Competition and Collaboration in Mobile Banking: A Stakeholder Analysis

Competition and Collaboration in Mobile Banking:
A Stakeholder Analysis

Sangjo Oh
Dongyang Technical College, Korea
secase@dongyang.ac.kr

Heejin Lee, Sherah Kurnia, and Robert Johnston
University of Melbourne, Australia
heejin@unimelb.edu.au

Abstract
Information and communication technologies (ICT) continuously create new types of markets
and new patterns of industry dynamics. The continuous advancement of mobile technologies
offers an opportunity for mobile carriers and banks to offer mobile banking services.
However, such convergence of services from mobile carriers and banks raises some issues
that are not necessarily easy to resolve since each of them may have different and sometimes
conflicting interests. This paper examines how the alliances between mobile carriers and
banks have been formed and developed in Korea and analyses these alliances from the
perspective of stakeholders. The findings indicate that the mutuality of benefits and costs
experienced by the stakeholders of mobile services under investigation, the establishment of a
customer base and strong support and interest from the stakeholders contribute to the
success of the services.

Keywords: Stakeholder Analysis; Mobile Banking; Mutuality, Adoption

Introduction

Information and communication technologies (ICT) continuously create new types of
markets and enable new patterns of industry dynamics. The latter refers to the way in which
all the parties within an industry interact, that is, compete and collaborate, over the value
chain. This transformational power of ICT is not confined to an individual industry. Through
convergence, information and communication technologies cause companies from different
industries, which have never been related to each other, to compete and collaborate.
The most recent and phenomenal example comes from mobile banking. Mobile carriers
in Korea, facing the decreasing voice ARPU (Average Revenue Per User), seek after a new
source of revenue in the data services where ARPU is significantly increasing (McClelland,
2004), and see a potential in mobile banking for generating revenue, gaining and retaining
customers. Banks also need to add a new channel to existing channels for services not to lag
behind in the fierce competition to catch and retain increasingly technology-aware customers.
For banks, mobile banking is the next sequence after Internet banking. Thanks to the
development of mobile technology which enables the delivery of banking services via mobile
devices, mobile carrier and banks, which formerly did not have a business relationship, but
are now both competitors and alliance partners.
In Korea, there are three competing mobile banking services: MBank, KBank and
BankOn. While the first one is operated by the biggest mobile carrier, the latter two are
operated by the biggest bank. Although they provide similar services to the customers, they
have followed different paths from the beginning. The current structure of competition has
been formed by competition and collaboration between mobile carriers, between banks, and
between mobile carriers and banks, and is still evolving with the continuous advancement of

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mobile technologies. These mobile banking services (in other words, alliances) are only a
temporary result of ongoing competition between and within the networks formed by mobile
carriers and banks.
This paper examines how these alliances have been formed and developed. In so doing,
we will draw on stakeholder analysis. Stakeholders are any parties that have a vested interest
in the success of the system and are affected by the system and, therefore, play a critical role
in ensuring the success of the system. Typically, mobile banking is not provided by one
organisation only, but by various parties (stakeholders) that are systematically arranged in a
planned manner by some pre-determined rules. Customers are also considered as stakeholders
since they are affected by the banking service provided. Stakeholders have different roles,
interests and hidden agendas which all affect the success of the mobile banking services. In
inter-organizational contexts, such as mobile banking, there is no overarching governance
structure that controls the behavior of all stakeholders. Consequently, any one stakeholder
may effectively veto the technology adoption if their individual perceived benefits are
insufficient. Therefore, it is important to examine the mutuality of stakeholder benefits, cost
and risks (Kurnia and Johnston 2001). Thus, by studying mobile banking services from the
stakeholder perspective, better understanding of the diffusion process of the systems can be
obtained (Choudrie et al., 2003).
The findings of the study indicate that the mutuality of benefits and costs experienced by
the stakeholders of mobile services under investigation contribute to the success of the
services. In addition, the establishment of a customer base and strong support and interest
from the stakeholders to enable effective collaborations are equally important for the success
of mobile banking. Thus, this study provides a better understanding of how and why mobile
carriers and banks collaborate and compete around mobile banking services. This
understanding is valuable for both researchers and practitioners particularly in the area of
mobile banking to anticipate possible conflicts and issues raised from convergence of
services.

