
"In theory they can take all of your purchases over the last few years, work out where you shop, they can probably start predicting what you would be interested in and deliver you offer, but doing all of that is really complex," he told ComputerworldUK.
"The app is the superficial shiny bit, but building the underlying infrastructure so that it is reliable and secure is a huge technical challenge. It is one thing having the vision, but actually building and delivering that vision is incredibly hard."