Mobile commerce is something that financial services firms cannot ignore. Of the people using wireless today, only a small fraction are currently using it for financial services, but that number is expected to grow rapidly. A recent TowerGroup study estimated that there were only 500,000 users of wireless financial services in the U.S. in 1999 and 9.8 million in the rest of the world. The same study projects that by 2005, the number of U.S. users will grow to 35 million, with 230 million users in the rest of the world.

M-commerce is now where e-commerce was about five years ago: poised to grow explosively over the next several years with players from multiple industries vying for the customers attention. Never mind that the current technology is slow and difficult to use. In two to three years, deployment of emerging technologies such as 2.5G and 3G networks will enable more powerful wireless financial services applications.

Now is the time for firms to begin low-cost pilot projects focused on targeted market segments. These projects can provide immediate cost savings and move your business up the wireless learning curve. You need to get as much out of the pilot project as possible, and there are some good ways to make sure you do.

The Current Challenge
Todays second-generation2Gwireless networks provide basic data capabilities as well as the ability to message between devices. But, as anyone who has squinted at a Web page on a Palm knows, current wireless devices can display text only on small screens, making it difficult to deliver rich Internet content. Data entry difficultiesthe lack of a keyboard or good handwriting recognition, for example make interactivity more difficult and drive reliance on menus.

The migration to so-called 2.5G networks, which is expected to occur in Europe next year and the United States in 2003, will provide major advancements, including instant-on access, packetized data, voice channels, and higher data throughput. These 2.5G networks can deliver more substantive financial services applications including complex account activity information, wireless appraisals, instant credit scoring, and on-site claims adjustments.

Then come 3G networks, which are expected to appear a year or two later and will provide even higher data throughput, improvements in security, and global coverage, enabling revolutionary new wireless services. Around this time we can also expect to see a new generation of financial services products that incorporate new features such as multimedia communications, location-sensitivity, and voice data entry.

But even with todays second-generation wireless networks, m-commerce applications can provide important assistance in acquiring and retaining customers while reducing the cost to provide services. They can reduce churn by presenting obstacles to itthat is, tying customers into new applications and platforms that will deliver added value. Direct service costs can be lowered by providing customers with self-service for simple transactions through wireless devices, reducing the number of calls to call centers.

While there is some risk in being an early adapterthe allegorical pioneer with the arrows in his backthe opportunities to capture attractive segments of the market are far greater. Winning financial services industry players will be those that focus both on reducing internal costs and deepening relationships with customers.

Some people equate the emerging wireless market with the e-commerce market in the mid-90s. Thats a relevant analogy. Beginning in the mid 1990s, financial institutions experimented considerably with e-commerce activity. When the global financial crisis hit in 1998, many of these companies slashed their e-commerce budgets. As a result, many attractive market segments were captured by those who stayed the course. E-commerce achieved 25 percent market penetration in about two years. The firms that gave up their early-mover advantage, in effect, surrendered the most attractive customers to the competition. (One market-leading financial services firm has stated that the early adopters have balances 10 times higher and trading volumes five times higher than average customers.)

Ways to Think Wireless
There are five potential strategic options within the wireless opportunity landscape, two of which will be critical to companies looking for a wireless killer app.

OPTION 1: MARKET CREATORS. Market creators involve products and services that build new transactions, markets and channels. One example is the use of person-to-person payment systems that allow consumers to send and receive currency over the Internet.

Another example of a market creator is a usage-based automobile policy being piloted in Houston by Progressive. Its system makes use of onboard GPS technology to track vehicle position every six minutes. Data regarding when, where, and how much the vehicle is driven is collected periodically and reported using cellular communication technology. Insurance is then priced by the mile, in accordance with the risks associated with different locations, hours of driving and total miles driven.
Customers participating in the pilot are paying rates that average 25 percent less than a traditional auto insurance product and receive access to additional safety features for a small additional fee such as theft recovery, remote door unlocking, roadside assistance, directional assistance, and low-battery detection. In addition, the system features a panic button that the consumer can use to be put in touch with a 24-hour response center.

Developments in telemetry and onboard monitoring offer the opportunity to fundamentally change insurance claims processing. In the self-service claims concept, an agent with a wireless PDA would visit an accident site and take photos of the damage. These would be transmitted to the carriers database for comparison to historical prices. The claim could instantly be processed and the agent would initiate the process of issuing a check.

Further down the road, drivers themselves could use in-car sensors and Bluetooth-enabled phones to assess damage, send information wirelessly to the carrier, and receive payment electronically. The carrier could use a GPS receiver embedded in the customers cell phone to locate the accident and recommend the closest body shop or order a towing service.

