SMEs want mobile-based banking
that helps them run their businesses
smarter. This spells a new opportunity that
can unlock services that generate revenue
streams. Trends indicate that this could be
the new growth area for banks. Will banks
rise to address the needs of this under
served sector? What are the key elements of
an approach for developing services aimed
at SMEs?
Small and Medium Enterprises (SME) are major contributors to a nation’s
GDP. In G7 countries, SMEs contribute about 53% of the GDP. In the case
of countries belonging to the European Union the contribution is 49% of
the GDP. In spite of the importance of SMEs, banks have not focused on the
SME segment. However banks of late are recognizing the uniqueness of the
SME segment and the need for differentiated servicing of SME customers.
In this context, SME customers are showing a willingness to subscribe to
SME mobile banking services. A 2011 survey by Aite Group found that 30%
of companies with revenues less than US$ 2 million would be ready to use
mobile banking services.
Let’s now look into some of the key drivers for SME mobile banking (see
Figure 1):
Among the drivers, the following
are providing the primary thrust:
1. Business Convenience:
The ability to manage banking needs
on the go makes great business
sense for a SME. It provides them
immense business convenience as
they would rather focus and spend
greater time on managing their
business operations than spending
time at the branch of a bank. SMEs,
unlike corporates, do not have the luxury of a huge workforce
taking care of different aspects of
business operations. In most cases
the average SME is multi-tasking and
playing multiple roles in managing
and operating their business. This
makes it imperative that the SME has
the facility to take of care of their
banking needs at a place and time of
their convenience.
New age mobility devices such
as the smart phones and tablets
have emerged just in time to make the acceptance of mobile based
banking services more attractive and
consumable.
2. The Cost & Revenue Factor:
The relatively lower cost of providing
services through mobile makes it that
much more a compelling proposition
for banks, as the average cost of
servicing a transaction is the lowest
on the mobile channel.
Figure 2 provides a comparison of
an average transaction cost across
banking channels. It is noted that
the average cost of a transaction is
the lowest among channels for the
mobile channel
This way banks can move routine
banking transactions to the mobile
channel while retaining operations
which require personal interactions
in the branch. In other words SME
mobile banking provides banks
the opportunity to strike the most
optimized balance between assisted
service and cost-effective self-service.
For long monetization of mobile
offerings has been a pipe dream for
banks. The icing on the cake is the
potential for monetizing services
being offered on mobile to SME
customers. An Aite Group Small–
Business Survey, Aug 2011 indicated
that more than one third of SME’s
(interviewed as part of the survey)
showed a willingness to pay for value
added services on mobile.
3. The Payment Push:
The robust growth expectations on
the mobile payments space (The
value of global m-payments reached
€62 billion in 2010, & is expected
to grow aggressively at a sustained
annual rate of 52.3% from 2009 to
2013, putting global m-payments
at €223 billion– World Payments
Report 2011 from Capgemini, RBS
& EFMA) is another fillip to mobile
based SME banking services. In
fact many banks such as J.P Morgan
Chase, Citi and Bank of America are
providing their customers the ability
to transfer money from account to
account through mobile (B2B).
Additionally the emergence of the
smart phone as a mobile point of
sale (POS) enabler has the potential
to provide greater value to the mobile
SME banking proposition.
Square, the mobile payments startup,
recently introduced the Square
Register App that can replace the
expensive card readers at small
business shops. The Square Register
app (which can be deployed on an
iPad) can be used for processing
credit and debit card payments. It
comes with a free detailed analytics
system for business owners and more
integration with Card Case, Square’s
consumer-facing app that allows
people to pay with their smartphones
just by being in the vicinity of a
Square-using business. Card Case
uses GPS tracking to detect when
a customer is near a store and lets
storeowners automatically charge
them without having to swipe a credit
card. Over a period of time banks
can play the role of an acquirer for
these types of Mobile POS services.
Brett King, the author of Bank 2.0
has predicted that “Within the next
3 years our phone will become the
payment device of choice for paying
SMEs who work in the service
arena.”
4. The Unbanked:
For developed and developing
economies, small businesses have
very limited/ no access to formal
financial services. The banks have
limited information on the small
business owner and have a natural
disinclination to provide access
to formal bank services. Mobile
banking is identified as a solution
for unlocking the entrepreneurial
potential of the informal sector.