Banking Payment Services

Banks provide a variety of services offline and have retained a huge number of
customers. Banks have good reasons to introduce online banking services. By making
customers fulfil their needs on a 24/7 basis online without a teller, banks can provide better
services, reduce the costs, and concentrate on more profitable areas. Challenges they have
faced regarding online banking are to adapt themselves to the changing environment and to
make their customers adopt and use the online banking.
Both supply and demand sides of the banking services make it easy for banks to provide
Internet based online banking services. Banks have long invested in information technologies
and thereby could easily transform themselves and prepare for Internet based online banking.
The operation of banks was mostly accomplished electronically and they had successful
experiences of developing external systems such as ATM (Automatic Teller Machine) and
phone banking. Experienced users of these technologies smoothly moved into Internet
banking. The number of the Internet, particularly broadband, users obviously helped this
transition. As shown in the table 1, the number of Internet banking users has grown at a
tremendous speed with the help of the broadband Internet user growth in Korea.
Banks are continually attempting to extend the capabilities of their payment services. As
Internet banking edges further into the mainstream, financial institutions are already leading
the way into the next technological frontier: wireless access (Hoffman, 2001). In the course
of this, they sometimes have to deal with new network infrastructure providers with emerging
technologies like mobile networking. Unlike Internet based online banking where Internet

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service providers barely play a role, providing services on the mobile Internet needs deep
involvement of mobile operators to enable the banking and payment services to be accessible
through mobile devices. However, it is not easy to reach an agreement between these two
parties because it is the first time for them to combine their respective services to make one
aligned service offering and there is no conventional knowledge to depend on.

Table 1
Number of Internet banking users in Korea (Unit: thousand, MIC, 2004)
Year
Number of Users
Growth Rate
1999 1,230

2000 4,090
232.5%
2001 11,310
176.5%
2002 17,710 56.6%
2003 22,754 22.2%

Banks want to add the mobile channel to their existing options for payment. Mobile
operators are also aware that if they could add bank payment services to their mobile Internet
services, it would be helpful for them to acquire and retain customers. For these purposes,
they have to cooperate and coordinate with other firms operating in different industries with
which they have never worked before. It is not a simple matter to coordinate stakeholders
beyond the boundaries of an industry in order to provide well aligned services to customers,
and therefore conflicts may easily arise.
There are three mobile operators in Korea: SK Telecom, KTF and LG Telecom. From
the beginning SK Telecom has been the leading firm in the domestic market with a market
share of around 50%. SK Telecom has recognized the potential of its stable and large
customer base and has been attempting to enter into other business areas where it can take
advantage of its almost 19 million subscribers.

Table 2
Market share of mobile operators as of 2004. 12 (MIC, 2005)
Mobile Operators
Subscribers
Market Share
SKT 18,783,338 51.3%
KTF 11,728,932 32.1%
LGT 6,073,782 16.6%
Total 36,586,052
100.0%

In the mobile payment area, for example, it launched a service named ‘NeMo’ (Net
Money) in 2001. It was the first time a mobile operator entered into the financial industry. SK
Telecom insisted that NeMo was not a financial service, but rather an example of numerous
mobile Internet applications.
Firms in the financial sector including banks do not agree with SK Telecom’s view and
they consider it as an invasion of an outsider into their business domain. Thus, convergence
between mobile and financial technologies drives companies in those sectors into clash in
order to lead the emerging market.
As the use of mobile technologies is increasing, banks have considered mobile operators
as potential competitors rather than partners for mobile payment services. For them, NeMo is
strong evidence which supports their suspicion about mobile operators. However, there is no
alternative for banks except working with mobile operators, if they want to provide mobile
payment services.

