Mobile commerce is something that financial services firmscannot ignore. Of the people using wireless today, only a smallfraction are currently using it for financial services, but thatnumber is expected to grow rapidly. A recent TowerGroup studyestimated that there were only 500,000 users of wireless financialservices in the U.S. in 1999 and 9.8 million in the rest of theworld. The same study projects that by 2005, the number of U.S.users will grow to 35 million, with 230 million users in the restof the world.

M-commerce is now where e-commerce was about five years ago:poised to grow explosively over the next several years with playersfrom multiple industries vying for the customers attention. Nevermind that the current technology is slow and difficult to use. Intwo to three years, deployment of emerging technologies such as2.5G and 3G networks will enable more powerful wireless financialservices applications.

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

The Current Challenge
Todayssecond-generation2Gwireless networks provide basic datacapabilities 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 entrydifficultiesthe lack of a keyboard or good handwriting recognition,for example make interactivity more difficult and drive reliance onmenus.

The migration to so-called 2.5G networks, which is expected tooccur in Europe next year and the United States in 2003, willprovide major advancements, including instant-on access, packetizeddata, voice channels, and higher data throughput. These 2.5Gnetworks can deliver more substantive financial servicesapplications including complex account activity information,wireless appraisals, instant credit scoring, and on-site claimsadjustments.

Then come 3G networks, which are expected to appear a year ortwo later and will provide even higher data throughput,improvements in security, and global coverage, enablingrevolutionary new wireless services. Around this time we can alsoexpect to see a new generation of financial services products thatincorporate 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 inacquiring and retaining customers while reducing the cost toprovide services. They can reduce churn by presenting obstacles toitthat is, tying customers into new applications and platforms thatwill deliver added value. Direct service costs can be lowered byproviding customers with self-service for simple transactionsthrough wireless devices, reducing the number of calls to callcenters.

While there is some risk in being an early adaptertheallegorical pioneer with the arrows in his backthe opportunities tocapture attractive segments of the market are far greater. Winningfinancial services industry players will be those that focus bothon reducing internal costs and deepening relationships withcustomers.

Some people equate the emerging wireless market with thee-commerce market in the mid-90s. Thats a relevant analogy.Beginning in the mid 1990s, financial institutions experimentedconsiderably with e-commerce activity. When the global financialcrisis hit in 1998, many of these companies slashed theire-commerce budgets. As a result, many attractive market segmentswere captured by those who stayed the course. E-commerce achieved25 percent market penetration in about two years. The firms thatgave up their early-mover advantage, in effect, surrendered themost attractive customers to the competition. (One market-leadingfinancial services firm has stated that the early adopters havebalances 10 times higher and trading volumes five times higher thanaverage customers.)

Ways to Think Wireless
There are fivepotential strategic options within the wireless opportunitylandscape, two of which will be critical to companies looking for awireless killer app.

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

Another example of a market creator is a usage-based automobilepolicy being piloted in Houston by Progressive. Its system makesuse of onboard GPS technology to track vehicle position every sixminutes. Data regarding when, where, and how much the vehicle isdriven is collected periodically and reported using cellularcommunication technology. Insurance is then priced by the mile, inaccordance with the risks associated with different locations,hours of driving and total miles driven.
Customers participating in the pilot are paying rates that average25 percent less than a traditional auto insurance product andreceive access to additional safety features for a small additionalfee such as theft recovery, remote door unlocking, roadsideassistance, directional assistance, and low-battery detection. Inaddition, the system features a panic button that the consumer canuse to be put in touch with a 24-hour response center.

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

Further down the road, drivers themselves could use in-carsensors and Bluetooth-enabled phones to assess damage, sendinformation wirelessly to the carrier, and receive paymentelectronically. The carrier could use a GPS receiver embedded inthe customers cell phone to locate the accident and recommend theclosest body shop or order a towing service.

OPTION 2: BUSINESS MODEL EXTENDERS. These move existing productsand services to wireless, e.g., wireless trading and accountaccess. Consider the prototype of a new personal financialmanagement application developed by the Finnish financial servicesgroup Sampo, Nokia, and Accenture for the new Nokia 9210communicator. The new application includes a variety of intelligentagents, such as a watch list that can be set to continuouslymonitor financial information such as stock prices and accounttransactions. The customer can configure alerts so that whenspecific criteria are metsuch as a stock price falling to a certainlevelan alert is sent to the customers wireless device. When thealert is received, the customer can immediately make a transaction,such as selling the stock whose price has dropped. Another featureis a wealth manager service that can provide continuously updatedpersonal financial statements and produce graphical reports such aspie charts to show asset allocation or graphs of cash flow.

OPTION 3: OPERATIONAL EXTENDERS. Operational extenders usem-commerce applications to reduce cost of service, such as byproviding mobile customer relationship management.

OPTION 4: VALUE CHAIN ANNIHILATORS. These create entirely newproduct categories such as the mobile, automated insuranceadjuster.

OPTION 5: PRODUCT INVENTORS. Finally, there are productinventors that create new offerings that redefine customers,products, and services to create a sustainable competitiveadvantage. Examples include a proactive securities advisor, mobileopen finance, and pay-by-the-mile insurance.

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

But m-commerce strategy and implementation is complex. Theimplementation challenges may appear daunting: The technology isimmature, mobilizing the internal organization can be difficult,and successfully managing the complex web of alliances andpartnerships is by no means certain. The best strategy for mostfinancial services providers is to ensure that m-commerceactivities add value to your business and that you carefully manageexpenses in initial deployment. Carefully weigh your options topartner with solution providers, integrators, and ASPs whilefocusing on internal learning. Your customers will be therebuild itwhile they adopt!

