"Welcome to Vodafone bank! How may we serve your financial needs today?"

A mobile operator in the financial services space may seem ludicrous at first, but financial institutions had better beware. Who would have thought five years ago that a company like Tesco, the British grocery story chain, would someday compete with the likes of a Barclays Bank? The mobile Web is booming with the same, if not greater, ferocity than the wireline Internet. Nortel predicts that worldwide mobile Internet use will reach 300 million users by 2004, up from the 15 million that Yankee Group predicts for the end of this year. This will have a tremendous impact on mobile commerce. And with the rise of "m-commerce" will come the rise of mobile financial services. Today, two types of players largely control the gateway to the wireless Internet and are vying to cement consumer ownership: wireless operators and wireless portals. Their tools: personalized services and control over payment mechanisms.

The opportunity that mobile financial services presents as a means of differentiation and customer retention is abundantly clear. However, banks are not alone in facing this opportunity. So do wireless operators and portals, and they may be better equipped to succeed.

In fact, wireless operators are at a tremendous advantage.

First, they have little competition as gateways to the wireless Web - customers must use them for access.

Second, their positioning provides control over what consumers see when they initially switch on their wireless devices and access the wireless Web.

Lastly, in several markets wireless devices are providing users with their first access to the Internet, giving operators a crucial role in the Internet experience.

Though competition may be fierce between various operators, they remain relatively few - and largely own the mobile user. And because users must go through an operator to access the wireless Web, the operator can create a "walled garden," presenting the user with selected sites and applications.

Currently, a Sprint PCS or a Verizon Wireless is in a highly favorable position with respect to content providers and Internet retailers, which depend on the operator for access to the mobile channel.

Limited screen area enhances the operator's control, as do data transmission speeds lower than those of the wireline Internet. These factors help the operator guide the user experience and discourage wandering beyond the walled garden.

Furthermore, in Europe and elsewhere where the use of wireless devices is growing fast and Internet penetration is lower than in the United States, operators will shape the online habits of a new generation of Internet users.

How does this affect financial institutions?

Operators clearly control two important components of mobile commerce: the user experience and retailer or content-provider access to the customer. The missing link is actual control over financial transactions.

Moving into banking is the next logical step. Operators are fairly well positioned to do this, by acquisition of existing institutions or banking licenses.

On the acquisition side, Japan's biggest mobile phone company, NTT DoCoMo, a Nippon Telegraph and Telephone spinoff, has already purchased equity in a bank, and others are likely to follow suit.

And given operators' vast experience in micropayments, billing, and other financial functions, it is not a stretch to assume they will acquire financial licenses within the next two to three years.

Should banks be worried? Absolutely!

Banks have key advantages over operators and wireless portals: strong brand awareness and consumers' trust. As in wireline Internet banking, these pose significant hurdles to outside contenders.

However, much as was the case with e-commerce, banks that do not develop this direct channel will lose market share. They must rapidly adopt mobile channel strategies.

These strategies will have to address two critical issues: the protection of high-value customer bases and the pursuit of new customers.

Protecting high-value customer bases. Banks should offer free or low-cost 24-hour mobile-banking services to their high-value customers. This will require that banks rapidly adapt their online banking services for mobile users and build relationships with mobile operators and appliance manufacturers.

Pursuing new customers. Since these will tend to be younger - for example, teenagers and college students - appealing mobile appliances and banking offers will help to attract them.

Rolf De Vogt is vice president of Adventis in San Francisco. Alex Schoder is a consultant at the firm.

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