OPTION 2: BUSINESS MODEL EXTENDERS. These move existing products and services to wireless, e.g., wireless trading and account access. Consider the prototype of a new personal financial management application developed by the Finnish financial services group Sampo, Nokia, and Accenture for the new Nokia 9210 communicator. The new application includes a variety of intelligent agents, such as a watch list that can be set to continuously monitor financial information such as stock prices and account transactions. The customer can configure alerts so that when specific criteria are metsuch as a stock price falling to a certain levelan alert is sent to the customers wireless device. When the alert is received, the customer can immediately make a transaction, such as selling the stock whose price has dropped. Another feature is a wealth manager service that can provide continuously updated personal financial statements and produce graphical reports such as pie charts to show asset allocation or graphs of cash flow.

OPTION 3: OPERATIONAL EXTENDERS. Operational extenders use m-commerce applications to reduce cost of service, such as by providing mobile customer relationship management.

OPTION 4: VALUE CHAIN ANNIHILATORS. These create entirely new product categories such as the mobile, automated insurance adjuster.

OPTION 5: PRODUCT INVENTORS. Finally, there are product inventors that create new offerings that redefine customers, products, and services to create a sustainable competitive advantage. Examples include a proactive securities advisor, mobile open finance, and pay-by-the-mile insurance.

Moving Forward
M-commerce is changing the rules of business. Its not simply about a new channel, but about harnessing the unique characteristics of wireless connectivity, anytime/anywhere access, always-on devices, and location-awareness.

But m-commerce strategy and implementation is complex. The implementation challenges may appear daunting: The technology is immature, mobilizing the internal organization can be difficult, and successfully managing the complex web of alliances and partnerships is by no means certain. The best strategy for most financial services providers is to ensure that m-commerce activities add value to your business and that you carefully manage expenses in initial deployment. Carefully weigh your options to partner with solution providers, integrators, and ASPs while focusing on internal learning. Your customers will be therebuild it while they adopt!

G Forces

You cant have a technology without giving it a good acronym. The folks in the wireless-communications world have kept theirs simple: Youll hear of 2G, 2.5G, and 3G devices. Heres what theyre talking about.

1G (first generation). You remember these: Analog, circuit-switched connections with relatively poor voice links, unreliable handoff from station to station, and low capacity. Security is weak to non-existent.

2G. What the majority of mobile-phone users in the U.S. and around the world are using, second-generation protocols use digital encoding and include GSM, TDMA (also known as D-AMPS), and CDMAthink Sprint PCS and AT&T. 2G protocols support significantly higher data rates for voice transmission as well as limited data communications (up to about 14.4 Kbps). Some offer services such as data delivery, fax, and messaging. Most 2G protocols offer some level of encryption.

2.5G. Think of these as second-generation systems on a better diet. They add features to 2G systems such as more-reliable packet-switched connection and higher data throughputup to 384 Kbps.

3G. This is the stuff youve been waiting for. Third-generation products will offer data rates measured in Mbps, and are built from the ground up to handle much more than just voice communicationsthings like full-motion video and true Internet access. The downside: Trials only began this year. The upside: Expect to see rollouts in the U.S. starting in early 2003. (Europeans, always a step ahead with mobile communications, will see 3G services in 2002.) ANDREW KANTOR

The WAP Gap
Some financial institutions are reluctant to implement wireless applications using the Wireless Application Protocol (WAP) because they are concerned about vulnerabilities that might expose valuable data to eavesdropping or attack. Typically, the data packets are sent from the customers wireless device to a receiver operated by the cellular network carrier that forwards them through a WAP gateway to the financial services firm.
Packets flowing between the WAP gateway and the content providers server are usually secured by Secured Sockets Layer (SSL) encryption. Data traveling between the wireless handset and WAP gateway are protected by Wireless Transmission Layer Security (WTLS) encryption. The concern is that the WAP gateway security is handed off between the WTLS and SSL protocols, momentarily leaving data in the clear.

There are three possible solutions to this concern, which is sometimes called the WAP Gap. The first is to move the WAP gateway behind the financial service firms firewall. The second is for the financial services firm to set up a proxy server at the networks facility and establish a secure link to it using a virtual private network (VPN). A third solution is encapsulating all communications between the carrier and financial services with a public key infrastructure.

All three of these approaches involve additional expenses and complexity compared to current methods. For that reason, financial services firms that are mainly using wireless networks to provide information to customers rather than to process transactions, may want to wait and give the WAP Forum, which defines the standards for this protocol, time to develop a simpler solution.

Planning for M-Commerce
Dont just jump in. Ask the right questions, make
the right plans, and take the right first steps.
Heres how.

Opportunities in m-commerce abound, ranging from simple time-saving ideas to wide-ranging programs that may seem like science-fiction. Heres a comprehensive diagnostic process that can aid in identifying those opportunities, consisting of four major steps.

STEP ONE. Assess key value-chain components by analyzing the important activities in each part of the value chain, evaluating competitive activities, and investigating problem areas and complex processes.

