By Matthew Talbot, senior vice president, m-commerce, Sybase 365
Mobile commerce generally requires the combination of two parts: a mobile network operator to provide the 'mobile'; and a bank to supply the 'commerce'. As mobile commerce grows, a number of different approaches are bringing both ingredients to the table. Some operators have acquired or become banks. Banks have become operators. And some operators and banks work together.
Operators becoming banks
Austria's leading telecommunications provider, A1, acquired a banking license and set up A1 Bank in 2002 expressly to handle mobile payments. A1 introduced SMS-based transit tickets in 1999, and it launched its paybox austria mobile payment platform in 2001, which has become Austria's second most popular payment mechanism.
In North America, Canadian mobile operator Rogers Wireless announced in September 2011 that it had applied to the Minister of Finance to become a bank. Rogers says it has no plans to 'become a full service deposit-taking financial institution,' but is 'actively looking at the mobile payment category.'
Another example is Telefonica O2 applying in 2010 for an electronic money license in the UK to offer mobile money transfers and contactless payments.
Looking at the big picture, this trend makes sense. Right now, operators are the ones that have the customer base and brand, and the fact that they are not banks has been the major stumbling block. Becoming a bank is a lot of work, but it allows pioneering operators to forge ahead without being beholden to the banking industry.
Banks becoming operators
Rabobank became a mobile virtual network operator (MVNO) in the Netherlands when it launched RaboMobiel in September 2008. 'Virtual' means that Rabobank did not build its own network, instead, it rents capacity from an existing operator.
The Polish market has been particularly active, with both Bre Bank and Intelligo Bank entering the MVNO space under the mBank Mobile and Intelligo brands respectively.
The advantage a bank gains in becoming an MVNO is similar to operators becoming banks; control. It gives the banks a way to offer mobile commerce services without having to cooperate with local operators. Importantly for mobile commerce services is the MVNO's direct control over what handsets it sells, as well as their provisioning. Beyond that, an MVNO license gives banks direct access to the SIM cards in handsets, so they don't have to wait on the operators.
For banks, becoming an MVNO is a better option than being a pure over the top (OTT) player such as PayPal, which bypasses operators completely. The biggest benefit of an OTT player is also its biggest limitation. Whilst they can act independently of the underlying telco, they have little or no influence over it.
Banks and operators working together
Historically, operators have looked to partner with financial institutions, such as the ICICI Bank and Vodafone Essar partnership for financial inclusion in India. While Telefonica's O2 subsidiary applied for an electronic money license in the UK, the company also announced a joint venture with MasterCard for the Latin American market.
When banks and operators work together, the partnership can rely on the strengths of both parties. The operator brings its customer base, handsets and the experience of negotiating with suppliers. Operators also know how to properly provision handsets and SIM cards and provide customer support for the technology involved.
Banks bring a license to the relationship. If they go it alone, operators must apply for a banking license. Banks also understand risk management in the financial services industry and they have the systems to manage complex billing. Banks bring branded debit and credit cards as well as their network of merchants.
Ultimately, each market will require its own solution, and each solution will depend on the banks, operators, regulations and economics of each region. There is no right or wrong answer.
Once again, however, the real key to making a payment system work is interoperability. Telekom Austria's paybox mobile payment system has taught us this lesson. The platform must work for everyone and be totally interoperable; merchants, consumers, corporates, no matter which operator they use, no matter which bank, should all have access.
Interoperability is a complex thing to do, mobile operators buying or becoming banks, from interoperability, delay the cooperation that provides the foundation for any interoperable system.
Sybase 365, a subsidiary of Sybase, is a global provider of enabling mobile information services for mobile operators, financial institutions and enterprises.