We are pleased to bring you the inaugural issue of Visions, a new digital magazine whose mission is to provide insights on emerging technology trends relevant to the banking and financial services (BFS) market. It is our hope that better understanding of these trends will help our BFS clients capitalize on them for competitive advantage. Our first installment covers mobility, across various dimensions.

Although the magazine has several articles in traditional format, it also features interactive trend radars that we use to capture emerging technology and business capability developments and to highlight their likely impact on your business. The interactive format of these radars will hopefully be engaging, and the digital medium will make it easy for us to issue periodic updates.

Every article in this magazine was created by our team of BFS mobility architects under the direction of Hari Subramanian, a Technology Partner within our BFS Business Unit. In this role, Hari is responsible for providing technology consulting and solution architecture services to our BFS clients, worldwide. His mission is to promote technology and thought leadership within Cognizant and to leverage this insight for delivering innovative solutions in areas such as mobility, SOA, enterprise architecture, cloud computing, and user experience. He has more than 22 years of experience in both the communications and financial services sectors. Hari can be reached at harir.subramanian@cognizant.com

Acknowledgements

 Note:

• Please refresh your browser when transitioning your iPad from Portrait mode to Landscape mode and vice versa.
• Definitions for words highlighted in green can be found at the end of each article.

With planet Earth expected to be home for about 1 billion smartphones by 2015, mobility is a cornerstone technology of the future of work. And that future, to a large degree, is now. Today’s young professionals – known as “millenials” – expect, much less demand, a high degree of mobile computing in their lives. Very soon, that will mean the convenience of conducting various financial transaction types via smartphones. The graphic below provides additional details on the staggering growth experienced and expected in the area of mobility in general and banking and financial services (BFS) in particular.

Mobility is transforming the way banking and financial services such as mobile payments, mobile money transfers, and mobile banking are offered and consumed. Next to the Internet, mobility is the latest catalyst for disintermediation in the payments value chain as it offers the ability to forge a direct connection with the consumer. BFS institutions can create payment applications as a valuable service for their retailcustomers. That, in turn, allows retailers to offer the ease and convenience of mobile payments that consumers, led by the millenials, are coming to expect. For financial institutions, mobile payments are also the first point of entry for rural and unbanked consumers in developing markets. Mobile payments have also opened up new opportunities such as micro payments.

For financial institutions that have not yet jumped on the mobile payment bandwagon, the time to develop a coherent, multi-faceted strategy is now. It will be critical for such companies to develop prioritized business scenarios and customer segments for specific mobile BFS applications and come up with appropriate technology choices. These technology choices can also help contain total cost of ownership even though software/ OS platform and device options are proliferating. Security and compliance considerations are likely to limit technology choices.

 Tap hotspots to learn more

The scope of mobile payments is vast, as are the opportunities; you won’t be able to invest in everything. And there are significant security and regulatory issues that must be addressed.

Mobile phones that caught on primarily as instruments of voice communication in the late ‘90s have been transformed into multi-purpose devices that are essential for life and work. There were as many as 174 million smartphones worldwide by 2009; that number is forecast to grow to 1 billion by 2015¹.

Mobility is a cornerstone technology of the future of work. And that future, to a large degree, is now. Today’s young professionals – often called “millenials” – expect a high degree of mobile computing in their lives. Very soon, that will mean the convenience of being able to make payments and complete other financial transactions via the smartphone. Recent research from In-Stat pointed that there will be as many as 375 million mobile payment users worldwide by 2015².

Mobile payment is any form of financial payment for a transaction made using a mobile phone. It may or may not involve the purchase of goods and services. Examples range from an individual paying bills on his smartphone, to an employee in a retail store checking out customers via an iPhone, to a retailer zapping coupons to customers while they are in the store (see Figure 1). Contactless payment is a fast-growing area in emerging markets, where consumers may not have bank accounts but have cell phones.

Against this backdrop of steady growth, mobile payments hold significant opportunity for financial institutions.

For example, money transfer operators who rely heavily on networks of agents for funds collection (from the sending consumer) and funds distribution (to the receiving consumer) have found new ways to provide P2P (person-to-person) services using mobile money transfer.

Figure 1

Financial institutions can create customized payment applications as valuable services for their partners, as well as consumers, by exposing a set of payment services through the mobile Internet in a secure manner. This allows the financial institution to focus on its core competency of payment processing while facilitating innovation in how the payment function is integrated into myriads of business use cases related to mobile commerce. That, in turn, allows for proliferation of mobile payment applications while enabling the financial institution to pursue an “ABC Company’s payment processing inside” strategy, similar to the “Intel Inside” strategy successfully adopted by Intel to gain market share for its CPUs within computer hardware.

