Plastic vs SIM Card--What’s in Store for Mobile Banking ?
stefanie is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
The plastic in your wallet or what you use for texting and voice calls? These are the latest contenders in the arena of finance. Credit cards have long dominated the way people purchase items. It is the deferred mode of payment that is the unique selling point of these products. Mobile phones offer an advantage over plastic. Traditional brick and mortar financial institutions do not reach many rural areas in countries around the world. However, mobile phone penetration of these said areas are high. Banks are making the most out of this advantage by initiating tie-ups with mobile phone operators for services.
Even the giant Visa (NYSE: V) got into the fray. It purchased last 2011 the South African mobile financial services infrastructure provider, Fundamo, in the amount of $110M. This strategic move got the attention of the financial community.
Why is mobile banking gaining grounds?
- A lot of rural areas are unbanked and underbanked.
- Not everyone can be approved for a credit card
- It has less paperwork and transaction costs
Banks are not that widespread in the countryside so the facility for money transfers is lacking. This is where mobile phones have the advantage. In Africa and the Philippines, small money exchanges are done via mobile transfers. Mobile phones are convenient in this regard.
Credit card approval is more stringent than getting a subscription for a mobile phone. This is why mobile phone users cut across more segments of society. Mobile phone users will still grow significantly over the years.
The less affluent can save on transaction costs and have less paperwork with mobile banking. The savings can add up to a lot and can be used for other important things.
What are the advantages of plastic?
- It is perceived as safer to use
- There are many POS systems already in place for credit cards
- It is handy and has marketing promotions
Credit cards are still perceived as safer to use than mobile phones. This is a perception that mobile banking has to overcome. For those who trust technology, they know that money transfers via mobile phones are safe. However, decades of credit card dominance is hard to erase.
Merchants are already used to accepting credit cards. Whether it is Visa, MasterCard (NYSE: MA), American Express (NYSE: AXP) or the other providers, they have the facility for it. This makes it convenient for current credit card holders to just swoosh and swipe their plastic.
Just recently, MasterCard announced its latest product, PayPass Wallet, which can be used for online, mobile and in-store shopping. It is also opening up its platform to third parties. Visa's V Me System, announced last year, also offers online, mobile and in-store purchasing. Last 2011, AMEX invested in the mobile payment startup, Payfone. With the strategic move, Payfone will combine its advanced mobile authorization and payment services with American Express' recently launched digital payments platform, Serve.
A credit card fits easily in the wallet and is easy to carry. There are already a lot of marketing promotions for credit cards like rebates and rewards. These promote loyalty for credit card users.
Credit card companies should take care of the big and frequent spenders by offering more rewards and rebates for loyalty. There are already a lot of credit card collection problems which should be addressed. It will still enjoy dominance in the next few years, but expect mobile banking to make strides by tapping into the bigger segments of the population. The recent initiatives of credit card companies to strategically tap mobile phone payment options shows it is addressing a growing demand. This will be good for both the credit cards and mobile services industries. Best of all, it is the consumers who will get better services and facilities, that will profit from these developments.