This potential of SME mobile
banking can be unleashed in the
following manner:
- Development of electronic
alternative (air time) to cash
- SMEs can build a transaction
history by transacting
electronically (with a link to a
bank account)
- The transaction history created
can facilitate SMEs in building
their book keeping records
(through a mobile based book
keeping and inventory system)
- The transaction history and book
keeping records can potentially
open the doors of the SMEs to
formal banking services
“The number of unbanked or under
banked mobile subscribers around
the world is projected to reach 2
billion by 2012” (Beyond Payments
–Next Generation Mobile Banking
for the Masses – Oliver Wyman)
What are the drivers that are
influencing the evolution of the
functional components of SME
mobile banking?
SME Mobile Banking
functionality – the drivers
The decision on the type of features
and functionalities to be offered by a
Bank as a part of its mobile solution
to a SME is driven by the following
key factors:
Customer sub-segment: Just as the
needs of mass-market retail banking
customers differ from those of ultra
high net worth individuals, so too will
the needs of SME customers differ
based on the sub segment they belong
to. Thus, a small sole proprietorship
business will probably not require too
many sophisticated mobile banking
features, whereas a larger business
may require more advanced features
related to cash management and
multi user management. Therefore,
it is imperative for a Bank to
appropriately sub-segment its SME
customer base and then map mobile
banking features to the different subsegments.
Suitability of features: All features
and functions that are available
to SME customers via the online
banking channel need not be made
available to them on the mobile
channel. Similarly, there could be
another set of features which are
not available on the online channel,
yet could be deemed necessary to be
offered via the mobile channel for
SME customers. The decision on a
suitable feature mix will be governed
by a number of factors including
mobile strategy, levels of self service desired, level of sophistication of
customer base etc.
Mobile device capabilities: As the
features of mobile devices keep
evolving rapidly, designing a solution
that leverages these features, while
taking cognizance of the limitations
of the same becomes a challenge.
Further, mobile devices include
mobile phones and tablets, both
with distinct sets of features and
capabilities. Banks will need to
forge strong relationships with
mobile device companies and
industry forums, thereby gaining
an understanding of current and
roadmap features of mobile devices.
Mobile Security: Security is another
factor that will determine the scope
of the functionalities that can be
offered by banks and subscribed to
by the bank’s SME customers. Mobile
security has to be contemplated from
multiple factors both functionally and
technologically. For instance: from
a functional perspective the levels
of mobile authorization of mobile
payments might vary based on the size
of businesses necessitating different
levels of security. For a bigger sized
SME there might be multiple levels
of payment authorization while a
smaller SME might necessitate a
single level authorization.
Additionally the mode of delivery
services, text messaging, the mobile
browser and smart apps call for
different levels of security raising
concerns for banks on the need
to arrive at an optimal balance
between customer experience and
authentication and validation.
Mobile application vendor products:
Banks need to understand the
competitive landscape of mobile
application vendors and product
companies. Such an understanding
will need to be augmented by an in house technology team that
understands and has executed
mobile banking. Again, as specialist
online and Mobile Banking solutions
emerge for the SME segment, Banks
will need to keep abreast of such
offerings as opposed to trying to
retro fit existing solutions aimed
either at retail or corporate customer
segments.
SME Mobile Banking
Spectrum
Figure 3: The list of services in
the diagram under customer app
and staff app are just a sample of
the services being offered and not a
comprehensive list of services being
offered in this space.
Figure 3 depicts the spectrum
of mobile banking solutions in
the SME space. Overall, mobile
banking applications for the SME
segment fall into two categories
– Applications used by end SME
customers referred to as “Customer
App” and applications used by Bank staff to service SME customers
referred to as “Staff App”. It is to be
noted that while referring to “App”
we are referring to the entire range
of mobile solutions across SMS,
WAP (Wireless Application Protocol
– mobile browser) and Smart app
modes of delivery.
SME Mobile Banking
functionality –
the approach
The approach that Banks take to
offering Mobile Banking services to
SME customers is heavily dependent
on how Banks approach the SME
segments itself. Traditionally, Banks
have classified SME customers either
under the Retail business or under the
Corporate business and therein lies
the challenge faced by a number of
Banks today. Banks are beginning to
realize that SME customers are being
sub optimally served because of this approach. As a result, a number of
Banks are looking to launch tailored
SME segment specific solutions and
offerings.
Further, due to the nature of the
SME segment, a single broad based
solution may not serve the needs of
all the customers.
Banks will need to understand their
own SME sub segments and then
devise a solution(s) depending on the
needs of the sub-segments.
The SME Mobile Banking continuum
extends between Personal/ Retail
Banking and Corporate Banking,
with functional complexity increasing
as one moves from the Retail end of
the spectrum towards the Corporate
end of the spectrum.
