Dichotomy in online finance

By | December 1, 2011
This is one of the things that bothers me. On the one hand, yes, mobile commerce and social commerce are growing and booming markets. On the other hand, financial institutions are significantly behind the trend in enabling mobile commerce – in fact, some institutions have taken measures to make mobile commerce more difficult for the consumer (of course, in the name of security). So where's the middle line?

1) What went wrong with online banking.
Online banking has gotten more difficult in 2011 due to the introduction of hardware-based secure devices (commonly known as Chip-TAN, or Smart-TAN). Carrying around a physical device, and then having to optically scan something on a monitor (smartphones tend to be too small), in order to generate a transaction password is not a practical solution for mobile commerce – and users don't tend to like to carry around bulky physical devices (by bulky I mean bigger than a credit card or a smart phone). An alternative, which is not supported by all institutions, is the mobile TAN – an SMS sent to a mobile phone registered to the online banking users. While much more friendly to mobile commerce, this violates the dual-device hardware principle which was supposed to make transactions more secure.

A second issue is the actual online banking portals. Most web portals are designed for desktop monitors, and look horrid on a mobile phone – in some cases they don't work at all on a mobile device, with basic critical flaws such as displaying multiple password input fields and never accepting a login from a mobile browser. Given the potential security issue mentioned above, I'm not convinced that there is particular motivation to correct these issues anytime soon.

2) The needs of online commerce.
Obviously, consumers want easy-to-use payment systems that they can trust and are seemlessly integrated with their normal life. And this hurdle shouldn't be too difficult for online merchants to implement. Paypal is a system that does this rather well for users on the American side of the ocean, however less adequately on the European side of the ocean. I suspect this is due to the fact that direct transfers is a common payment method in Europe, which is not the case in North America (direct transfers are extremely difficult there), which is only supported with considerable delay in Paypal. There are alternative solutions – for example GiroPay or SofortÜberweisung or MoneyBookers – though none of them seem to offer merchants the easy, seamless integration that Paypal does. Of course, convincing users is the next hurdle… but without a nice mobile payment solution, there's still an open niche market waiting to be filled.

/via +Pierre Schoof

Reshared post from +SERVICE Insiders

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8 thoughts on “Dichotomy in online finance

  1. Phil Ashman

    Conjecturing on this is so challenging because there are ways I'd like it to go (you said it perfectly in the last sentence of your 2nd paragraph) and the reality of the current regulated controlled environment that must be overhauled. For there to be major disruption we'll probably need to see the collapsing of some economies to fuel the change. All the while countries are beholden to the global economy they'll just have to tow the line. The rich, the powerful and the policy makers are the major benefactors of the current system so they will certainly resist the change. This means it'll take one hell of a shake-up to cause any type of shift toward a more sustainable global financial infrastructure. We are in one mighty rut and the sides are extremely muddy.

    Human nature is what it is and no matter how transaction value is represented, there will always be those who try to abuse and manipulate the system. So even if the current banking system is suddenly sideswiped by hybrid Paypal/Banking institutions with some sort of independent electronic currency, we'll likely still end up with different institutions but the same issues. It'll fix some issues and cause others.

    I'm a little pessimistic in that I think we'll only see a shift in power rather than a positive financial revolution. As a comparison, I see the big publishers about to take some serious hits to their bottom line as their content moves into the digital realm. However we could be trading one serpent for another. If Amazon were to become bigger and more powerful in the digital distribution and publishing of the same content then we are right back where we started.

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  2. Sophie Wrobel

    +Phil Ashman Except for tools involving real-time quotes (the type of thing where delays are guaranteed in fractions of a second making AJAX a non-solution), I'm not aware of significant Java usage… at least not here.

    Interesting point on Bitcoin – I agree that there is a revolution in the financial industry coming up, similar to how content publishing has been significantly overturned. What I'm not so sure about is what general direction this will take: I've seen various opinions ranging from a virtual currency economy to a variety of interacting ecosystems that operate independently of currency. I personally find the latter prospect fascinating, because of the wide-ranging implications it would have on restructuring not just the financial industry, but also on the legislative front, 'regionalization' of distribution systems, and the potential for a more sustainable global culture than the current business / financial-driven climate permits.

    Out of curiosity, where do you see the disruptions that electronic transactions could cause in the financial industry headed?

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  3. Sophie Wrobel

    +Shaun Tofsrud Google Wallet isn't available here – until it is, there's no real way to tell. However, I can imagine that the market would be harder to access given that Google probably uses the SWIFT protocol (like most North American transactions) and current domestic transactions here don't. The problem with the protocol difference is likely much less implementing whatever protocol is used, but rather the implications that has on where and how the transaction data is stored and used.

    Edit: Just found this article in GigaOM. Seems that mfoundry is offering a more 'open' solution than Google Wallet, will be interesting to see how the two alliances battle out for the NFC market! http://gigaom.com/2011/11/30/mastercard-mfoundry-let-banks-create-their-own-nfc-mobile-wallet

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  4. Shaun Tofsrud

    I wonder if Google Wallet has taken this into account? It was already tested is some major American retailers and seemed like a hit!

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  5. Phil Ashman

    Interesting point about the mobile friendly web pages. Many of them use Java as well which would cause problems on Apple handhelds.

    Electronic transactions have the potential to disrupt our currency and banking institutions in a similar way to the content publishing industry. A conservative regulated segment controlled by a very powerful minority. Although unsuccessful, the rise and fall of Bitcoin is an interesting case study. I personally think the trials of Bitcoin are foreshadowing a much bigger movement over the next 20 years.

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  6. Sophie Wrobel

    +pablo chuken Have you read this? -> http://www.omnisophie.com/day_154.html

    One of Dueck's points – that banks drive to gain new customers has resulted in a fleet of non-loyal bank-hoppers and may be costing more than these 'bring in the money' initiatives try to achieve – seems particularly relevant.

    The financial industry has been innovating – just not on the common consumer front. There are a slew of new financial products out there now, and the conditions get worse each year if you read the fine print. Put that together with the full-customer-number (as opposed to total-customer-number) sinking, and you start to wonder why.

    Why? I suspect because the big cash cows (and the financial products that bring in real cash to the banks) are not you and me, but the shrinking population with a massive amount of money. And they don't just put that money on a normal account like we do.

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  7. pablo chuken

    Totally agree with you. A possible solution is an integration with the mobile phones, no extra devices but a secure an easy system. The Bank industry is slow and most of it conservative. Innovation is not something that defines this business, unless they want money from you, then they start being creative.

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