For financial institutions, mobile payments are also the first point of entry to get closer to the underbanked and unbanked consumers in emerging markets. Many of the citizens in emerging markets don’t have PCs, Internet connections, e-mail accounts or even bank accounts, but they do have cell phones, almost universally. Typically these consumer segments start using money transfer services for cross-border remittances and as they work hard and establish themselves, end up as loyal customers for other banking and lending services.

For financial institutions that have not yet jumped on the mobile payment bandwagon, the time is now to develop a coherent, multi-faceted strategy. The scope of mobile payments is vast, as are the opportunities; you won’t be able to invest in everything. From a technical standpoint, there are crucial decisions to be made related to the device types you will support, as well as the technology platform of choice that minimizes total cost of ownership while maximizing end user experience. And there are significant security and regulatory issues that must be addressed, as well.

All types of mobile payments mentioned in the previous section are still evolving, with almost daily developments and announcements from players. Financial institutions are faced with the challenge of picking winning combinations of mobile payment capabilities while resolving other technology and regulatory hurdles. To help you track this fast-changing sector of mobile commerce, we have developed a set of radars that will help you understand emerging technologies and business capabilities.

Figure 2

These radars track the timing and extent of business impact they are likely to have on your business fundamentals. Timing of trends is classified as emerging, adolescent, and early mainstream. Mainstream trends are not captured in the radar, as they are commonplace already. The extent of impact on your business is characterized by the size of the bubbles that represent the trends (small, medium, large impact), and the nature of the impact is characterized as financial (revenue growth or cost reduction) and market differentiation or customer satisfaction.

We plan to continue tracking developments in this and other related sectors and publish periodic updates to these radars. Figure 2 on the previous page depicts the radar related to emerging business capabilities in consumer financial services in general and mobile payments in particular.

The addition of integrated mobile commerce applications enriches the customer experience by providing an even greater level of convenience. The leading mobile commerce developments we are tracking include the following:

m-Wallets
These are hardware- and software-based identity solutions that retain encrypted card and cardholder-related information. Hardware-based solutions can also house an NFC antenna to transform an ordinary mobile phone into an NFC-compatible device. Data encryption and device management (the ability to wipe out device data in case of theft/loss) are essential.

Mobile payment APIs.
These are Web services for payment processing that are exposed by financial institutions. E-commerce partners and third-party application developers can use these APIs to craft novel mobile payment applications. We are seeing an increasing level of interest from several financial institutions in this area. Technology-related concerns regarding performance still prevail, with some adopting JSON-based APIs instead of SOAPbased services. (JSON, or JavaScript Object Notation, is a lightweight protocol alternative to SOAP, or Simple Object Access Protocol, an XML-based messaging protocol frequently associated with Web services.)

Mobile coupons
(consumer preference-based or location-based). These appeal to merchants as well as manufacturers, banks, card issuers and acquirers, as they improve

Figure 3

redemption rates. Borrell Associates estimates the market for mobile coupons was $2.7 billion in 2009 but will grow to $57 billion by 2014. 7 Of the 91% of U.S. adults who own a cell phone, 10% use them once a week for location-based services. That number is much higher for iPhone users (63%). More than half of mobile phone users take action on when they are presented, according to a Mobile Marketing Association/Luth Research survey. Retailers can send specific coupons to a customer’s smartphone, depending on where the person is in the store – a coupon for laundry detergent, for example, when the person is browsing in the household cleaners aisle.      

Mobile e-receipts. A leading UK-based bank has reportedly laid out plans to leverage cloud technology to disperse e-receipts to mobile phones for contactless transactions. Ereceipts that reduce paper costs can be a vital component of a mobile POS application (as depicted in Figure 2). After using a mobile phone to complete the purchase of goods, the retailer or partner facilitating the mobile payment sends an image of the receipt to the mobile phone, complete with barcode and the items purchased. This barcode is not only convenient, but it also serves to verify the authenticity of purchases when the consumer leaves the store or comes back to return any of her purchases.

The evolution of mobile payments in the consumer space can be best understood by examining the challenges faced by m-wallet developers. While many players large and small are developing mobile payment applications leveraging m-wallets, a remaining question is whether those m-wallets will host cards from one issuer and one network or multiple issuers and multiple networks. For a consumer, it is simple to slip a credit card from any issuer into their wallet, but it is not quite that simple if they carry an m-wallet.