Questions to ask: What are the key trends affecting the business? Are current business processes costly, complex, and burdensome? Are there gaps in the services delivered by current products? Can cycle times be reduced or segments of the value chain captured through a wireless application?
What to come away with: Value chain and cost allocation figures, an overview of problem areas and implications, a catalog of potential competitive threats, and the identification of wireless applications that enhance the value chain and create new business opportunities.

As an example of how this process works, consider the following analysis of a P&C carriers value chain. (This was undertaken to identify activities that could be transferred to wireless.)

In the sales area, the existing direct marketing and telemarketing campaign designed to obtain customer renewals could be supplemented with a far less expensive wireless CRM application. Customers could be contacted at renewal time and submit their applications over a wireless device. A wireless application could also address the rating and quoting process, for example, by allowing customers to obtain information such as existing coverage and premium costs, and quotes for various coverage alternatives. In the policy administration function, customers can perform various tasks such as adding an additional driver to their policy, checking their payment status, and making electronic payments.

The conclusion of this analysis is that there are a common set of customer contact and servicing activities that can be offloaded to wireless devices. If a company fields one million calls per year and can move 20 percent of those inquiries to a customer self-service Web site, thats 200,000 calls that that dont require human intervention. If we assume that each call costs $11 to process and each Web inquiry costs only $3, the business will save $2.2 million in call center expenses while adding only $600,000 in Web self-service costs. Thats a net savings of $1.6 million.

STEP TWO. Determine the business model and economic driversevaluate the revenue and cost structures to measure the impact of wireless applications on both cost and revenue drivers.

Questions to ask: What opportunities exist to eliminate cost or asset intensity? What are the largest cost and revenue factors of the business? What unmet needs exist to increase customer value?

What to come away with: An estimate of the revenue and cost impact from each wireless application, as well as the investment required to implement those applications.

Carrying forward the previous example of the P&C company, lets examine the company value chain to identify the cost drivers and look for specific opportunities.

Current industry averages show what percentage of premium each of the following cost drivers account for: marketing and development 0.5 percent, administration 1.0 percent, prospecting and customer acquisition 18.5 percent, underwriting 0.5 percent, rating/quoting 0.5 percent, policy issuance and maintenance 2.5 percent, billing and collection 2.0 percent, customer management 0.5 percent, indemnity 64 percent, loss adjustment expense 11 percent, and other expenses 2.5 percent. Thats a total combined ratio of more than 103 percent.
This type of analysis can help identify prime opportunities for cost reduction using wireless technology at each phase of the value chain, such as offering agent locators, electronic delivery of contracts, in-field servicing, and instant payment to increase customer value.

STEP THREE. Map out business process changes and the wireless application to take advantage of m-commerce opportunities identified in the first two steps. Document current organization processes, evaluate strengths and weaknesses, identify gaps in capabilities and potential solutions, and create a vision of the wireless-enabled processes.

Questions to ask: Can wireless solutions address the problem? Is the technology ready? What technology infrastructure is required? What business-process and organizational changes are required to execute?

What to come away with: As-is and to-be business models, required capabilities to exceed, and partnership options.
In the example above, a new process might be developed to mobilize claims adjustors and free them from costly and inefficient processes. In the case of a fire in an insureds home, the adjuster is notified by sensors and calls the client to indicate that he is coming. The adjuster arrives on the scene, assesses damages, takes digital pictures, and fills out a claims application. The adjuster sends the claim and associated photos to the office over the wireless network. The office sends back the claim approval by the same method within minutes and funds are simultaneously wired to the customers bank account. This application addresses the 75 percent of the premium dollar that goes towards claims, decreasing processing costs and increasing customer satisfaction by providing faster resolution.

Here are a few ideas to keep in mind during this process: Existing players usually have a large legacy infrastructure that must be integrated into the wireless application. New entrants, on the other hand, can easily outsource operations.

While financial service providers usually have strong information technology development competencies in the Internet and mobile environment, in cases where time to market is critical, development is usually outsourced to external providers to reduce lead time and avoid disrupting other initiatives.

An important decision to make early in the process is whether the new wireless service will hold an existing brand name or be white labeled. Its also important to consider opportunities to collect valuable information about customer behavior.

STEP FOUR. Develop and prioritize the opportunity list. This includes developing a high-level business case for each option, ranking the options, creating a high-level implementation plan, and defining the parameters of the offering.

Questions to ask include: What is the potential financial impact of each option? What is the gap between the existing capabilities and what is required? What is the investment required to develop the needed capabilities? How long will it take to implement the plan?

What to come away with: High-level economics, a set of prioritized options, a high-level implementation plan, and a high-level offering.

The option to extend the business model is typically appropriate when there is little capital available and little opportunity to add new customers. The risk of this approach is that attractive customers may be lost to innovators.

The key consideration in this approach should be the size of the investment and the payback period. When the opportunity exists for eliminating or streamlining major processes, jump to a value chain annihilator, but keep in mind the potential for disruption to existing business. The major issues to be addressed are the parameters of the new market and the ability to define an attractive value proposition.