Nokia and Its New Cash Machine: Mobile Banking

September 1, 2009

On August 26, Nokia announced a new mobile banking application, Nokia Money, which will work across different networks and countries in partnership with Obopay, an established US mobile payments service. Nokia estimates that in 2014, the mobile banking sector will be worth €18bn, of which €12bn will come from emerging markets. Due to the size and the urgency of this opportunity, Nokia Money will first be launched in emerging markets at the beginning of next year and then in developed markets later. In order to secure the success of its new application, however, Nokia needs to get the MNOs on its side.

The opportunity is there: Mobile banking in emerging markets will grow massively over the next five years. In our Mobile Financial Services in Africa report, we said that in Africa alone, the nominal dollar volume of mobile payment transactions will grow to almost US$13bn (€9bn) in 2013 from US$3bn (€2bn) in 2008 (see Exhibit 1). In Africa, around 75% of the population does not have a bank account, which in part explains why the informal (unaccounted for) economy constitutes about 40% of Africa’s GDP. This combined with the fast-growing mobile penetration and the operators’ desire to develop VAS is creating a massive opportunity for mobile financial services.

Nokia has several unique advantages that may appeal to banks, mobile operators and customers. First: Nokia Money will come preloaded on all Nokia new handsets. Considering that Nokia is the global leader in the handset market and that, according to Pyramid Research’s Global Handset Forecast, Nokia will have 33.75% of the new handset sales in 2009, this is a massive upside for the new application. Also, the application is not restricted to Nokia handsets — there are plans for sideloading Nokia Money on other vendors’ handsets. The application’s high penetration fits well in the emerging markets mobile money transfer business model, which is built around volume. The size of transactions in the developing markets varies from $1.50 to $500, and the margins are usually well below 25%. With the majority of transactions too small to be individually meaningful, mobile financial services providers have to foster millions of small transactions. Nokia Money creates this volume potential.

Another advantage is that Nokia is entering the mobile payments market as a partner to existing players, such as banks and mobile operators — not as a competitor. This ultimately benefits customers by offering more options. Teppo Paavola, Nokia’s VP and Head of Corporate Business Development, has repeatedly stressed that Nokia is not trying to become a bank but rather wants to help banks and operators create a flexible and thus viable mobile banking ecosystem. With Nokia Money, banks gain potentially global access to local mobile networks, and mobile operators get a simple application that already comes with support from international banks and financial services, such as Citibank, MasterCard and Société Générale. As a result, consumers get a single money management application backed by local operators and international banks that will allow not only local but also international safe money transfers.

Nokia brings its experience and brand recognition to the table. Additionally, Nokia’s partner Obopay, a well-known mobile payment service in the US, has licenses to operate in more than 40 US states and in India. This means that there is already a viable market for Nokia Money consisting of hundreds of thousands if not millions of Indian workers who regularly send money home.

— Bakhyt Weeks, Analyst, EMEA

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Global Mobile Handset Forecasts
Forecast published quarterly
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