Mobile banking and mobile payments are two trending terms that encapsulate a huge portion of the fintech space.
These technologies are driving innovation in the financial services (finserv) sector, opening up access to vital financial products.
Mobile banking and mobile payments
What is mobile banking?
Mobile banking is a service offered by financial institutions through which customers can conduct banking activities such as deposits, withdrawals, transfers, and increasingly, payments directly through a mobile application.
Mobile banking has increased the convenience and speed with which banking transactions take place. As smartphone usage has skyrocketed, so too has the use of mobile banking applications. Mobile banking apps are the third most used type of application on phones in the U.S., coming in behind only social media and weather applications. Mobile banking has become a fundamental part of our banking system, with traditional banks offering a wide slate of mobile products and new fintech companies elbowing their way to a seat at the table. There are even mobile B2C investment products, which round out the full complement of financial products available to the public.
Personally, I can’t think of the last time I went into a brick-and-mortar bank location to conduct a banking transaction. Thanks to mobile bank apps there’s no need, and that holds increasingly true as these applications improve and their usage becomes ubiquitous. Mobile banking solutions themselves are key to the development of banks in the digital age. In order to capture small-business transactions and maintain relevance to customers in both the B2C and B2B sectors, they are going to need to adapt and provide robust mobile functionality.
Mobile banking started out as an offering from traditional banking institutions to their customers. Traditional banks created mobile applications, which customers could use to make deposits, transfer money and more. Since then, the proliferation of mobile technology, specifically internet-connected phones, has created an environment ripe for innovation. Mobile banking is more convenient for customers and eliminates the need to have physical locations. There are now mobile-only banks, which provide the vast majority of the services you would find at a traditional financial institution without any brick-and-mortar locations.
The European mobile-first banking startup N26 is a great example of how popular the mobile banking sphere has gotten. It recently raised $300 million at a $2.7 billion valuation. This massive VC stamp of approval is another indicator of progress for the industry. All told, there are 57 million mobile banking users in the U.S. alone as of 2018. Mobile banking is increasing the ease and speed with which financial transactions take place and will continue to do so going forward.
Mobile payments differ from mobile banking.
What are mobile payments?
While mobile banking typically includes person to person (P2P) payments as a feature, mobile payments allow point of sale (POS) transactions to be carried out through mobile devices. Initially, individuals used mobile money services for P2P transfers and airtime top-ups. Today, mobile money includes mobile payments, which can be used for cross-border remittances, P2P payments, micropayments, bill payments and merchant payments.
Mobile money and mobile payments, which are occasionally used interchangeably, have opened up opportunities for financial services software providers to tap previously unprofitable market segments.
Traditional financial institutions do offer mobile payments solutions to their customers. However, there are mobile payments providers that focus on serving sectors like the unbanked and underbanked, increasing the ease of access to financial services for people in those demographics. The terms unbanked and underbanked refer to people who do not have sufficient access to traditional financial products and services, denying them the ability to get loans, use credit and leverage the financial system to improve their financial situation.
Mobile payments and financial inclusion
The smartphone explosion has paved the way for mobile banking and mobile payments to be widely used throughout areas without access to traditional brick-and-mortar banks and financial institutions. The explosion in popularity of mobile payments and mobile banking applications has driven financial inclusion numbers throughout areas historically rife with financial exclusion.
What is financial inclusion?
Financial inclusion refers to the access to financial services (transactions, payments and savings) that is necessary for modern life.
A majority of the world’s population takes financial inclusion for granted, but there are two billion adults who are excluded from the system. (They are referred to as the unbanked.)
The unbanked lack the opportunities that the financially included have access to. The vast majority of the unbanked cite a lack of money as the primary reason for their exclusion from the system. According to the World Bank, “Globally, 59 percent of adults without an account cite a lack of enough money as a key reason, which implies that financial services aren’t yet affordable or designed to fit low income users.”
Mobile money and mobile payments providers leverage the high percentage of smartphone users in countries with low financial inclusion to open up access to financial products and payments solutions that these people would otherwise not have access to. Traditional financial institutions do not see potential value in targeting the low-income, unbanked demographic.
The underbanked and unbanked do not necessarily need the same services as those using traditional banking services. Mobile payments providers have opened up paths to financial inclusion, which is key to improving the economic status of the unbanked. Financial inclusion means a digital fingerprint, and the possibility of building businesses on the back of credit, which is only extended to those with a financial history.
The future of mobile banking and mobile payments
What does the future of the mobile banking and mobile payments markets look like? In a word, bright. There has been an inexorable march toward mobile payments’ proliferation in the financial services marketplace. As the world embraces mobile, financial services institutions will offer more products to adapt and there will be an influx of new players in the marketplace. Combined with the rise of applications like Ripple, which enable and bolster the mobile payments market, the mobile banking and payments world will continue to grow in size and scope.
Interested in learning more about the fintech space?
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Patrick is the manager for the verticals and tech teams as well as G2's fintech and legaltech analyst. As a G2 analyst, Patrick focuses primarily on the fintech and legaltech spaces in addition to a slate of other vertical categories. Fintech's explosion in popularity has created a compelling challenge to accurately represent the spaces on G2 and produce high-quality, relevant content for external consumption. Patrick leverages his relationships with vendors, the unique data that G2 has accrued via more than 1 million user-generated reviews, market surveys, and product data to produce insightful reports and thought leadership content within his two focus spaces.