Text messaging started as a popular way to send short notes; then photographs and video.
Next — money.
A report by Javelin Strategy & Research Inc. issued last month said that person-to-person, or P2P, mobile money transfers are on the rise and that financial institutions must step in or carriers will dominate the market. The report said 26 million consumers are “likely or extremely likely” to use this service, up 24 percent from 2008.
“Most of the time we find it in underdeveloped countries because people have mobile phones but not bank accounts,” said Bruce Cundiff, director of payments research and consulting at Javelin.
Serge van Dam, head of marketing for mobile banking and payment company M-Com, said the U.S. banking system has slowed P2P’s development in the United States.
“Regulatory intervention has forced banks [in other countries] to interconnect their networks, so you can easily do interbank payments,” Mr. van Dam said. “Banks and providers can offer these services relatively easily, whereas in the U.S., the banking sector is a little more fragmented. There’s a lot less regulatory intervention than there is in other countries.”
Stessa Cohen, analyst for global research company Gartner, said that only 2 percent of the U.S. population has made a mobile-to-mobile money transfer in the last month, but the transfers are already very popular outside of the United States, where carriers have the edge in the market.
“If the banks don’t act fast enough, you don’t look at your phone and go, ‘I really want to do this with my bank,’ you go, ‘Is it cheap? Is it fastest?’”
Art Kranzley of MasterCard MoneySend, said it works like this: The account holder puts in instructions to send the money on his phone via text message, then he will get a call asking him if he authorizes the transfer and asking him to enter his PIN number. Once he has done that and it has been authorized, he will get an e-mail telling him that the transaction occurred.
Javelin’s report cited a lot of information on other countries’ mobile markets that suggests banks may need to step up their efforts.
Fundamo, a South African mobile person-to-person provider, is “deploying” more of its mobile solutions to wireless carriers. While it does want to branch out and offer its solutions to financial institutions, CEO Hannes van Resnsburg said this has been difficult “because wireless carriers seem to be taking more of the initiative at the present.”
Not all providers share Fundamo’s desire to branch out to banks, however. Zoompass, a carrier-based solution, launched in Canada in June. Javelin’s report said that while it was currently “really the sole example we have of a semi-commercial, carrier-centric solution,” the real danger lies in it serving as a model for other similar solutions — leaving banks out of benefits like the expansion of their customer bases and marketing opportunities.
“Consumers aren’t choosing bank-oriented solutions,” Mr. Cundiff said. “Carriers are capturing the market and creating a service that they own and they control.”
Others believe banks actually have an inherent advantage over carriers, such as Mr. van Dam, whose employer works exclusively with banks and plans to introduce its P2P mobile solutions to the United States in 2010.
“We think that consumers prefer to get financial services from the bank because of fidelity and financial security,” he said.
Sanjeev Dheer, president and CEO of CashEdge, a money movement service that works with banks and plans to offer person-to-person transfers within the next year or two, agrees.
“We’ve always believed that consumer payments will first and foremost be done through banks,” he said. “Consumers have their core financial account relationship with the bank.”
According to a survey done by CashEdge, 77 percent of customers would prefer to use P2P services through their bank rather than independent services.
Citibank, which already offers several mobile banking features, plans to offer mobile-to-mobile transfers “probably sometime in 2010,” said Marylou Dowd, director of customer experience at Citibank.
“We want to ensure that we’ve got all of the basics in dealing with security issues,” Ms. Dowd said.
This approach is certainly a smart one, since Javelin’s report showed security concerns the most prevalent to prospective customers.
In a 2008 survey, 62 percent overall and 72 percent of people with incomes from $100,000 to $150,000 reported “enhanced security” an essential before they would begin to use a mobile P2P service. In another 2008 survey, 61 percent of people said that hackers obtaining their financial information was a primary concern, and 55 percent said the same for the possibility of fraudulent transfers.