Telcos bet on banking

Doug Young and Rhee So-eui

HONG KONG/SEOUL:Asian cellular carriers are charting new ground with a charge into e-commerce, spending billions on banks and credit card issuers as they hunt for better returns on their own multibillion-dollar networks.

But the gambit could also take them down a hazardous road, extending them beyond their core business as mobile network operators into a fast moving and unfamiliar world of high finance they know little about.

"This is a bit of a portent for where the market is moving, in terms of where companies are seeing new business growth areas," said Damien Bailey, a lawyer at Simmons & Simmons in Hong Kong.

"I suspect it's going to continue, this mobile e-payments, or e-commerce. It's one of those businesses that's small incremental fees per transaction. But when you multiply it over tens of millions of transactions, it turns into big business," he said.

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Mobile payment services could be particularly attractive in emerging markets such as China, which boasts more than 720 million subscribers, where wired infrastructure necessary for other forms of payment like credit cards and over the Internet are less advanced, said Gartner analyst Nick Ingelbrecht.

The global e-commerce sector, now mostly confined to online transactions, is expected to reach $300 billion in annual sales in the next five years, according to some estimates.

Last month, China Mobile agreed to pay $5.8 billion for 20 percent of Shanghai Pudong Development Bank.

The world's largest mobile carrier, with more than 500 million subscribers, joined an almost exclusively Asian club of companies that have taken such equity stakes in financial firms Japan's NTT DoCoMo paid nearly 100 billion yen ($1.1 billion) for stakes in Sumitomo Mitsui Card Co and UC Card Co in 2005 and 2006.

Top South Korean mobile carrier SK Telecom set up a mobile payment platform service joint venture with Citigroup in 2008, and this year bought 49 percent of Hana Financial Group's credit card unit for $343 million.

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South Korea's No. 2 mobile firm and dominant fixed-line operator, KT Corp, is also buying shares in BC Card, a credit card processing company.

"We are looking at the market for settlement network, rather than just card services," said a KT official. "With BC Card we can offer wireless connections for card processing for the entire market. That's the real opportunity we look at."

The mobile carriers hope to cash in on high subscriber numbers, as well as openness to trying new mobile applications.

In South Korea, 97 percent of the population has a mobile phone. Data from the Bank of Korea showed average daily money transfer via mobile banking grew fivefold between 2005 and 2009, but is still less than one hundredth of the average value transferred via Web banking a day.

Gartner estimates total mobile payment transactions will total nearly 4.5 billion in 2012, up from just 125 million in 2007, growing at an annual compound rate of 105 percent.

In India, top mobile operator, Bharti Airtel, has conducted a pilot mobile banking project with leading state lender State Bank of India.

Reliance Communications also has a business tie-up with HDFC Bank allowing HDFC customers to access their account details through Reliance mobile phones.

"In emerging markets, mobile access to banking services is a very significant opportunity going forward," Gartner's Ingelbrecht said.

"Mobile banking is not so much of a developed market proposition because we all have our PCs and do telephone banking. But in emerging markets mobile access is a good way of extending banking access," he said.

While prospects look good, security concerns and lack of experience are some of the biggest obstacles for telecom firms.

Mobile banking and payment are vulnerable to hacking and virus attacks in the same way Web commerce is exposed.

"There will be few problems with security with straightforward mobile banking, such as doing banking over phone," said Kim Nam-hoon, a research fellow at South Korea's Hana Institute of Finance.

"But commercial transactions on mobile would take more time before people feel confident about security. The fact many different versions of verification tools and programs are being developed shows it," he said.

Still, there are strong risks for an industry that knows plenty about communications but relatively little about the world of finance, said Gartner's Ingelbrecht.

"I think it's not the sort of thing that all carriers would want to do because it goes back to the issue of core competency: doing banking is a different kind of activity to telecoms."