NCPA - National Center for Policy Analysis

Banking Via Cell Phones?

November 1, 2001

None of the current alternatives to retail banking -- e-banks, brokerage houses, national retailers or automobile manufacturers -- have slowed retail banks' growth. This is contrary to many experts' predictions. But there is a new potential threat to retail banking, say researchers: cell phones.

Cell phones can challenge retail banks because their screens are large enough to perform routine transactions, from checking balances and paying bills to moving money across accounts. Cell phones have several other advantages:

  • Shoppers can check their credit balance online just prior to purchasing an item, preventing embarrassing rejections.
  • A personal identification number can be embedded into the cell phone so that the costs of theft and fraud go down.
  • Parents can approve purchases remotely to untrustworthy teenagers.

Most importantly, cell phone transactions will not require people to change their habits. Pulling out a cell phone is not very different than pulling out a credit card. Since the number of cell phone users is rising, the potential for a new avenue of usage is profitable.

Researchers argue that credit card companies and telecommunication firms should begin forming alliances. Telecommunication firms need the physical presence, brand name and experience of retail banks, while banks need to exploit this new technology before their competitors. They also need to partner to make it unnecessary for consumers to switch.

These alliances have the potential to wreck the credit card associations. If the intermediate steps that Visa, MasterCard and American Express provide are no longer necessary, their industry will suffer. Given that merchant fees and credit interest income amount to more than $80 billion per year, this could be quite lucrative for telecom banking.

Source: "Don't Leave Home Without It," Economic Intuition, Spring 2001; based on David Osborn, Wouter Rosingh and Adam Seale, "Why Banks and Telecoms Must Merge to Surge," Strategy & Business, Second Quarter, 2001.


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