G Forces

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

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. andaround the world are using, second-generation protocols use digitalencoding and include GSM, TDMA (also known as D-AMPS), andCDMAthink Sprint PCS and AT&T. 2G protocols supportsignificantly higher data rates for voice transmission as well aslimited data communications (up to about 14.4 Kbps). Some offerservices such as data delivery, fax, and messaging. Most 2Gprotocols offer some level of encryption.

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

3G. This is the stuff youve been waiting for. Third-generationproducts will offer data rates measured in Mbps, and are built fromthe ground up to handle much more than just voicecommunicationsthings like full-motion video and true Internetaccess. 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, willsee 3G services in 2002.) ANDREW KANTOR

The WAP Gap
Some financial institutionsare reluctant to implement wireless applications using the WirelessApplication Protocol (WAP) because they are concerned aboutvulnerabilities that might expose valuable data to eavesdropping orattack. Typically, the data packets are sent from the customerswireless device to a receiver operated by the cellular networkcarrier that forwards them through a WAP gateway to the financialservices firm.
Packets flowing between the WAP gateway and the content providersserver are usually secured by Secured Sockets Layer (SSL)encryption. Data traveling between the wireless handset and WAPgateway are protected by Wireless Transmission Layer Security(WTLS) encryption. The concern is that the WAP gateway security ishanded off between the WTLS and SSL protocols, momentarily leavingdata in the clear.

There are three possible solutions to this concern, which issometimes called the WAP Gap. The first is to move the WAP gatewaybehind the financial service firms firewall. The second is for thefinancial services firm to set up a proxy server at the networksfacility and establish a secure link to it using a virtual privatenetwork (VPN). A third solution is encapsulating all communicationsbetween the carrier and financial services with a public keyinfrastructure.

All three of these approaches involve additional expenses andcomplexity compared to current methods. For that reason, financialservices firms that are mainly using wireless networks to provideinformation to customers rather than to process transactions, maywant to wait and give the WAP Forum, which defines the standardsfor 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 simpletime-saving ideas to wide-ranging programs that may seem likescience-fiction. Heres a comprehensive diagnostic process that canaid in identifying those opportunities, consisting of four majorsteps.

STEP ONE. Assess key value-chain components by analyzing theimportant activities in each part of the value chain, evaluatingcompetitive activities, and investigating problem areas and complexprocesses.

Questions to ask: What are the key trends affecting thebusiness? Are current business processes costly, complex, andburdensome? Are there gaps in the services delivered by currentproducts? Can cycle times be reduced or segments of the value chaincaptured through a wireless application?
What to come away with: Value chain and cost allocation figures, anoverview of problem areas and implications, a catalog of potentialcompetitive threats, and the identification of wirelessapplications that enhance the value chain and create new businessopportunities.

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

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

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

STEP TWO. Determine the business model and economicdriversevaluate the revenue and cost structures to measure theimpact of wireless applications on both cost and revenuedrivers.

Questions to ask: What opportunities exist to eliminate cost orasset intensity? What are the largest cost and revenue factors ofthe business? What unmet needs exist to increase customervalue?

What to come away with: An estimate of the revenue and costimpact from each wireless application, as well as the investmentrequired to implement those applications.

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

Current industry averages show what percentage of premium eachof the following cost drivers account for: marketing anddevelopment 0.5 percent, administration 1.0 percent, prospectingand customer acquisition 18.5 percent, underwriting 0.5 percent,rating/quoting 0.5 percent, policy issuance and maintenance 2.5percent, billing and collection 2.0 percent, customer management0.5 percent, indemnity 64 percent, loss adjustment expense 11percent, and other expenses 2.5 percent. Thats a total combinedratio of more than 103 percent.
This type of analysis can help identify prime opportunities forcost reduction using wireless technology at each phase of the valuechain, such as offering agent locators, electronic delivery ofcontracts, in-field servicing, and instant payment to increasecustomer value.

STEP THREE. Map out business process changes and the wirelessapplication to take advantage of m-commerce opportunitiesidentified in the first two steps. Document current organizationprocesses, evaluate strengths and weaknesses, identify gaps incapabilities and potential solutions, and create a vision of thewireless-enabled processes.

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

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 mobilizeclaims adjustors and free them from costly and inefficientprocesses. In the case of a fire in an insureds home, the adjusteris notified by sensors and calls the client to indicate that he iscoming. The adjuster arrives on the scene, assesses damages, takesdigital pictures, and fills out a claims application. The adjustersends the claim and associated photos to the office over thewireless network. The office sends back the claim approval by thesame method within minutes and funds are simultaneously wired tothe customers bank account. This application addresses the 75percent of the premium dollar that goes towards claims, decreasingprocessing costs and increasing customer satisfaction by providingfaster resolution.

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

While financial service providers usually have stronginformation technology development competencies in the Internet andmobile environment, in cases where time to market is critical,development is usually outsourced to external providers to reducelead time and avoid disrupting other initiatives.

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

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

Questions to ask include: What is the potential financial impactof each option? What is the gap between the existing capabilitiesand what is required? What is the investment required to developthe needed capabilities? How long will it take to implement theplan?

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

The option to extend the business model is typically appropriatewhen there is little capital available and little opportunity toadd new customers. The risk of this approach is that attractivecustomers may be lost to innovators.

The key consideration in this approach should be the size of theinvestment and the payback period. When the opportunity exists foreliminating or streamlining major processes, jump to a value chainannihilator, but keep in mind the potential for disruption toexisting business. The major issues to be addressed are theparameters of the new market and the ability to define anattractive value proposition.