Mobile phone banking presents a "mega market opportunity," says Carol Realini, CEO of Redwood City, Calif.-based Obopay.
Analysts, too, see big potential for bank accounts and payments tied to cell phones. They point 15ut that mobile banking has already taken off in emerging markets such as Kenya, where many handset owners previously didn't have access to banks.
Nokia (NYSE:NOK - News), the world's No. 1 maker of cell phones, has bet on growth in mobile banking by partnering with and investing $35 million in privately held Obopay. Other investors include Qualcomm (NasdaqGS:QCOM - News) and a number of venture firms.
In August, the Finnish cell phone maker said its soon-to-launch Nokia Money service would use Obopay's mobile banking platform. Obopay also has partnerships with other big firms such as MasterCard (NYSE:MA - News). It operates its own Obopay mobile payment service in the U.S. and India, and plans to expand soon into three more countries.
Realini recently spoke with IBD about mobile banking and how she got the idea for her four-year-old company while in Kenya in 2002.
IBD: So, you were in Kenya ... ?
Realini: I walked into a prepaid cell phone store in Kinshasa, and it looked exactly like a bank. People were standing in line with bags of money. The currency had been devalued, so it took basically a shopping bag of money to buy your prepaid minutes. I said, "This is interesting. What if we generalized the value that was being loaded on the phone?" If we did that, we could have a banking system, and people could have mobile bank accounts.
IBD: A KPMG survey said security and privacy are among the issues keeping people away from mobile banking. What's your take on that?
Realini: That's an academic question to people, because if they had a reason to want to do mobile financial services, they would get comfortable with these issues. People trust their mobile phones. They're already depending on mobile for essential services.
The other thing is, this is a regulated service. So anybody in any market will have to go out and get licenses from different agencies.
The one thing I laugh about with the KPMG thing is, it turns out that the mobile phone is inherently more secure than traditional banking products, like (debit) cards. Here's the reason: You know within six minutes if you've lost your mobile phone. It takes you (an average of about) 18 hours to know that you've lost your debit card.
IBD: What's different about mobile banking in emerging markets vs. developed nations?
Realini: One of the big differences is the application that's going to drive the initial adoption, because it's got to start somewhere. In the Philippines, it was prepaid "top off" -- a better way to prepay to top off your phone. In Kenya, it was domestic remittances (a family member working in a remote location sending money to family members at home) because there's a lot of urban migration going on.
IBD: What's the spark in the U.S.?
Realini: There are three things in the U.S. that we're seeing. One is what we call family transfer ... and that has two different pieces. One is a traditional remittance. This is: I'm working in Modesto (Calif.), but my family's in San Jose. I get paid, I send the money home. The second kind is more Remittances 2.0. Families are moving around, maybe the kids are in college, mom's at work and I want to provide an urgent transfer or an allowance to my kids.
The second thing we're seeing is there's a big desire for an easier and safer way to buy things online. Today you have to put your credit card information in, maybe give a lot of personal information on Web sites. We think that the mobile phone has the potential to make it (so you enter) less information and an easier way to (buy goods) online. That was the application that drove it in Korea -- I use my mobile phone number as my preferred way to (buy things) online.
No. 3 is budget control. This is where I want to have mobile banking on my phone because I want to check my balance before I spend money in the store.
IBD: What is Obopay's function in its partnerships with Nokia Money or MasterCard MoneySend?

Realini: We build the back-end platform and also the technology to reach all mobile phones. Then we get licenses from regulatory bodies to operate the service in the markets that we're in.

This is very similar to (No. 1 online payment service) PayPal's business model.

IBD: The players in mobile banking include eBay's (NasdaqGS:EBAY - News) PayPal Mobile and Safaricom, a Vodafone (NYSE:VOD - News) affiliate in Kenya. Who are key players?

Realini: I want to talk about one thing that makes us different. I want to go back to Nokia. Nokia is launching the service, but they really want and almost insist on it being an open system (where) we're going to support other handsets. And that's important because it's like text messaging. The value of this is going to be greater the more participants you have. Therefore, you don't want to create any sort of limits on who can use the system.

Now you had asked me about who are the other players. I think M-Pesa (in Kenya), and you have Smart and GCash (both Philippines-based) and (France Telecom's (NYSE:FTE - News)) Orange Money -- are all examples of carrier-specific money offerings. You also have some of the Internet players, whether it be Amazon (NasdaqGS:AMZN - News) or Pay-Pal, who are extending their Internet payment capabilities to mobile. Then there are other independent players. But a lot of those are technology providers who are helping banks or mobile carriers offer bank-specific or mobile-carrier-specific solutions.

IBD: What will be the next big developments in mobile banking?

Realini: The TowerGroup (research firm) summed up this market pretty succinctly (in a recent report): The biggest share of mobile banking/mobile payments users is going to be in the Asia-Pacific region through 2012. That is really where it's going to happen first in volume. It's going to be followed by Eastern Europe, the Middle East, Africa and Latin America.

There are 4 billion phones and 1 billion banked people. So you're going to see a lot of people with mobile phones who have never been customers of banks.

This is going to be a mega market opportunity. We estimate it's going to be 7 trillion in annual (transaction) volume by 2020. Whenever you have a market that big, there's going to be a lot of success created within that market opportunity.