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The challenge for all players in the mobile Internet market is working together while
remaining independent and developing a strong brand identity. There are many players –
operators, handset manufacturers, banks, credit card companies, Internet portals, system
integrators, ISPs – all wrangling for control over customers (Donegan, 2000). Firms in
different industries need to cooperate to provide a service. They are, however, immediate or
potential competitors, and it is not easy to expect the care-free partnership.
DeZoysa (2001) cited a claim about the unfavourable relationship between two big
stakeholders of mobile banking. “The relationship between banks and mobile operators is one
of mutual distrust. One telco in Germany already has a banking license and banks are nervous
about their position, while mobile operators want to retain their independence.” As banks and
mobile operators came to work together for launching mobile banking, the similar
competition and conflicts have been arising in Korea.

Mobile banking services in Korea

Software based mobile banking –Initial stage
At an initial stage of mobile banking, little cooperation was needed to meet the
customer’s need to access banks. After connecting to the mobile portal of each mobile
operator through the mobile Internet, customers can select which bank they want to visit.
Once they connect to the bank’s mobile site, they can see their account information and make
a transaction once they log in.
The incompatibility of mobile phones does not matter here because banking applications
run on the built-in browsers or VMs (Virtual Machines for downloaded JAVA application
programs) of mobile phones. Various technical methods have been proposed to reduce the
connection time to the mobile Internet. The fundamental concept of this mobile banking
service is the same as that of Internet banking. Here mobile operators function as Internet
service providers. The only differences are the devices customers use, networks, and
inevitable changes in the interface design in banking programs.
Mobile banking services are provided by banks through the mobile Internet owned by
mobile operators. For this to work, a simple arrangement needs to be made between mobile
operators and banks; mobile operators let banks appear in the menus of the mobile portals (or
sometimes let customers download the mobile banking programs to their phones) and banks
open the mobile web sites. There are few possibilities of disagreements or conflicts between
them.
In this model, banks are one of the content providers to mobile operators. Mobile
banking gives an extra content to mobile operators, and an extra channel to the banks. It is an
easy and win-win situation for these two stakeholders. However, it cannot satisfy customers’
banking needs since it is not easy to use and it takes too much time to accomplish a
transaction mainly due to the connection time. Long connection time also means high cost
accrued from the usage fee of mobile network. As a result, this mobile banking service has
not been much used. This has made related parties, mainly mobile operators and banks, think
over how to offer customer-centric services.

IC chip based mobile banking
LG Telecom with Kookmin Bank launched BankOn, the first IC chip based mobile
banking service, in September 2003. It remarkably reduced the connection time by using
proprietary phones. The services range from online services like funds transfer and MBPP
(mobile bill presentment and payment) to offline services such as using ATM and paying
public transportation fares. Credit cards, stock trading and insurance were to be added to the
service.

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To promote it, LG Telecom decided not to impose the usage fees of mobile network and
Kookmin Bank decided to exempt the fund transfer fees for some period of time. They also
promised the lowest level of fees even after the promotional period. Subscribers to this
service numbered more than 120,000 just for the first two months, and the number of mobile
fund transfer transactions was over 150,000 in October which was 6 to 7 times more than that
of other mobile banking services.
After BankOn’s apparent success, other mobile operators and banks introduced IC chip
based mobile banking services too. However, IC chip based mobile banking needs more
coordination between banks and mobile operators than ever before and makes them
interdependent upon each other. Both banks and mobile operators have never experienced
this kind of interdependence before, and they are still in the progress of setting up rules
regarding work allocation, roles each party will play, and the rights and responsibilities of
each party.

