Mobile Banking: Tremendous Growth Potential
Mobile banking services present a unique growth opportunity for mobile operators in emerging markets, and have already made good progress in bringing financial services to the previously unbanked populations of many developing countries. The GSM Association reckons that there are over 60 million people worldwide accessing financial services, and this number is set to keep growing.
What Exactly Constitutes A Mobile Banking Service?
In truth the term covers a multitude of different services, including ‘apps’ that make it more practical and safer for mobile users in developed markets to access their bank accounts using mobile internet on their handsets. Services like this, however, do little to open up new markets or revenue streams to either banks or mobile operators. Mobile banking and payment services in emerging markets are targeted much more at people who have little or no access to traditional banking services.
Typically it works like this: A mobile customer can set up an account, directly through their mobile phone. They can then make a deposit of money into that account, by making a payment through an agent for the mobile banking service, who would typically be the same person they buy their mobile credit top-ups from. This money will then be credited to the account, and the customer can either use it themselves to buy goods and services from businesses and individuals who also use the mobile payment service, or they can send it to another person. This can be very useful in countries where many people travel to cities to find work, and send money home to families living in rural areas, which they would previously have had to deliver by hand. There is usually no cost for a deposit, but an incremental charge is levied for transfers, and possibly also to withdraw funds.
Africa And Asia Leading Mobile Banking Services
Services like this are taking off in many places, with Asian and African markets leading the way. East Africa is a particular hotspot, and nowhere has mobile banking seen such remarkable success as it has in Kenya. Its mobile market leader Safaricom got the ball rolling, and it can now boast nearly 10mn registered users of its M-PESA mobile money service, which is around 60% of Safaricom’s total subscriber base, over 40% of Kenya’s total mobile subscriber base, and a little under 25% of the Kenyan population. Safaricom officials have said that in 2009, around 11% of Kenya’s GDP passed through the M-PESA system. M-PESA is so ubiquitous now that even people outside its core market, the wealthier users of traditional banking services, are also signing up as their cleaning ladies and gardeners prefer to be paid in M-PESA than in cash.
And the service is evolving. Safaricom has announced a new partnership with Equity Bank which will allow M-PESA users to apply for loans, with their creditworthiness being assessed on their M-PESA record, and the loans money credited to their M-PESA account. Customers can also open interest-earning savings accounts, and make both deposits and withdrawals through the system. Mobile banking is now bringing more sophisticated financial services to the previously unbanked, and the potential is massive. Not only is there clearly still growth in Kenya, but if other markets start to take these services on to the same extent as Kenya, operators could have a very tidy new revenue stream on their hands. In the year ended March 31 2010, Safaricom made KES7.6bn (US$95mn) from M-PESA, or around 9% of its total revenues.
What Are The Risks?
The potential is amazing, but what about the risks? Foremost of all is security. Part of the appeal of these systems is avoiding the security risk of having to carry large amounts of cash. However, criminals are determined, and fraudsters will catch on. If people do not feel that their money is secure, growth could slow. Regulation will be one way of dealing with security risks, but another of the strengths that has allowed services to grow is the comparative ease of establishing one of these accounts. If too much paper work is required, again growth could suffer. Still, these services are opening up a market that didn’t really exist before, and they are still gathering momentum.