Mobile banking is revolutionising the face of personal and business banking in Africa. There is no need to carry a bank card or cheque book on you. You do not even have to visit the local bank branch to transfer or withdraw money. All you need now is a mobile phone and a SIM card.
Mobile banking and mobile money involves using mobile phones to deliver various financial services to customers. Mobile financial services expert Menekse Gencer explains that mobile financial services involve using electronic financial services or digital cash via your mobile’s SIM card. “It’s a unique money account that is separate from the airtime minutes or post-paid (pay-as-you-go) mobile billing accounts”. This account can be used to pay for services and applications used on the phone.
Mobile financial services have brought mobile phone operators and banks together to take advantage of the exponential growth in mobile handset ownership in Africa. In almost all sub-Saharan African countries, huge informal economies exist, made up of unbanked small scale farmers, traders, craftsmen and women and other types of small and medium sized businesses. For this group, there has always been a dire need for access to financial services, and bank accounts, from which they are often excluded. McKinsey Quarterly's 2009 report Counting the world’s unbanked found that 80% of adults in sub-Saharan Africa are without bank accounts. The ITU (International Telecommunication Union) usage indicators database shows that many of those without bank accounts own mobile phones. The Consultative Group to Assist the Poor (CGAP) estimate that 1.7 billion people will have mobile phones in the developing world by 2012 but no bank accounts. Governments and Banks want to channel the funds in the informal cash sector through the formal banking system to bolster economic development. Now, mobile phone money accounts are helping to formalise this economy.
Mobile banking is creating opportunities for the poor to have access to the wider financial services sector in developing countries in Africa and elsewhere. This is a key aspect of helping people out of poverty in developing countries. Access to mobile financial services now means that the poor will have access to credit, savings accounts, insurance, and tailored investment opportunities. Through their mobile phones, they can transfer funds without physically carrying it around or keeping money at home. They can use mobile bank account cash credits to pay bills, shop for food and other personal items.
Peter Ondiege, the African Development Bank’s chief research economist in the bank’s Development Research Department says a mobile phone is an ATM, a point of sale terminal and an internet banking terminal. It is also a bank cash card and debit card for your mobile account.
Kenya’s local mobile phone operator, Safaricom, launched M-pesa in Kenya in 2007. M-pesa allows users to charge their mobile phones with credit paid to any of M-pesa’s agents conveniently situated in commercial venues around the country. Any mobile phone airtime seller in a small street corner booth, or shop that handles cash can be an M-pesa agent. There are over 17, 600 M-pesa agents all over Kenya, compared to Kenya’s 840 bank branches. M-pesa agents are highly visible and accessible in urban and rural areas and conveniently double up as M-pesa’s mobile money cashpoints.
The values of cash transferred and credited on M-pesa accounts are small, but the sheer volume of daily transactions and commissions charged makes M-pesa profitable. Daily volumes of cash passing through M-pesa are in excess of US $8million. Some experts estimate costs of the services M-pesa offers for each transaction at US $0.46 compared to a bank’s transaction costs that may be as high as US $3 per transaction. Experts say banking services on M-pesa costs as little as US $0.12 to US $0.15. M-pesa now has over 70% of mobile phone owners in Kenya using their mobile for money transactions on a daily basis.
It is believed that mobile banking services, if they continue to grow at the current rate may even “jumpstart” the GDP growth of developing countries. The Mobile Money Movement: Catalyst to Jumpstart Emerging Markets argues that there is a link between mobile money and GDP. She points out that studies have shown that a 10% rise in mobile phone subscriptions in emerging markets, leads to 0.6% to 1.2% increase in GDP because of the productivity gains associated with mobile phone communications. Gencer even believes that the positive effects of mobile money on developing economies may in the next decade bring their GDPs closer to those of developed countries.
For developing African countries, mobile banking represents an enormous leap forward in economic development gains. Mobile banking is identifying economically active people previously in the shadows in the huge informal cash economy; for the banks, partnering with phone operators means access to millions of new account holders across the African continent and increased revenues processing various mobile banking services.
Mobile phone proliferation in Africa and in many developing countries around the world has shown the power and reach of mobile phones and how flexible they are. Mobile banking is transforming the lives of millions across the African continent. Leading African banks that have an established Africa-wide structure of branches like Ecobank, and mobile operators like MTN, Zain and Vodacom, acknowledged to have a strong Africa-wide coverage are best placed to take mobile banking to all of Africa.
International development partners and African governments keen to see mobile banking services continue to reach the poor need to support the work of the mobile operators and the banks by formulating appropriate policies. Phone operators, banks and NGOs may want to lobby for this. Government policies that support investment in the ICT sector also need to be encouraged. The increased earnings for governments through corporation tax, as mobile transactions increase in volume will support economic development.
CGAP researchers believe that 1.7 billion people will have mobile phones in the developing world by 2012 but no bank accounts. So opportunities abound for phone operators and banks in Africa. The volume of business will substantially increase the income of investors. Mobile banking represents a huge saving for banks by reducing their need to build branches around Africa to serve customers.
Africa is pioneering mobile banking services. This form of banking has not been successful in Europe and other developed countries. But now this may be changing with smart phones which are widely available in the West. A recent comScore MobiLens analysis of Europe’s five leading markets - UK, France, Germany Italy and Spain, showed that 20 million mobile users across these markets used their mobile phones to access their bank accounts in March 2011. Smartphone users account for 70% of Europe’s mobile banking market as at March 2011. But mobile phone banking may never take off in Europe like it has in Africa. The banks in Europe have set up a powerful retail banking structure that has been partly driven by the need to ensure accessibility for the customer. Mobile and internet banking are services merely offered on the back of branch services in Europe. But if European retail bankers should ever consider investing heavily in mobile banking, the African mobile money and mobile banking pioneers will have good advice on how they might want to go about it.
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