A conflict issue in IC chip based banking
Before IC chip based banking was introduced, it was not easy to make revenues through
mobile banking services because of the small number of transactions unlike the case of
Internet banking. This is because it was difficult to use, costly, and it was not very useful
compared to other banking methods. Banks simply migrated the Internet banking services
onto the mobile network and mobile operators took the initiative for providing mobile
banking services to the customers. Banks were just one of the content providers.
While the mobile financial market was being structured by the initiative of mobile
operators, the introduction of IC chips for mobile banking raised new issues such as who
would issue IC chips and who would control them.
A similar problem did exist when mobile phone credit cards had been marketed using IC
chips on the phone. However, it did not develop into a controversial issue then. IC chip based
mobile phone credit cards were issued through credit card companies after IC chip based e-
cash companies had installed the necessary functions. For example, Moneta (developed from
NeMo) installs SK Telecom membership and OK Cashbag into the IC chip and then credit
card companies take over the IC chips. Credit card information is installed by credit card
companies who then also issue the IC chip based credit cards. Therefore, it appears to the
customers that credit card companies had the rights for the issue and control of the IC chips.
In fact, however, mobile operators and credit card companies share the master key to
control and maintain the service areas of IC chips; credit card companies hold the
administration key to control the credit card area of IC chips. Although mobile operators
cannot look into the credit card area, they can delete the credit card information, which means
credit card companies, in a sense, are dependent on mobile operators. If credit card
companies plan to install a new service on the IC chips, an agreement with mobile operators
needs to be reached. In this arrangement, it seems that mobile operators take a stronger
position, though they are interdependent.

Competition between banks and mobile operators in mobile banking
BankOn was launched by the coalition between Kookmin Bank and LG Telecom while
mobile operators and banks discussed intensively the issue of who would issue and control IC
chips. Kookmin Bank is the largest bank in terms of the amount of assets and the number of
customers, whereas LG Telecom is the smallest mobile operator in terms of the number of
subscribers. In this configuration of market powers, it was not difficult to make a deal
between them. IC chips are issued and controlled by Kookmin Bank and LG Telecom
provides the mobile network for the service.

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Kookmin Bank needed a mobile operator to launch its own mobile banking services and
wanted to hold the rights for the IC chips which incorporated account information and
thereby customer information. LG Telecom urgently needed to gain new subscribers as the
smallest mobile operator and it agreed that Kookmin Bank also obtain the commissions for
the subscribers. BankOn was launched in this context and both parties were satisfied with the
result to some extents.
To catch up with BankOn, SK Telecom, the largest mobile operator, collaborated with
other smaller banks and launched new mobile banking services, called MBank. In this
alliance, SK Telecom and banks agreed on the dual chip mode where the chip is virtually
divided into two separate areas. Banks control one part which contains account information;
SK Telecom controls the other part which keeps information on Moneta. This means that SK
Telecom can continue to provide Moneta, its financial services, for new subscribers to mobile
banking without the government agency for finance monitoring, FSS (Financial Supervisory
Service).
Kookmin Bank blamed the participating banks for cooperating with a future enemy. SK
Telecom responded that they were not attempting to be a financial player. Table 3
summarises the competition between the two networks of mobile banking services in early
2004. KTF, the second largest mobile operator, launched KBank in cooperation with
Kookmin Bank in March 2004, on the same date when MBank was launched.

Table 3
Competition between MBank and BankOn

Brand BankOn
(KBank)
MBank

Leader
Kookmin Bank ($2,230B)
SK Telecom (18M)
Participants Nonghyup
($1,270B)
Woori Bank ($1,070B)
Kiup Bank ($690B)
Hana Bank ($870B)
Cheil Bank ($400B)
Shinhan Bank ($800B)

Chohung Bank ($660B)
LG Telecom (4.8M)
KTF (10M)
Characteristics
One chip
Dual chips
Control on chips
Bank
Bank and mobile operator
Launching date
2003. 9 (2004. 3)
2004. 3

