Innovation nations

Each market has its own approach, but mobile banking is bringing security and convenience to countries from the US to Kenya
[Article published in The Review "Summer 2012 issue", author Frances Maguire]

Whichever country we live in, the way we bank is changing. In western nations, as branches close and consumers look for greater speed and convenience, banks are turning to smartphone apps and other solutions to complement their existing service offering. Pingit, a peer-to-peer fund-sharing smartphone app from Barclays Bank in the UK, is one recent example. But in the developing world, the benefits of mobile payments and banking have long been recognized. Particularly in Southeast Asia, Africa and parts of South America, basic infrastructure and limited funds have meant that banks have bypassed traditional branch-based banking and gone straight to mobile. For almost a decade in some regions, basic cellphones have been central to enabling payments and banking services for the 2.5 billion adults considered “financially excluded.” With basic handsets being affordable and readily available in all corners of the world, it’s a logical platform. Mobile phone ownership continues to rise, with 5.4 billion handsets expected to be in circulation globally by 2015. The extensive mobile infrastructure is being used to extend financial services to a huge segment of the population not catered to by traditional branch-based banking.

There are plentiful examples from developing economies. In Africa, Kenya has taken the lead in mobile banking through the M-Pesa service, which was launched in 2007. Today, seven million Kenyans, accounting for 65% of the population, use their phones to pay bills, buy goods and services, send and receive money, withdraw cash, top up airtime balances and manage their bank accounts. A password is needed for each transaction and it is protected by state-of-theart security – but the biggest reason for its success is that it is based on standard GSM technology and can therefore be used by any mobile phone.

African ingenuity

South African bank Absa has won several international awards for its CashSend service, which allows customers to transfer cash from their own account to anyone in the country, even if they do not have a bank card or account. They do this by using internet or mobile banking or an Absa ATM to create a six-digit access code that they give to the recipient. Once the transaction has been confirmed, the CashSend system sends a unique 10-digit PIN to the recipient’s mobile phone. The recipient then enters this PIN into any Absa ATM to instantly receive the transferred cash.

In Zimbabwe, network operator NetOne’s SIM-based OneWallet service allows users to make peer-to-peer money transfers, pay utility bills and even have their salaries paid directly to their phones. NetOne is also working with the Zimbabwean government to allow OneWallet to be used for pension payments so that those in remote locations would no longer need to travel long distances to collect their money.

In Latin America, Redeban Multicolor, Colombia’s largest banking group, launched the country’s first SIM-based mobile banking solution to more than 20 million mobile subscribers in 2007. The introduction of mobile banking in Colombia has been instrumental in cost reduction for its banks, cutting the number of ATM transactions and reducing branch traffic to paying bills, checking account balances or recharging mobile pre-paid accounts.

One of the biggest mobile developments in Latin America recently has been Transfer, a joint venture between América Móvil (Telcel), Banamex and Banco Inbursa. Launched in April 2012, it is a financial inclusion project aimed at bringing Mexico’s 80 million unbanked people – 70% of the population – into the regulated financial system. Transfer turns mobile phones into secure payment instruments for setting up bank accounts, transferring money, withdrawing cash from ATMs, purchasing airtime and paying in stores. It’s all underpinned by Gemalto technology that will grow along with the service. The project partners hope to extend the project to include services such as insurance and micro-loans, and to roll it out across the region.

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Branch numbers dropping

While western banks are forging their own paths, the developing world’s approach to banking offers much to be inspired by – especially given the growing number of branch closures in the developed world. In 2010, for the first time in 15 years, more bank branches closed than opened in the US: according to government statistics, almost 1,000 branches closed that year. And in the UK, the number of bank and buildingsociety branches has fallen by nearly 11% in the past five years, with more than 1,000 closed since 2002 in both rural and urban areas. The closures have been driven by banks’ desire to cut costs and the rise in popularity of internet banking, which has reduced the number of branch transactions – although customers will no doubt prefer face-to-face contact for big decisions such as mortgages or investments.

For banks, wherever they are, mobile platforms can create significant strategic advantages, including new revenue streams and reduced operational costs. With more than 60% of the world’s population now carrying a mobile phone, any organization dealing with money and identity, which inherently demand security and trust, is looking at the potential of the mobile phone to revolutionize the way people make payments and manage their bank accounts.

What is clear from the experience of developing nations is that the security of mobile applications has been tried and tested, and that a convenient, easy-touse mobile banking strategy must be well thought out and not simply considered another access point. It is the best channel banks have to get closer to their customers, and what the developing nations have proven is that, if they get the product right, customers will embrace it wholeheartedly.