Some of the most powerful icons of 20th Century capitalism were finally shut down last night by a real 21st Century villain: the mobile phone.
Over the past seven years, since the early years of the decade, the mobile phone has proved to be a real business terrorist. It wrenched people from their place of work – you could take a walk and clinch a deal. Personal relationships moved into the mobile messaging service world. The mobile phone and SMS have even been accused of wrecking the English language! Now comes the final blow – financial services.
Payments by phone have become de rigeur for the young and even their parents have followed the irresistible flow. With charges at less than 10% of the credit card equivalent, the mobile phone companies are laughing all the way to the bank.
ANALYSIS >> SYNTHESIS: How this scenario came to be
2000: Pilot studies begin
Pilot studies begin in several countries, in which customers dial a code into a vending machine. The charge for the product – eg a bottle of Coca Cola – appears on their next mobile phone bill.
There are 730 million mobile phones in use worldwide. Globally, mobile phone density is 62% – up from 40% in 1999. 27% of Western Europeans use the Internet.
2002: Mobile phone sales soar
Mobile phone sales of 423 million units this year. China, the world’s biggest mobile phone market in handset sales, passes 200 million users.
2003: Transition to pay by mobile phone
By the end of the year, the total inventory of mobile phones is approaching two billion.
This year, MasterCard and Visa have over 806 million credit and debit cards in circulation, representing an estimated 500 million card users. These organizations are both owned by approximately 22,000 member financial institutions. For the use of the card, the merchant typically pays 3-8% of the transaction cost.
Take into account the overall marketing costs, the merchants’ costs, the electronic network costs and the price of a credit card transaction averages US $1. By comparison, the cost of a mobile phone credit transaction averages US 10 cents – some say as low as US 5 cents.
The network infrastructure is in place to make the transition to pay by mobile phone. To date, as many mobiles have been purchased in one year as the total number of PCs in use today after 20 years.
The race is on to find the fastest, cheapest, safest software solutions to perform banking operations with a handset, to secure mobile electronic transactions. In June, Mobey Forum, the global forum driving financial services, announces a software-based solution enabling users to perform mobile banking services with their handset
July sees the world’s largest SMS campaign – estimated to cost $5 million – as Coca Cola launches ‘TXT FOR MUSIC’. The promotion offers consumers the chance to win concert tickets and CDs in exchange for using their mobile phones to enter special codes printed on over 200 million bottles and cans of Coke. The mobile phone becomes an ever-more integral part of modern life.
In August, Japan’s premier mobile communications company, NTT DoCoMo, announces it will use ‘Bit Wallet’ electronic money, called Edy, in its phones.
2004: Smart cards at higher costs
The mobile phone companies negotiate with the Regulators to expand their licences in to financial services. The banks object and put pressure on the Regulators to limit them.
The credit card companies continue to push smart cards with new features that offer higher security and faster processing times, but at a higher cost. The credit card companies are forced to lower their commissions to attract stores to adopt the necessary POS systems.
More than 80% of the world’s population still does not have a credit rating to allow them to apply for a credit card. These people prove to be a fantastic target market for mobile phone payments. They can collect small amounts of money into a ‘wireless account’ – an extension of the ‘Pay As you Go’ method for mobile calls. Perfect for small transactions, the mobile phone proves to be ‘Everyman’s Bank’.
2005: First global e-currencies
The US Federal Reserve and the European Central Bank jointly offer the first global e-currencies – the e$ and the e€.
Vodafone and the other major mobile networks complete successful negotiations with Regulators. The infrastructure and the currency are in place in for the global adoption of electronic transactions.
Nokia, Motorola, Samsung and Sony Ericsson have huge marketing campaigns to highlight the freedom and speed of mobile electronic transactions. Within months, paying by mobile phone is cool. 50% of European Under-25s use their mobiles to purchase goods and services. Who wants to carry plastic as well?
By the end of 2005, MasterCard and Visa revenues have fallen by 15%.
2006: Revenues drop further
Three billion people use digital mobile phones globally. By the year-end, half of them the e$ or e€ as a means of payment.
MasterCard and Visa revenues drop a further 15%.
2007: Electronic transactions preferred>
The mobile electronic transaction is established globally as the preferred method of payment. Credit card transactions drop by a further 30%.
2008: MasterCard and Visa revenues halve>
MasterCard and Visa revenues halve again in the face of the inexorable drive towards cheap, mobile phone payment.
2009: Credit cards out
MasterCard and Visa give up the game. What was once the exclusive domain of banks and two powerful card organizations, has now been fragmented and decentralized into thousands of service providers. A real fractal network of services that includes the newspaper vendor, your butcher and the local supermarket.
It’s worth considering that some of the biggest losers in this scenario could be the manufacturers of electronic transaction terminals. Gore Technology’s VeriFone business has sold over 10 million point-of-sale machines worldwide. VeriFone had a 65% US share and a 35% global market share in 2002..
And think about this! Why should a bank be involved if you want to send $10? If it’s cash, and provided it’s secure e-currency, no bank needs to be. If you want credit for a payment, it’s a question of who carries the risk? Would Vodafone be prepared to carry it for 50% of what MasterCard and Visa charge? You bet they would!