For SKT, KTF, and LGT: the number of subscribers
For banks: the amount of assets

The competition surrounding mobile banking occurred during the period when mobile
phone subscribers became able to change their mobile operators without changing their phone
number. To force the market competition in preparation of the mobile network opening, all
mobile subscribers became able to switch their mobile operators to LG Telecom in the first
half of 2004. In the second half of 2004, switches to KTF were also allowed. From 2005,
subscribers can switch to whichever operator they want. When they switch to operators, they
have to changes mobile phones too, though they can keep the same number. By adding a new
service like mobile banking, it was a good opportunity for a weaker mobile operator like LG
TELECOM to attract new customers. The new mobile banking service was pushed as a
motivation for switching to LG TELECOM. As seen here, competition and cooperation
surrounding the IC chip based mobile banking took place in the midst of fierce competition
among the mobile operators.

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Ongoing conflicts
At last in October 2004 Kookmin Bank agreed to participate in MBank, a mobile
banking service led by SK Telecom. It looked as if the competition between them was over.
Although Kookmin Bank joined MBank, Kookmin Bank was considered as the winner of this
game because it successfully prevented SK Telecom from the rights to control customer
information.
However, this method of mobile banking still has a problem from the customer
perspective. If banks control the IC chip installed, customers who want to use other banks
should have the same number of chips as the number of banks whose mobile banking
services they want to use. They also have to change IC chips whenever they use different
banks. One chip per bank, which is supported by each bank, is not beneficial to customers. It
is derived only from banks’ intention not to share customer information with mobile
operators.
Mobile operators continuously question the current arrangements between banks and
themselves. SK Telecom and KTF agreed not to allow one chip per bank in December 2004.
Instead, they planned to expedite the use of generic chips into which information on credit
cards, bank accounts and public transportation cards can be downloaded using OTA (over the
air) technologies.
This plan has gained more support with the advent of 3G mobile phones. SK Telecom
and KTF decided to adopt UICC (universal IC card) on the WCDMA mobile phones. UICC
is an extended version of USIM (universal subscriber identity module) of 2G, and it can add
various applications such as financial services and payments. Because there is only one slot
for IC chips in the 3G phones, mobile banking in the 3G WCDMA environment requires
using UICC.
Till now, the subscriber information is included in the mobile phone and the account
information is in the IC chip so the subscriber information and account information can be
separately controlled. However, WCDMA mobile phones have only one chip to put in the
information. Therefore, the problem of where to store subscriber information and account
information, arises again if subscribers want to use mobile banking. If customers want to use
more than two banks, it seems impossible to solve the problem with the current arrangements
between banks and mobile operators.
Kookmin Bank also attempts to lead in mobile banking and to protect its business
domain by taking more progressive and aggressive measures. From the perspective of banks,
the fundamental barrier to mobile payment and banking is the mobile Internet itself, which is
currently closed and expensive. Till now, customers can access the mobile Internet only
through the gateways which mobile operators provide, though it is planned to be fully open
stepwise. Kookmin Bank showed interest in being an MVNO (Mobile Virtual Network
Operator) which can do its own business using a hired bandwidth of an MNO (Mobile
Network Operator). If Kookmin Bank undertakes the MVNO business, it will vertically
integrate network infrastructure to its banking infrastructure. This also influences future
competition on mobile banking between mobile operators and banks.

Stakeholder analysis and implications

The early success of the BankOn mobile banking system, is due to the benefits obtained
by all parties involved in the system. For customers, with low fees and improved connection
time due to improved speed of data transfer, customers enjoy the convenience and value
offered by the system. Likewise, Kookmin Bank gets the benefits of having a mobile operator

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to launch its mobile banking services, holding the rights for the IC chips which incorporated
account information and obtaining commissions for the subscribers. LG Telecom, as the
smallest mobile operator, also gets benefits from the system by gaining new subscribers.
Table 4 summarises the roles, interests, benefits and costs involved in mobile banking for
each stakeholder.

