Mobile Banking Technology Options (2007)

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Mobile Banking Technology OptionsAn Overview of the different mobile banking technology options, and their impact on the mobile banking market.August 2007

Extending your payments franchise!

info@troytyla.com Author: Gavin Troy Krugel

AcknowledgementsThe document was completed with thanks to the support from the following individuals and companies: GSM Association Adrian Dodd, Chief Engineer James Moran, GSM Security Ben Soppitt, Director Strategic Initiatives, GSMA MMT GCash James Ileto, GXchange Interview in Barcelona February 2007 Interview in Cape Town, March 2007 e-mail correspondence Interviews April-June 2007 London

Fundamo

Hannes van Rensburg, CEO

Vodacom

Jacques Voogt, Mobile Banking Jenny Hoffmann, CEO Andrew Lake, CEO Various staff

Risk Frontiers Andrew Lake and Associates Cointel Simplus

Introduction and guidance Email correspondence Knowledge base and email correspondence Contributor

Keith Smith

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Contents1. 2. 3.3.1. 3.2. 3.3. 3.4. 3.4.1. 3.4.2. 3.4.3.

INTRODUCTION ..................................................................................................... 1 MOBILE BANKING STAKEHOLDERS ................................................................... 2 MOBILE BANKING PLATFORM IMPLEMENTATION OPTIONS ........................... 6High Level Bank Channel Architecture ........................................................................................6 Levels of Mobile Banking Platform Implementations .................................................................8 Mobile Banking Platform High Level Architecture .....................................................................8 Implementation Options:..............................................................................................................10 Extension of a Banks Payments Franchise to Mobile.................................................................10 New Payments Franchise on Mobile ..........................................................................................11 Multiple Channel, Multi Party, Shared, Mobile Banking Infrastructure ....................................12

4.

MOBILE BANKING BEARER TECHNOLOGY OPTIONS .................................... 13

Server-Side Technologies ............................................................................................................................13 Client-Side Technologies .............................................................................................................................13 4.1. 4.2. 4.3. SMS Banking Solutions ................................................................................................................14 Interactive Voice Response (IVR) ................................................................................................15 Unstructured Supplementary Service Data (USSD) ..................................................................17 The Balance of your account is 100.00. ...............................................................................................18 4.4. 4.5. 4.6. Wireless Application Protocol (WAP) .........................................................................................18 JAVA/J2ME .............................................................................................................................20

SIM Based Applications................................................................................................................21

5.5.1. 5.2.

COSTS AND MARKET SEGMENTATION IN MOBILE BANKING ....................... 23The Impact on Cost, Device, and SIM of Mobile Bearer Technologies ....................................23 Mobile Banking Strategies in Market Segmentation .................................................................26

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6. 6.1.

MOBILE BANKING APPLICATION AND DATA SECURITY ................................ 28 TRADITIONAL BANKING SECURITY OPTIONS: ............................................ 29

Unencrypted Data Over an unencrypted fixed communication link: ........................................................29 Unencrypted data over an encrypted fixed communication link: .............................................................29 Encrypted data over an encrypted fixed link: ...........................................................................................29 Additional authentication and risk mitigation as an added security measure: ..........................................29

6.2.

MOBILE BANKING SECURITY OPTIONS: ...................................................... 30Base Station Mobile Operator Bank ...........................................................................30

Base Station

SMS Banking Data Security .....................................................................................................................31 Base Station Base Station Mobile Operator Bank ...........................................................................31

IVR, USSD Banking Data Security: .........................................................................................................32 Base Station Base Station Mobile Operator Bank ........................................................................32 J2ME, WAP and S@T Banking Data Security.........................................................................................33 Base Station Base Station Mobile Operator Bank ........................................................................33 Additional Authentication and risk mitigation in mobile banking:...........................................................34

7. REGULATORY IMPACT ON THE MOBILE BANKING TECHNOLOGY CHOSEN ............................................................................................. 35 8. CONCLUSIONS .................................................................................................... 35

9. ADDENDUM: EXTRACT OF THE GSMA MOBILE BANKING VENDOR ANALYSIS .................................................................................................... 36 THE ROLE OF THE MOBILE BANKING VENDOR ...................................................... 37 THE ROLE OF THE MOBILE NETWORK OPERATOR ............................................... 37 BEARER CHANNEL ONLY .......................................................................................... 38 BEARER CHANNEL AND APPLICATION DEVELOPMENT ....................................... 38 BANK INTEGRATION AND MNO WITH A MOBILE BANKING HUB .......................... 39 Page | iv

SIM APPLICATION PROVISIONING ............................................................................ 39 MNO AS A BANK ......................................................................................................... 39 THE ANALYSIS EVALUATES THE FOLLOWING COMPONENTS:............................ 41 GEOGRAPHIC FIT ....................................................................................................... 42 FUNCTIONALITY ......................................................................................................... 44 TRANSACTIONS:......................................................................................................... 44 CHANNELS: ................................................................................................................. 45 VENDOR BUSINESS MODELS.................................................................................... 45 ABILITY TO IMPLEMENT ............................................................................................ 46 TECHNICAL ARCHITECTURE OPTIONS .................................................................... 47 AUDITS/CERTIFICATIONS/ENDORSEMENTS ........................................................... 47

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1. IntroductionCreated with initial funding from the United Kingdoms Department for International Development, FinMark Trust is an independent trust, which supports and promotes institutional and organisational development towards the objective of increasing access to financial services by the un-banked and under-serviced of southern Africa. Much has been said about the potential for cell phone banking as it rides on the back of the explosion of cell phone usage in Africa and beyond (see Figure 1: African cell phone subscribers, BMI-T), and how it could dramatically lower the cost of banking and more effectively reach the mass market. Early pioneers such as MTN Banking, Globe, Smart, Celpay and WIZZIT Bank have all been showcased as leading innovators who are using technology to expand access to financial services in their various jurisdictions.

Figure 1: African cell phone subscribers, BMI-T

However, each of these cell phone banking models have different characteristics and can be classified as bank driven, joint-ventures, non-bank led or non-bank driven (Porteous, 2006). Whilst all the models vary in form, one of the driving forces behind all of them appears to be technology providers, each providing a particular technology, which is shaping the offerings and their ability to reach a particular market. The objective of this paper is to understand what the impact of mobile transaction technology has on the business model for cell phone banking and thus the ability to interact and service consumers profitably. The paper will also look at how the business and infrastructure environment impacts the choices one can make in selecting the technology for mobile payments or cell phone banking. Page | 1

2. Mobile Banking StakeholdersThe delivery of a mobile banking service to a consumer involves the participation of four primary players; A Bank, Mobile Network Operator (MNO), a Mobile Banking T