Typically, mobile applications are developed as mobile browser applications (in which the application runs on a mobile Web server, and devices access it through a browser, such as Safari) or as thick-client applications (in which the code is optimized for each device). To reach critical mass, mobile payment must be ubiquitously available on all devices. Fortunately, there are both open source and commercial solutions available to enable

Figure 4

The deployment of applications on multiple devices using a single code base. “Write once, deploy anywhere”is the mantra for all these solutions, and many live up to this spirit, to varying degrees. Until recently, enhanced user experience has been possible only by using thick-client applications; mobile browser applications have paled in comparison. However, recent developments such as HTML5 have the potential to challenge the status quo in mobile application development. HTML5 offers the ability to incorporate interactive graphics (for signatures in the browser itself) and use of local device databases, all of which can be accessed from the browser. Although HTML5 is not yet a standard, popular devices such as the iPhone, iPad, Android and Blackberry Torch support it.

This is an extremely critical aspect of mobile payments, as there is a need to secure data in the device, data in transit and data on the server. While securing data in transit and on the server are well understood, security in the device is still evolving.

As a result, techniques such as regenerated keys (based on login credentials) or server-supplied on-demand keys need to be employed. It is also important to avoid storing sensitive information such as actual card numbers, CVV codes, PINs, etc. on the device. Another approach is to use pseudo account numbers that map to actual credit card numbers stored on the server.

Fraud in mobile payments is a major obstacle to its adoption by consumers. Security mechanisms such as multifactor authentication must be a standard in the design of mobile payment applications. Typically, multifactor authentication relies on matching the device identity with that of the user, as well as verification of other security factors that the user must remember.

There are several decisions for BFS institutions to consider related to technology choice, application capabilities, middle/back-office interfaces, regulatory compliance and security and fraud prevention, while formulating their mobile payment roadmap. To achieve a multi-faceted mobile strategy, financial institutions should consider the following initiatives that can be customized to their specific context: Consider segmenting the type of consumers you want to address in great detail. It is important to take a global view of your business and consider all the markets where you have and will have operations. Defining narrow segments with as much precision as possible will lead to clarity in the proprietary mobile device platforms to be supported and a sound roadmap for mobile payment applications. Financial institutions should pay particular attention to developments in regulatory standards in the markets in which they want to operate. Not all markets are evolving at the same rate. While lagging behind China in mobile infrastructure, India seems to have taken the lead in regulations related to mobile payments. Similarly, significant differences exist among various countries in AML (anti-money laundering) regulations.

Depending on the type of mobile payment services they want to offer, financial institutions need to form the right ecosystem by assembling suitable partners.
Although mobile devices are proliferating, there are still significant differences in the rate of mobile device adoption and type of devices being adopted around the world. While emerging markets significantly lag developed markets in the widespread availability of mobile Internet and smartphones, they are catching up fast, with some markets leapfrogging developed markets as they don’t have legacy mobile networks to deal with. Although mobile devices are proliferating, there are still significant differences in the rate of mobile device adoption and type of devices being adopted around the world. While emerging markets significantly lag developed markets in the widespread availability of mobile Internet and smartphones, they are catching up fast, with some markets leapfrogging developed markets as they don’t have legacy mobile networks to deal with.

Mobile Web offers the lowest possible total cost of ownership with acceptable user experience. However, it has serious limitations if special device features such as a camera are to be used by the application. While native applications offer the potential to leverage unique device features, they increase the total cost of ownership due to the need to support multiple dominant devices in the market. We see IT departments expressing a preference for common denominator application features using mobile Web technology, while business stakeholders prefer native client applications for superior end user experience. Depending on the mix of business capabilities to be supported for mobile payments, business and IT departments should cooperate to set standard technology platforms, as well as devices to be supported.

Financial institutions should follow clear and elaborate security standards and best practices to prevent vulnerabilities in applications by specifying internal standards to which applications should adhere. For this purpose, we are creating a security framework for mobile applications that can be leveraged by financial institutions. The “always-connected” millenials have come to expect virtually everything delivered to them via mobile apps, and payments are no exception. It is important for financial institutions to get their mobile strategy right while minimizing platform operations costs and forging direct relationships with their future customers.