Table 4
Roles, interests, benefits and costs of the stakeholders in mobile banking
Stakeholder
Roles Interest Benefits
Costs
Group
Banks
- Provide
- Offer flexibility to - Extra channel
- Reduced

content
customers
- Access to
customers’
- Integrate payment
customer
banking
services.
information.
fees.
- Control and
- Commissions.
maintain customer
information.
Mobile operators - Provide a
- Recruit and retain
- Extra content. - No control

new channel
customers
- Higher
over
- Generate revenue
revenue.
customer
from the system
- More
information.
use.
subscribers.
- Commission
fees
Customers - Users of the
- Fulfill their
- More choices - Multiple IC
system.
banking needs.
of banking.
chips when
- Fulfill their
- Convenience
dealing with
payment needs.
many
- Access to more
banks.
options
- Access fees.
conveniently.

One important implication of this study is that success, failure and changes of direction
in offering convergence services can be accounted for by the mutuality issue. For most of
those service arrangements involving bundling of services from various industries,
complexities are increased in managing the equality of costs and benefits among the
stakeholders. In particular, convergence in most cases involves cooperating and collaborating
with competitors. In some cases, the power issue also comes into play. All this may further
complicate the process of achieving the mutuality among the stakeholders.
Another implication is that successful introduction of a mobile banking service usually
takes advantage of an existing customer base, as it is more difficult to obtain customer to use
a new system than it is to change the behaviour of existing customers. This is illustrated in
the case. In each of the mobile banking system systems studied, one of the stakeholders is
either a large mobile operator or a large bank with an established customer base. With an
existing customer base, it will be easier to diffuse a new banking service, as long as it is
perceived to be beneficial by customers.
Finally, strong supports support and interest from stakeholders, and more importantly
good collaboration among the stakeholders are important for the success of mobile banking
service. However, with the case of mobile banking systems in general, major stakeholders
still experience ongoing conflicts among themselves in coordinating the provision of mobile
banking services due to different and often conflicting interests. Banks should work with

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mobile network infrastructure providers for mobile payment and banking services, and this
sometimes requires modifications of the conventional roles and rules which govern respective
industries to provide a new aligned service. At this stage, a better collaboration among
stakeholders of mobile banking systems is still required to achieve better alignment of mobile
banking services.

Conclusions and Future Research

In this study, we have explored how alliances between mobile carriers and banks in Korea
have been developed and identified various issues resulting from the convergence of services
from two different industries. Since various stakeholders of mobile banking have different
and sometimes conflicting interests, conflicts are inevitable in offering such services.
However, in order to win over customers in mobile banking, both mobile carriers and banks
need to collaborate to overcome any conflicts. Thus, they need to see each other as both
competitors and collaborators, which is not necessarily easy to do, especially when both
parties have an equal power. The existence of mutual benefits among the stakeholders, an
established customer base and strong support from the stakeholders are important for the
success of mobile banking.
This work is significant because it once again establishes the importance of the mutuality
issue in adoption and diffusion of inter-organizational systems (Kurnia and Johnston, 2001).
It also points to the importance, for successful adoption, of inter-organizational alliances that
provide an existing customer base to achieve critical mass. Both of these insights are useful to
practice for analyzing inter-organizational technology proposals to reduce risk of failure.
One possible future research is to conduct a longitudinal study to examine the dynamic
interactions between banks and mobile operators in Korea over time in achieving a better
alignment of services for mobile systems. As part of this future study, it would also be
interesting to explore how competitions among mobile operators and among banks would
lead to the development of better services in the context of mobile banking systems.
It would also be interesting to examine other cases of mobile banking in different regions
to compare their diffusion process with the cases examined in this project. An investigation
of how different systems are used in various ways, how they have been adapted, reasons for
adaptation and barriers to adaptation and use would be valuable to better understand reasons
for success and failure of mobile banking.

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