Mobile Banking – A Transformation of Traditional Banking

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How comfortable are we with Mobile Banking?

Not very much, it seems. Even today, most of

us who use mobile banking do so merely to

check account information, transfer funds or pay

bills. How many of us are aware of mobile

technologies like Near Field Communication

(NFC) and Remote Deposit Capture (RDC),

which have evolved in response to customers’

need for a mechanism to make quick in-store/

transit purchases and check deposits without

visiting a branch or an Internet banking site?

As per a recent report from Javelin Strategy &

Research, consumer mobile banking has

jumped from 19% to 30% in 2011 after two

years of flat growth, thanks to an increase in

both, the number of mobile banking offerings

and Smartphone ownership. Approximately

37% of consumers who downloaded applications

for their Smartphones, downloaded banking

applications, making them one of the most

popular applications. By 2012, Asia Pacific and

Japan will have the most mobile payment

users followed by Eastern Europe, Middle East,

Africa and Latin America. The U.S. and Western

Europe will lag these regions.

The advent of technologies like RDC and NFC

has expanded the portfolio of mobile payments /

banking services. Although check usage is

diminishing globally, it is still significant enough

for both banks and consumers to want to adopt

RDC technology, which enables checks to be

“deposited” by a Smartphone application that

transmits their photographic images to the

bank. Already 6 of the top 10 Retail Banks and

more than 80 Financial Institutions (FIs) in the

U.S. are providing this value-added service to

their customers.

NFC is a fast growing wireless technology,

which allows communication between two

devices over short distances through short

wave, tap or touch. There is no need to whip

out the wallet at a store to make a payment;

rather, the customer has to only wave/tap the

NFC-enabled Smartphone at a POS terminal.

Most major credit card companies are rolling out

NFC technology to enable contactless payments

using a mobile device. At Mobile Asia Congress,

nearly 45 of the world’s largest mobile providers

committed their support to NFC technology.

NFC is already well established in Japan and

South Korea and is on its way to becoming

mainstream in the U.S. and Western Europe.

Although developing markets have favorable

conditions for mobile payments, their service

providers are yet to adapt their strategies to the

local market.

While on the one hand banks and FIs are

upbeat about these mobile technologies, on the

other, consumers are wary of using them on

account of security concerns.

So far, banks and FIs have managed the risks

associated with commercial RDC services by

offering them to select commercial clients who

have been thoroughly vetted, or by putting a

ceiling on the value of allowable remote

deposits. Three trends, namely, the impending

maturity of the commercial RDC market,

competitive pressure, and a growing preference

for self service channels have led banks and

FIs to look at extending the RDC service to

consumers. However, this may result in a

dilution of security procedures, examinations

and standards, and consequently increase the

risk of fraud.

One of the common problems associated with

RDC technology is the poor image quality of

deposit instruments, which may hinder an

institution from detecting alterations, forgeries,

missing endorsements and counterfeit items.

Some of the other potential risks leading to

fraudulent activity include identity theft, failure

of customers to retain or destroy paper copies

of a check and consequently depositing it

multiple times at one or multiple institutions.

RDC can also be misused for money laundering,

especially in the case of checks that are

deposited from foreign locations.

Though NFC technology is gradually replacing

plastic cards with chips imbedded inside mobile

phones, it is still riddled with data security

issues. NFC allows fraudsters an easy way to

trace and hack personal information. The longer

the operating distance of NFC instruments, the

greater the risk of data theft and unwanted

transfer of personal and financial information.

Also, long exposure to NFC radiation may lead to

medical problems including cancer.

Mobile Banking – A Transformation of Traditional Banking

Author

Pooja Agarwal

Consultant – Finacle

Infosys Limited

As mobile banking matures, mobile payments

will become a necessity for millions of people

around the world. Using mobile payment services,

these people can access both traditional and

modern financial services required to meet their

daily banking needs. Hence, it is imperative that

mobile application developers, wireless service

providers and banks’ IT departments together

address all their security concerns.

By exercising due diligence and restricting the

deposit value, banks and FIs can mitigate

RDC-related risks. Investment in superior quality

devices and a secure system of storage and

back-up may also minimize the risk of fraud.

The introduction of security measures, such as

facial/fingerprint recognition or a secured firewall

may help in maintaining the security of data

on NFC-enabled mobile phones. Like in the

case of infrared, the NFC operating distance

must be kept short and confined to a straight

line of sight to reduce the possibility of malicious

attack, data corruption and “eavesdropping”

during wireless data exchange.

The financial industry’s desire to reduce branch

maintenance/ service costs as well as footfalls

has hastened the transformation of traditional

branch banking into a self-service online avatar.

But before traditional banking as we know it,

disappears altogether, mobile application

developers, wireless service providers and

banks’ IT departments must together address

the critical challenges of scalability, reliability,

performance, handset operability and application

distribution. Improved security protocols and a

safer financial transaction environment will play

a vital role in the success of mobile banking. On

the positive side, banks and FIs have already

made efforts to tide over security issues, which

has imparted momentum to mobile banking.

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References

Mobile Banking – A Transformation of Traditional Banking