Mobile technologies and applications are evolving on a daily basis. Players are continuously jockeying for position, making aggressive moves and countermoves. As BFS institutions extend their services to the emerging mobile channel, they face a multiplicity of questions related to the maturity and evolution of various mobile device platforms and technologies. Common inquiries include:

· Is it sufficient to support iPad/ iPhone/ Android for mobile applications? Or do we need to support other legacy devices as well?

• Many financial institutions in developed markets are focusing on next generation devices. There is not a lot of interest to support legacy devices in these markets beyond the next year or two. However, in developing markets support for legacy devices is considered critical and companies are developing applications using SMS and WAP

· Which device to support first – iPhone or other?

• Many financial institutions choose to support iOS (iPhone and iPad) devices first before looking at other device platforms. Less than satisfactory user acceptance of applications based on Android 2.x and J2ME has been a key reason for this

· What are the game-changing mobile devices emerging next and how should we gear up for them?

• Devices with ability to integrate multi modal UI widgets (speech recognition, handwriting) freely in applications are likely to be game changing)

· What about pros and cons of HTML5? Will it overtake native clients?

• There are several types of BFS applications such as mobile banking, money transfers and payments that would work well with HTML5. However, applications that require the use of camera or NFC antenna or encrypted data on devices may require native clients due to infancy of HTML5 in these areas)

· Is there one development approach that supports multiple devices (both mobile Web and thick clients)?

• There are open source tools and COTS products that promote “develop once, deploy anywhere” themes but they all involve tradeoffs and come with their own limitations. Companies need to decide on the financial viability of these vendors and the tradeoffs they can live with)

· Are mobile enterprise application platforms from small companies viable? What are the big players like Microsoft, IBM, etc. doing?

• Consolidation has already started in the mobile application platform segment. Recently, Fiserv acquired m-com and Antenna acquired Volantis. The pace is likely to pick up. Large players are planning their own mobile platform offerings. SAP acquired Sybase to add products such as Unwired and Financial Fusion in the mobile application space. Oracle announced beta of a mobility server in 2009/ 10).

· Do consumers prefer mobile Web applications or thick client (same as native client) applications?

• Feedback from forums in application stores suggest that consumers prefer applications that help them leverage unique capabilities of new devices. They accept common denominator user experience only in special situations. For example, when network speed is limited in rural areas, they may be happy to use a basic mobile Web application. However, when they are in the city, they might expect a full featured UI)

· How are financial institutions leveraging the mobile channel for their business needs?

• Financial institutions are making mobile an integral part of their business. They want to extend their portfolio of services seamlessly to the mobile channel and offer cross channel integration capabilities)

· What type of experience do consumers want when they switch from one channel to the other?

• Consumers prefer the same type of capabilities and experience extended across channels such as online, IVR, mobile, and branch so that they can choose the best form of interaction based on their convenience knowing that they will not suffer loss of capabilities in any given channel)?

· What are the emerging application trends in various sub-domains within BFS?

• For this question, please read the subsequent articles in this magazine that depict emerging trends in various BFS sub-domains)

We are refining a set of radars to track trends in the mobile marketplace to help us as well as our BFS clients build competitive advantage through deliberate planning to capitalize on upcoming trends. To develop deeper insights on how mobility can impact BFS, we are tracking trends in mobile technologies as well as in business capabilities related to various BFS sub-domains. Results have been captured in various radars such as:

· Mobile technology trends

· Emerging business capabilities and use cases in:

o   Mobile payments

o   Retail banking and lending

o   Capital market services

§  Investment banking

§  Commercial banking

§  Brokerage

§  Asset and Wealth management

As it evolves, we intend to closely track mobility trends in the aforementioned areas and publish updates to these radars as appropriate.

Word Definitions

HTML5- Developing version of HTML (hyper text markup language), the universal text based language of the Web. HTML5 promises advancements such as offline use (the ability to use a Web application even without connection to the Web server using data stored in a local device database) and interactive graphics within the browser itself (no need for add-ons such as flash).

Native clients- Mobile applications developed using API’s of proprietary operating systems in various devices. Such applications attractive look and feel and performance but lead to higher total cost of ownership and delays in supporting multiple devices over time.

Although trends in mobile payments were captured in a separate radar (see previous article), these developments apply equally well to banking and lending institutions. Consumer financial services firms (traditional players such as retail banks, home lenders, card issuers, card acquirers, and money transfer operators) are quickly consolidating.They recognize that mobility can help prevent dis-intermediation and, importantly, enable the delivery of integrated financial solutions.

