Will mobile carriers really leave the business of banking to banks?

I find it funny to think about the lengthy discussions of mobile that takes place these days at all the banking and payments conferences I go to.

The banks talk about a mobile payments ecosystem and how they have to work closely with carriers, handset manufacturers, retailers, merchants and more to achieve share of this new, burgeoning marketplace.

And yet, the more this goes on, the more I find myself sceptical of the banks approach and more supportive of the opportunity for the non-banks.

Y’see, it seems to me that many financial institutions are yet to see the threat of the non-banks.

Banks feel that these non-banks will not take payments seriously.

After all, you’ve had lots of foraging in the payments and finance field from non-bank telephony operators from AT&T with credit cards in the 1990s to SimPay from T-Mobile, Orange, Telefonica and Vodafone in the 2000s.

There’s been Mobey Forum operating for a decade that has shown that non-banks get no benefit from banking and payments transaction processing.

There’s the GSMA and EPC agreement, which implies that the mobile industry should work with the banks for payments processing.

But this is all ignoring a basic threat.

A threat to the banking system.

What threat?

The threat that mobile carriers just don’t care a jot about what banks think and will do whatever they want to do that makes sense.

Y’see, the marriages between banks and mobile carriers and handset operators are purely marriages of convenience.

If one partner can see greater benefit by taking a larger slice of the cake by killing the other, then so be it.

A spouse can be divorced rapidly.

This struck me as I thought about two or three big things that have been happening lately.

First, the well-worn story of M-PESA, Safaricom and Vodafone.

We all know that it’s been a runaway success in Kenya, so much so that M-PESA is now a bank …

They have tie-ups with Western Union and have pushed into other territories like Iran, although with less success so far.

But what might happen here?

Could Vodafone and other carriers and mobile telephony firms gain experience through these services that they could then apply elsewhere?

Could the launch of P2P payment services via mobile in unbanked territories lead to P2P payment services via mobile in banked territories?

Could the experience of becoming a large transaction financial processor in an emerging economy give the operator the knowledge to become a large transaction financial processor in another?

I think yes.

In fact, over time, I think the mobile carriers and handset manufacturers working to engage the unbanked and underdeveloped economies will find the experience invaluable in taking over large slices of banking capability in banked and developed economies.

Why?

Because this is the classic innovators dilemma.

The innovator’s dilemma says that the incumbents become fat and lazy, and focus upon features and functional enhancements rather than disruption.

The new entrant comes in with an offer that the incumbent sees as no threat and can be ignored.

It is ignored because if focuses on the wrong thing in the incumbent’s view.

This is because the new entrant is not focusing on the evolution of the current system based upon feature and function, but is trying to do something completely different.

In many cases, they are offering a cut-down offer that is incredibly cheap and easy.

That’s what mobile carriers and handset manufacturers are doing with payments and, over time, banking.

It is the reason why Nokia and others are gearing up heavily to get into core mainstream finance.

In fact, the interesting tie up between Nokia, Microsoft, Skype and NFC services appears to be a key here, as the link between payments and mobile is now undeniable.

Therefore, although we discount the import of Google, Apple and Microsoft building NFC contactless services into their next generation services by rote, we should not.

This will be disruptive.

It is why Google are hiring payments people – about 400 so far – and why Apple’s 200 million credit card holders on iTunes are a potential gamechanger.

Which leads me to my last point.

A while ago, O2 ran a series of ads in the UK to launch their card services in partnership with Royal Bank of Scotland subsidiary NatWest.

Two years later, O2 has announced that they are moving into a fully-fledged wireless payments service in the UK, licenced by the regulatory authority and managed by banking people.

I know that O2 are all over the FSA’s people to get approvals for their service and have just hired senior payments people from some of the UK’s banks, such as the Head of Payments from the Nationwide Building Society.

They are taking it seriously, as are Vodafone, Nokia, Microsoft, Apple and more.

This is why banks must take these developments seriously.

Y'see, given the outline above, as mobile carriers and handset manufacturers learn the business of banking, do we really think that they will leave the business of banking to banks?