Mobile financial services promise growth potential across industries: EY

• Leads to greater cross-sector collaboration and growth opportunities
• Mobile payments category has seen the highest rate of adoption so far

 
MOBILE has immense potential to grow the reach of financial services and increase the convenience and ease of use for customers around the world, particularly in emerging markets, says analyst firm EY.
 
In terms of the growing uptake of mobile-based financial services, the Asia Pacific region is the second fastest-growing at a CAGR (compound annual growth rate) of 9% from 2010-2015, according to the EY report: Decoding Mobile Financial Services – Innovation and Collaboration to Drive Growth (PDF).
 
For financial institutions, mobile financial services can help serve a vast mass market, which otherwise may be out of reach due to high physical infrastructure costs, the report found.
 
For telecommunications providers (telcos), it acts as an additional revenue stream and can help the industry cross-sell services, EY said in a statement.
 
“… mobile financial services are at the tip of a digital iceberg. We expect to see the world change the way banking is done in the next two to five years, as both telcos and financial institutions leverage mobile as a platform for growth,” said EY Global Telecommunications leader Prashant Singhal.
 
“Given complementary competencies and infrastructure, they are well-positioned to collaborate, bring synergies and innovation to mobile financial services, and meet changing customer demands,” he added.
 
Service opportunities
 
With the number of financial services developing mobile applications on the rise, the impact is being seen right across the various categories of mobile financial services, EY said in its statement.
 
According to the report, the category of mobile payments has seen the highest rate of adoption so far; however, other service areas have also begun to gather steam.
 
Mobile credit services witnessed a big increase in the number of services in 2014 and, according to the report, many of these new service launches are driven by strategic partnerships between financial institutions and telcos.
 
Mobile microfinance is also gaining traction, as both financial institutions and non-banks enter the fray to offer small-scale credit services.
 
Mobile microfinancing allows financial institutions to reach the bottom of the income pyramid, increasing their client base. For new entrants, it’s opening up avenues such as crowdfunding, the report found.
 
Growth in new mobile insurance services is creating significant opportunity for cross-sector collaboration in this domain, and a majority of these services are being marketed by telcos in partnership with insurance companies, EY said.
 
Serving the next segment of unbanked
 
Globally, among the people who still lack access to the financial system, approximately 620 million live in countries that have introduced regulatory frameworks or encourage nonbank entities to participate in the financial services domain.
 
Most of these countries have a considerable gap in their levels of mobile penetration and inclusion in the financial system. EY analysis of the potential market indicates that approximately 434 million of this unbanked population can be served by mobile financial services in the near term.
 
India, the Philippines, Congo, Colombia and Tanzania top the list of countries with the highest number of unbanked people that have the potential to be served by mobile financial services, according to the report.
 
Securing mobile financial services (MFS)
 
While innovation in MFS has led to better user convenience and increasing uptake of new digital services, it has also brought new privacy and security challenges to the surface, EY said.
 
Recent examples of cyber-attacks reflect the extent of damage that can be caused to organisations, from substantial financial damage to a dent in reputation and a share price drop.
 
Companies may not only lose their customer base, but also be affected by regulatory levies for noncompliance to protect customer data.
 
“In view of changing consumer preferences and needs, organisations need to be able to create a balance between the user convenience and security aspects of mobile financial services,” said Prashant.
 
“To this end, security measures such as tokenisation and biometric authentication are likely to have a strong impact on the digital payment industry.
 
“Robust know-your-customer (KYC), anti-money laundering and transaction authentication procedures will remain a key focus to combat cyberthreats,” he added.
 
Related Stories:
 
Banks: Fintech startups are your friends
 
Fintech and fraud, like a horse and carriage
 
APAC outpacing rest of the world in mobile payments: IDC
 
Microfinance users to soar from 94mil to 283mil by 2020: Juniper Research
 
 
For more technology news and the latest updates, follow us on Twitter, LinkedIn or Like us on Facebook.