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 finds. For telecommunications providers (telcos), it acts as an additional revenue stream and can help the industry cross-sell services.
Prashant Singhal, EY Global Telecommunications Leader, says:
"The area of mobile financial services is 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. Given complementary competencies and infrastructure, they are well-positioned to collaborate, bring synergies and innovation to mobile financial services and meet changing customer demands."
Service opportunities for mobile financial services
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. 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 finds.
While growth in new mobile insurance services is creating significant opportunity for cross-sector collaboration in this domain — according to the report a majority of these services are being marketed by telcos in partnership with insurance companies.
Serving the next segment of unbanked people
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, Democratic Republic of 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. Recent examples of cyber attacks reflect the extent of damage that can be caused to organizations, from substantial financial damage to a dent in reputation and a share price drop, highlights the report. 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, organizations need to be able to create a balance between the user convenience and security aspects of mobile financial services. To this end, security measures such as tokenization and biometric authentication are likely to have a strong impact on the digital payment industry. Robust know-your-customer, anti-money laundering and transaction authentication procedures will remain a key focus to combat cyber threats," says Singhal.
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About the Decoding mobile financial services – Innovation and collaboration to drive growth report
Decoding mobile financial services – Innovation and collaboration to drive growth has been developed based on first-hand market perspective from industry practitioners, inputs from EY's subject matter residents, customer discussions and is supported by insights from EY's sector professionals and secondary research. It attempts to assess the evolving landscape of the mobile financial services industry, with a focus on opportunities that are arising from the collaborative efforts by telecommunications providers and financial institutions.
To include a first-hand industry perspective, EY organized its first mobile financial services workshop in Nairobi in February 2016. The event saw participation from senior executives from banks, telecommunications providers, insurance companies and technology players as well as end customers — bringing a 360-degree view on this space and incorporating a diverse set of perspectives from key stakeholders in the value chain. The insights from the workshop contributed significantly in the development of this report, providing inputs on industry dynamics, strategic priorities and key initiatives such as customer centricity, regulatory viewpoints and success factors.