Analyst Labels M-Commerce Renaissance a Priority

Banks making a concerted push to promote contactless payment technology are focusing on the wrong target and should switch their short-term focus to mobile commerce. That's the main conclusion of a new report by independent technology analyst Ovum, which finds that m-commerce is set to experience a renaissance as industry players express renewed interest and mobile banking services take root.

NEW YORK, April 26, 2010 — Banks making a concerted push to promote contactless payment technology are focusing on the wrong target and should switch their short-term focus to mobile commerce.

That's the main conclusion of a new report by independent technology analyst Ovum, which finds that m-commerce is set to experience a renaissance as industry players express renewed interest and mobile banking services take root.

Alex Kwiatkowski, principal analyst at Ovum and report co-author, said the resurgence of m-commerce — which Ovum defines as the purchase of physical products, services and digital content where the transaction is initiated and payment completed through use of the over-the-air (OTA) element of a mobile device — presents financial institutions with a "golden opportunity" that they cannot afford to miss.

"Ovum believes m-commerce has a vital role to play in the adoption of the next generation of contactless mobile payment instruments," he said. "Indeed, banks face the danger of losing market share if they do not play an active role in m-commerce developments.

"In the past, banks were studiously indifferent to m-commerce, preferring to let others " most notably those within the mobile operator community " attempt to stimulate growth. This passivity must change.

"If retail banks procrastinate over playing an active role in the future development of m-commerce, Ovum believes this will cost them dearly in the medium- to long-term as they cannot afford to see 'PayPal 2.0' come marching over the horizon to further erode their revenues derived from payments," Kwiatkowski concluded.

Ovum, working in collaboration with colleagues in Datamonitor's Financial Services team, has identified several market factors that point towards a renaissance in m-commerce.

Retailers are anxious to reap the benefits of m-commerce to drive revenues, and mobile operators want to increase the use of data services to halt declining annual revenues.

"While m-commerce has witnessed many false starts in the past, the view from the retail community that the economics of contactless do not stack up for them at present has created an industry standoff," said Kieran Hines, report co-author and lead financial services analyst at Datamonitor. "This means m-commerce has the chance to come to the fore again.

"Fundamentally, and unlike NFC (near field communication)," Hines added, "m-commerce is something that retailers are keen to pursue and is therefore an opportunity that must be taken by banks if the threat of further loss of payment market share to non-bank competitors is to be avoided."

Ovum believes m-commerce can act as the foundation layer for other mobile payment mechanisms, and instead of being overshadowed by the more fashionable NFC can be a catalyst for future use of contactless services.

Kwiatkowski believes the need for a "gateway" mobile payment instrument means m-commerce will be central to the future evolution of mobile payments.

"Consumers will not leap from avoiding using mobile handsets in payments to employing a full suite of mobile banking and payment services overnight," he explained. "M-commerce acts as a bridge for the consumer to wider mobile activity. It also provides a way for the payment industry to develop a complete suite of product offerings.

"Crucially for banks, m-commerce is the most easily addressable segment of mobile payments. NFC is the largest market opportunity in mobile payments by value, but cannot be tapped in the short term," Kwiatkowski added. "Therefore, m-commerce offers the best target for banks to concentrate on " at least in the short term."