snapshot E-Banking Internet & New Economy Economics September 2002 No. 3

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1 Internet & New Economy September 2002 No. 3 E-Banking snapshot Mobile banking s banana problem: Too little business in sight... from the story of the little girl who said I know how to spell `banana, but I don t know when to stop. Editor Antje Stobbe antje.stobbe@db.com Technical Assistant Sabine Kaiser sabine.kaiser@db.com Frankfurt am Main Germany Internet: marketing.dbr@db.com Fax: Managing Directors Axel Siedenberg Norbert Walter 1. The usage of mobile phones has experienced tremendous growth in the recent past. High penetration rates and the slowdown in growth figures indicate that market saturation is close at hand. 2. The existing infrastructure makes mobile phones by far the widest-reaching interactive electronic distribution channel. Still, mobile banking is currently hardly used. 3. For the time being, only a few customers can imagine using mobile devices as a channel for undertaking financial transactions. The more complex the product and the need for advice, the less attractive the mobile channel seems to be especially when compared to branches. 4. This to a large extent is the result of the technical limitations. In addition to low bandwidth, long transmission times, no always-on connection and high costs resulting from unstable connections are frustrating GSM-based WAP users. These constraints will disappear, however, with the introduction of GPRS and later UMTS. 5. The technological progress will probably lead to increasing usage of mobile phones to access the internet, but not necessarily on a large scale. 6. Mobile banking might profit from this development only if banks offer services for free, as users interest in performing financial transactions over a mobile phone is rather low all over Europe. Business prospects are therefore limited. 7. In the narrow field of appeal, online trading and enabling payments might be successful in the medium term. Only is considered more important when users are asked what they expect from 3G services. 8. At least among technology enthusiasts, onliners who plan to acquire UMTS devices expect to receive additional value by having information and mobile banking facilities provided. Strangely enough, this is already largely possible today. 9. Electronic payments and mobile cash could be another successful business model. Although at present they are not widely accepted there is business potential if they manage to reach a critical mass. Jürgen Schaaf, (juergen.schaaf@db.com)

2 Mobile banking s banana problem: Too little business in sight Forecast: mobile phones in Germany Growth in % Sources: DBR, Basis BitKom, EITO, 2002 Mobile phone users per 100 inhabitants The usage of mobile phones has experienced tremendous growth in the recent past. High penetration rates and the slowdown in growth figures indicate that market saturation is close at hand. Mobile banking used by mobile phone owners in Europe (%) Do you use a mobile phone? Do you use mobile banking? Which services do you use? 71 Yes No 29 Yes 3 No 97 Check stock quotes Both Conduct financial transactions 2. The existing infrastructure makes mobile phones by far the widestreaching interactive electronic distribution channel. Still, mobile banking is currently hardly used. Base: all consumers Source: Forrester, 2002 Base: mobile users Base: all using financial services on a mobile 2

3 Conceivable use of mobile terminals as distribution channel, comparison to branch outlet by financial product Financial planning/investment counselling % of all customers Consumer loans Building finance Bank account/payment transactions Real-estate services 3. For the time being, only a few customers can imagine using mobile devices as a channel for undertaking financial transactions. The more complex the product and the need for advice, the less attractive the mobile channel seems to be especially when compared to branches. Insurance Savings deposits, time/fixed-term deposits mobile devices branch Securities trading Source: DBR, base: CONTEXT, 2002 Network standards in mobile telephony GSM GPRS UMTS connection: circuit-switched connection: packet-oriented connection: packet-oriented front HSCSD page dial-in always-on always-on data rate: dedicated kbps Source: DBR, 2002 Data speeds in the real world GPRS data rate: shared kbps data rate: shared 144kbps - 2 Mbps Source: Durlacher Research Ltd./EQVITEC Partners Oy UMTS/3G EDGE GSM Kbps This to a large extent is the result of the technical limitations. In addition to low bandwidth, long transmission times, no always-on connection and high costs resulting from unstable connections are frustrating GSM-based WAP users. These constraints will disappear, however, with the introduction of GPRS and later UMTS. EDGE - Enhanced Data for GSM Evolution GSM - Global System for Mobile communication GPRS - General Packed Radio Service HSCSD - High Speed Circuit-Switched Data UMTS - Universal Mobile Telecommunication System 3G - Third Generation 3

4 Use of mobile phones "In future it is to be possible to surf the internet on a mobile phone as quickly as on a PC. Can you imagine making use of this when on the move?" 65 No, wouldn t use it 13 Yes, not often 16 Yes, now and again 5. The technological progress will probably lead to increasing usage of mobile phones to access the internet, but not necessarily on a large scale. 6 Yes, often Percentage of those asked Source: forsa, 2001 Few users want mobile financial transactions "How interested would you be in performing financial transactions (e.g. bank online, trade stocks) on a mobile phone?" Sweden % Germany Netherlands Spain United Kingdom France Interested even when it costs around EUR 5 per month 6. Mobile banking might profit from this development only if banks offer services for free, as users interest in performing financial transactions over a mobile phone is rather low all over Europe. Business prospects are therefore limited. Italy Europe Only interested when it s free Base: all European mobile phone users Source: Forrester,

5 Current mobile phone users interest in 3G applications Payment authorisation/enablement Banking/ trading online Shopping/reservations 7. In the narrow field of appeal, online trading and enabling payments might be successful in the medium term. Only is considered more important when users are asked what they expect from 3G services. Interactive games USA Western Europe On 6-point interest scale, 6 = high interest, and 1 = low interest Source: Taylor Nelson Sofres, 2002 Applications desired for 3G mobile phones Mobile news (e.g. news, stock prices) 58 Mobile online banking 56 Surfing the net 56 Sending pictures Music Games At least among technology enthusiasts, onliners who plan to acquire UMTS devices expect to receive additional value by having information and mobile banking facilities provided. Strangely enough, this is already largely possible today. Mobile online shopping 25 Video Chat % of private internet users aged Basis: Survey of those intending to purchase 3G mobile phones (n=988) Source: emind@emnid, TNS EMNID,

6 International usage and intent to use mobile cash Intent to use % Current Usage Electronic payments and mobile cash could be another successful business model. Although at present they are not widely accepted there is business potential if they manage to reach a critical mass. Worlwide Japan Europe USA Rest of Asia Source: AT Kearny, All our publications can be accessed, free of charge, on our website You can also register there to receive our publications regularly by Publisher: Deutsche Bank AG, DB Research, D Frankfurt am Main, Federal Republic of Germany, editor and publisher, all rights reserved. When quoting please cite. The information contained in this publication is derived from carefully selected public sources we believe are reasonable. We do not guarantee its accuracy or completeness, and nothing in this report shall be construed to be a representation of such a guarantee. Any opinions expressed reflect the current judgement of the author, and do not necessarily reflect the opinion of Deutsche Bank AG or any of its subsidiaries and affiliates. The opinions presented are subject to change without notice. Neither Deutsche Bank AG nor its subsidiaries/affiliates accept any responsibility for liabilities arising from use of this document or its contents. Deutsche Banc Alex Brown Inc. has accepted responsibility for the distribution of this report in the United States under applicable requirements. Deutsche Bank AG London being regulated by the Securities and Futures Authority for the content of its investment banking business in the United Kingdom, and being a member of the London Stock Exchange, has, as designated, accepted responsibility for the distribution of this report in the United Kingdom under applicable requirements. Deutsche Bank AG, Sydney branch, has accepted responsibility for the distribution of this report in Australia under applicable requirements. Internet: ISSN /