Mobile Banking Revolution

written by Matthew Bristow (extract from the Review)

Mobile banking by cellphone is booming in Colombia following an advertising blitz by three of the country’s largest banks (Bancolombia, AV Villas and Davivienda). The service uses Gemalto’s secure software application in SIM cards, which allows customers to make secure transactions on the move. They can access banking services, transfer money, check account balances, recharge mobile phones, pay bills and more.

Mobile banking is expected to take off in a big way in Latin American countries, which have high levels of cellphone penetration but low levels of Internet access.

“More than 85% of Colombians have cellphones,” says German Martinez, Gemalto’s Solution Manager Leader in Bogota. “In Venezuela the figure is about 90% and in Argentina it’s about 95%, whereas only a minority have Internet access. [A mere 12% of Colombians are internet users, according to official figures from 2007.] But people at all economic levels will have access to mobile banking. The phone is something that you always have with you.”

All three of Colombia’s cellphone networks are offering the service, and it works over the SMS channel - something all cellphones have. One key factor of its successful launch was that it is free for customers, with the costs being absorbed by the banks and the cellphone companies.

Banks are hoping the service will allow them to cut costs. The average transaction carried out by cellphone costs COL$0.08, compared with COL$0.27 for an ATM machine and COL$1.07 for a transaction in a branch.

Customers like the service because it can be used 24/7 and allows them to avoid long lines in bank branches. “So far I’ve only used it to recharge my phone, but it works really well,” says Carolina Sanchez, an office worker in Bogota. “It’s very convenient, especially compared with the rest of the channels offered by the banks. You don’t have to waste your lunch hour standing in line.”

Banking with one hand

The application is designed to be user-friendly. To emphasize the service’s ease of use, television ads for Bancolombia show people banking with only one hand while at parties and on camping trips.

“The basic premise is that it is intuitive and user-friendly,” Martinez confirms. “As a customer, you don’t need any training to use it.” The challenge for Gemalto was to design a system that, as well as being user-friendly, was completely secure and would work on any cellphone - even the most basic models. What’s more, the whole software application had to be crammed into 20Kb so that it could fit on the SIM card.

Each transaction is encrypted by applying a unique 3DES key and, inthe first 12 months after the service was introduced, there was not a single reported case of fraud.

Bancolombia, Colombia’s largest service, in January 2007. For four months, mobile banking transactions hovered around 10,000 a month for the whole of Colombia. Then, in May last year, Bancolombia started their TV advertising campaign, and mobiletransactions had shot up to more than 200,000 a month by September. In October, after a second bank, AV Villas, started promoting the service, transactions doubled to more than 400,000 a month.

Since then the service has continued to increase in popularity. By June 2008, monthly mobile transactions were running at 550,332, with the average user making six transactions a month.

“It has surpassed our expectations,” says Martinez. “It is a new system. People had no experience of using it, but it’s already generating more than half a million transactions a month.”

On 1 August, Davivienda, the third major Colombian bank, introduced the service, which it began actively promoting a few weeks later. Further spikes in user numbers are expected in the coming months as more Colombian banks jump on the bandwagon.

Because of the success of this solution, mobile banking in Colombia is now evolving to provide new services such as mobile payments and mobile money transfers – both of which are coming soon.