Banks in Western Europe see mobile banking as a top priority, spending an estimated $43 million on wireless technology last year, says a new survey by IDC Corp.

Mobile banking accounts, or those accessed through mobile phones and other handheld devices, represent about 14% of the total online and Internet banking accounts in Western Europe. Mobile banking is expected to be the fastest growing sector of total IT spending on electronic banking, with a 1999 to 2003 compound annual growth rate of 129%, according to Framingham, MA-based IDC.

The majority of the mobile banking services currently available in the region are based on WAP, the first widely available and implemented technology for mobile banking in Europe and one which allows access to Internet services. The IDC survey, released late last year, predicted there would be 1.8 million mobile banking accounts using Wireless Application Protocol by the end of that year, with most of these in Scandinavia, Germany and the U.K.

There is no doubt the mobile phone and other handheld devices could make a significant impact as remote banking channels. By the end of 1999, according to another consulting firm, Logica, there were 140 million mobile subscribers in Western Europe, making the mobile phone the most popular electronic communication device. More people in Europe own a mobile phone than have Internet access. Penetration is approaching 70% in countries such as Finland.

The problem is, WAP phones haven't been as popular with consumers in some countries as had been expected and there are doubts about the technology's suitability for supporting banking services. Last November, U.K. market research company BMRB International released a survey showing less than one in 50 adults in the U.K. is using a mobile phone to access Internet services. Even among regular Internet users, the use of wireless interactive services is less than 5%. Persistent grumbles include the small size of WAP phone screens, which aren't suited to most Internet content, and the slow speed of accessing those sites which are WAP-enabled.

The telecommunications industry is guilty of talking up WAP phones, some analysts believe. Customers were led to expect "the big Internet experience," says Ovum consultant Michele MacKenzie, in a comment published by the U.K. advisory concern. "It was never explained that mobile was different from fixed Internet."

The limited availability of WAP handsets in the U.K. has also contributed to slow adoption by consumers, as has the fact that some consumers are tied into a contract with a single service provider. Naturally, customers who are unwilling or unable to switch service providers slow the growth rate of mobile banking services.

Three banks in the U.K.-Woolwich, Egg and First-e-offer WAP-enabled mobile banking applications. Three others-Co-operative Bank, HSBC and First Direct-use an alternative technology known as "short messaging service," or SMS.

MobileAge Technology, a spin-off from Germany's Brokat, commissioned a survey into m-banking in the U.K. and found that SMS services, "while more limited in what they can accomplish, are quicker, easier and cheaper to use than the WAP applications."

SMS technology is popular with Europeans, who send each other well over a billion text messages each month.

Alternative technologies

Formed last March, MobileAge Technology has partnered with wireless telecommunications and smart card company Bluefish, headquartered in Paderborn, Germany, to exploit the popularity of SMS technology. The companies are launching a new set of mobile services based on SIM Toolkit technology. The first project will be a mobile banking service which aims to cut balance-inquiry times by 75% using SMS messages. The service will allow anyone with an SMS-enabled handset to access her bank account from her mobile phone, avoiding the cost and delay associated with a dial-up Internet connection via a WAP phone.

"Early users of WAP phones have expressed frustration at the slow speed at which information can be downloaded and the limited relevance of that information to their personal requirements," said MobileAge Technology's chief executive, Roy Smith, in announcing the partnership. "With the market backlash against WAP taking hold, now is the perfect time to consider alternative technologies."

Another technology that could challenge the dominance of WAP is called "Bluetooth." It is a wireless specification that links laptops, mobile phones and other portable devices form various manufacturers without the need for line-of-sight wireless communication.

Newton, MA-based Meridien Research believes Bluetooth could reach the mass market by 2002. First, though, the price of the Bluetooth chip must fall from its current $27 to the $10-to-$15 range. Only then will it be widely used by manufacturers and consumers, the consulting firm's analysts say.

According to Meridien, Nordic banking group MeritaNordbanken is the first financial institution planning to adopt the Bluetooth technology. The bank, with more than 6.5 million retail customers in Sweden and Finland, is thought to be planning a Bluetooth pilot in 2001. The consultants believe the project could include the use of a wireless phone to communicate with a point-of-sale (POS) terminal, enabling customers to initiate a purchase and pay for goods and services via mobile phone.

WAP, however, is not about to roll over and die, in large part because so much has already been invested in it.

"Most European banks are relying on it for their m-banking strategies," says Barbara Blesio, program manager for IDC's European banking service, in Italy. Banks don't want to adopt a wait-and-see approach with m-banking. Having been slow to adopt Internet banking strategies, they are determined not to lose market share to new competitors in this field. This would be "too risky and unacceptable," Blesio says.

Steps are being taken to improve WAP technology. The WAP forum, made up of 130 global members and publisher of the WAP specification for all wireless networks, has said it will migrate from WML (Wireless Mark-up Language) to the emerging universal standard, XML, or eXtensible Mark-up Language. This same migration is expected to encompass the Internet, as it moves from HTML (Hypertext Mark-up Language) to XML, and it should make it simpler to bring Internet content to WAP devices.

Telecommunications and networking companies also are involved in efforts to improve WAP. The three big mobile manufacturers-Motorola, Ericsson and Nokia-recently agreed to develop a standard for secure transactions over a mobile device.

A rash of WAP announcements from banks over the past year confirms their determination not to be left behind this time. Recent WAP launches include Slovenian bank SKB Banka in partnership with ebanking company Zaslon; Postova Banka in the Slovak Republic with Infinite Technologies of the U.S.; The Netherlands' Postbank with Ericsson and Libertel; and Royal Bank of Canada in partnership with Microcell and Schlumberger, to name a few.

Louise West is European Editor of Bank Technology News.

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