Banks may decide to adopt a “horses
for courses” strategy and implement
a tiered SME Mobile solution that
includes:
- A “Personal ++” solution for
smaller SME customers who
require only a few additional
features over and above Personal
Mobile Banking
- A “Corporate” offering for larger
SMEs with more sophisticated
operations and needs
- A hybrid solution which may start
off as “Personal ++” but has the
flexibility to scale up and move
towards Corporate Mobile Banking
An Aite Group Small Business
survey, August 2011 indicates that
Banks are at the nascent stage of
rolling out SME focused Mobile
Banking services. This is also a
reflection of the level of adoption of
mobile devices for banking services by the SME segment. The Aite
Group survey indicates that less than
20% of small businesses currently
bank through a mobile device.
However, the survey also indicates
that the scenario is changing and
more than one-third of those SMEs
surveyed would even be willing to
pay for a mobile-based SME Banking
offering.
SME Mobile Banking –
possible features and roll
out phases
The preference of SME customers
for specific Banking services through
the Mobile channel as highlighted in
the Aite Group survey, is shown in
Figure 4.
As the adoption of mobile devices
(including tablets) increases, and
traditional limitations such as limited
real estate of mobile phones are
overcome, SME customers will
look to adopt the Mobile channel
for increasingly advanced Banking
services.
Further, it is seen that the geography
also determines uptake of Mobile
Banking services – for example,
uptake of Mobile Banking services
for all customer segments in the
Singapore and Australia markets is
significantly higher when compared
to the US market.
It is vital for Banks to plan the
delivery of their SME Mobile
Banking offering in phases and
provide tangible, benefits oriented
functionality in every release.
As an example, Figure 5 showcases
a phase wise approach which a Bank
can take to launch its SME Mobile
Banking service.
Each of the phases has been given a
theme, and the set of functions and
features in each phase is illustrative
and not meant to be exhaustive.
The broad theme in this case is a
“Personal ++” based approach.
Further, Banks may want to segregate
the delivery of transactions such as
payments into “payment approvals”
and “payment initiations”, with
approval related transactions being
delivered first and then followed later
by initiation. This is because payment
approval requires less time and is
more convenient to do on the mobile
channel as compared to payment
initiation that involves more steps in
the process and may be cumbersome
to complete on a mobile phone.
The other aspect to note is that
Banks may decide to develop and
deploy differentiated apps for mobile
phones and for tablet devices. This is
primarily because of the differences
in “real estate” and capabilities of
tablets vis-à-vis mobile phones.
Hence, for example, an app launched
for a mobile phone may only include
payment approvals, while an app for
the tablet may incorporate payment
initiation as well.
SME Mobile Banking –
“Appization”
In the smart phone and tablet era,
developing and deploying specialized
“apps” seems to be the order of
the day.
In the context of SME Banking
too, Banks can look to develop
specific value add “apps” which
will differentiate their SME Mobile
Banking offering in an increasingly
commoditized marketplace. Such
“apps” can either be deployed
independently or integrated with the
core SME Mobile Banking offering.
An example of such an “app” which
falls within the broad category of “Mobile Financial Management” is
“Business Financial Management
(BFM)” – HCL has developed
“BFM” as a proof of concept
value add app for the SME Banking
market.
“BFM” is an “app” aimed at enabling
SMEs to manage their finances better
by virtue of rich functionalities
for financial analysis, business
networking, e-invoicing and advisory
services.
An Aite Group Small Business
survey, 2011 showed the following as
“significant” pain points for SMEs,
thereby validating the possible need
for such a solution.
Further, in the context of the
global economic meltdown and the
considerable “push” from Central
Banks to focus on the SME sector,
the value of such a solution gains
prominence.
Such a solution will also enable
Banks to “give back” to society as
one of the key challenges faced by
SMEs is efficient management of
their finances.
In its current avatar, the key features
of “BFM” are:
- Financial Analysis
- Budgeting
- E-invoicing
- My Business Companion (advisory
videos and discussion forums)
There is a plan to incorporate
additional features including
dashboard reporting, integration of
personal and business finance views,
expense tracking, B2B transaction
links etc.
A few relevant “BFM” screen shots
are shown below.
As is evident, the real value of
“BFM” will be as a value add to the
core SME Mobile Banking solution.
There is immense potential for
Banks to tap into the SME customer
segment with differentiated mobile
propositions. Buoyed by the
willingness of SME customers to
adopt mobile solutions, and, more
importantly pay for some of the
services, Banks are gearing up to
launch innovative SME segment
focused mobile banking solutions. It
is safe to say that an SME Mobile
Banking revolution is just around
the corner! |
