Mobile wallets are on the rise around the world. What happens next?
Li Yan (LY): In Asia, where mobile wallets are more well-established than the West, mobile wallets are now working as a service delivery channel for products traditionally delivered via branch: credit, money transfers, wealth management. There are two next steps – firstly, the emergence of “lifestyle” services via mobile, including loyalty points from food delivery or shopping. After that, we’ll see cryptocurrencies play a bigger role as crypto is faster and cheaper to transact than fiat – and that’s what consumers want.
How does the development of wallets fit with the rise of digital banking?
LY: The way services are offered through mobile wallets is broadening. As banks open their APIs to other providers in Europe after PSD2, this enables direct interface between consumers and service providers through mobile wallets – subject to consumer permission, of course. By linking to the bank, these service providers can access consumer preferences data and offer tailored products in a wide range of areas – from loans and credit through to shopping. Australia’s AfterPay or Sweden’s Klarna are great examples of “add-on” services we can expect to see rocket in the mobile era. It all comes down to the mobile wallet as a pipeline for a wider pool of financial and lifestyle services for consumers.
As mobile wallets become more important, fraudsters will increasingly target them. What steps can be taken to ensure mobile banking’s security?
LY: Mobile wallets are a new channel – and with any new channel, there are new risks. Yes, we’ve seen financial fraud through the mobile channel increase rapidly recently – but we’ve also seen many technical solutions emerge to combat this. The great thing about mobile is that a number of factors can be combined to deliver security. With cards, you had to call your bank to tell them you were abroad – or worse, you’d get a call after an overseas transaction to confirm your identity. Very inefficient and expensive.
I think new technologies in four fields will be applied to protect mobile finance service. The recognition of biological characteristics, environment sensing, encryptions and merchant learning. Now, thanks to the combination of biometric factors like fingerprint ID, voice and face recognition, it’s possible to confirm identity in real time. By using techniques that require no user input, like independent device verification (IDV), we can also confirm the device being used is legitimate.
Finally, new techniques such as haptic feedback – how customers use their phone – to confirm they’re holding the device and are present during the transaction. These techniques are soon going to make mobile wallets as secure, or more secure, than using cash or cards.
Open banking initiatives are springing up all over, especially in Europe. How are such initiatives going to help the development of mobile wallets and digital banking?
LY: In Asia, the development of what Europe calls “open banking” happened because the financial infrastructure didn’t exist for many consumers. That made the emergence of mobile wallets from a standing start possible.
If you look at Vietnam, that’s meant using mobile wallets for fast, secure, person-to-person and commercial transactions as a first step. More than one million consumers adopted mobile wallet in less than a year, and that growth is speeding up. In the second phase, consumers and small businesses in Vietnam are now using mobile wallets for credit and loans, loyalty benefits, taxi payments, and lots of other applications. In Africa, the same thing is happening in Kenya and Tanzania with mPESA and Tigo Pesa.
For Europe and North America, open banking will push banks to liberate their APIs and offer consumers greater choice. By 2023, it’s estimated that 15% of the US population will be using mobile wallets – twelve million more people than today, and double-digit growth year on year.
During this time, we’ll also see financial services combine with lifestyle services like Uber and Deliveroo – and that’s when growth takes off and fully digital financial services become a reality.