 Loan Origination

 Remote Cheque Capture

Contact Bank Location Search 

Mobile Alerts (SMS) 

 Mobile Alerts (non SMS)

 X-Finders

Account Management

The following guidelines were used to analyze various mobile device platforms, vendors, and frameworks:

• Device platforms that offer mobile application development capabilities relevant for BFS.
• Frameworks that offer cross-platform development and testing.
• Platforms offerings widely used by financial institutions.

Companies offering packaged solutions / COTS (Commercial off-the-shelf) products remain emergent and churn is likely to be high in this space. So we have captured these in a separate radar on COTS trends in mobility. The following interactive exhibit depicts the radar related to mobile technology trends in BFS.

Although mobile device innovations from Apple, Blackberry, and Google have rocked the consumer and enterprise worlds, they have also contributed to the proliferation of mobile operating systems and thus have led to an increase in costs for financial institutions to support multiple device platforms. Over the next few years, therefore, we believe that thick client-based applications to support these proprietary devices will be limited to special application requirements that demand them, As such, we see three dominant themes arising in mobile Web:

·         Mobile Web (especially HTML5) applications with rich user experience on Webkit API (technology used within browsers to support HTML5) compatible mobile devices using a single code base.

·         Mobile Web applications that are online-only versions of Websites on mobile devices with support for Flash. Success here would be limited to tablets with larger screens. However, this approach is attractive as it offers the ability to cost-reduce  mobile Web development.

·         Mobile Web applications on legacy devices that can run HTML versions 3 or 4 or WAP 1 or 2.

New technologies such as Windows phone 7, an ARM processor-based version of Windows for mobile devices, Nokia's MeeGo operating system, and trends such as Nokia’s recently announced partnership with Microsoft, are still in nascent form and therefore it would premature to assess their impact. Hence, we have placed them under watch for now and may be able to provide updates in future issues.

"Tap the bubbles in the radar to learn more."

iPhone

Android

iPad

BlackBerry

Symbian

Titanium

MobileWeb

PhoneGap

Sencha Touch

JQuery Mobile

Dojo Mobile

Rhodes

WAP/SMS

PC-like Tablets(Flash Support)

How was this radar created?

We evaluated several mobile device platforms and solution frameworks along the following five high- level criteria:

• Platform maturity

»        Years of availability in market

»        Size (as measured by number of employees)

»        Number of customers

»        Market share

• Features offered

»        Location-based service (GPS support)

»        Local device storage

»        Device movement detection (accelerometer)

»        Graphics support

»        Processing capabilities

»        Support for third- party software (e.g., Flash)

• Quality of Service (QoS) parameters

»        Security

»        Usability

»        Performance

»        Reliability

»        Maintainability

• Development

»        Development platform features

»        Ease of application development

»        Cost of application development

• Miscellaneous

»        User segments served

»        Popularity among end users

»        Challenges / limitations

»        Cost to end users

All data collected was analyzed and compared before predictions were entered in the radar. The following guidelines were used to enter technology trends in the radar.

• Timing Band: Emerging vs. Adolescent vs. Early Mainstream. This is indicated by positioning the trend in the appropriate band.

»        Years in Market: Number of years plus revenue

·       < 1 Year ( Emerging)

·       1 - 3 years -(Adolescent)

·       4 and more ( Early Mainstream)

»        Number of customers - (User segment and number of users)

• Impact of technology trend on financial institutions. This is indicated by the size of bubbles used to represent the trend. The bigger the circle, the greater the impact on financial institutions.

»        Small: Limited evidence that substantiates ability to influence revenue growth, cost reduction, or market reach

»        Medium: Tangible evidence that substantiates an ability to influence revenue growth, cost reduction, or market reach

»        Large: Significant evidence that substantiates ability to influence revenue growth, cost reduction, or market reach

• Impact on client segment (color of bubbles)

»   Financial impact (i.e., revenue growth)                               

»   Financial impact -(i.e., cost reduction)                                

»  Ability to extend market reach and consumer satisfaction        

Word Definitions

Webkit API - Open source API, originally from Apple, that is part of Safari, Chrome and other browsers that are HTML5 compatible. It can be used to support advanced HTML rendering capabilities (e.g. interactive graphics, advanced manipulation such as drag and drop) in the browser itself using Java scripting engines that are built into such browsers.

ARM Processor - RISC (Reduced Instruction Set Computer) based CPU's that consume lower power due to their simplicity and limited instruction set when compared to x86 CPU's from Intel that typically consume more power. ARM processors are more suitable for mobile devices and appliances while x86 processors are more suited for PC's that have less power supply limitations.