Mobile banking (m-banking) — the use of mobile phones to conduct financial and banking transactions — represents a key area of financial innovation in recent times. Mobile banking allows banks’ customers convenient access to a variety of banking functions, and increases efficiency. Customers can access funds in their bank accounts at all times through mobile phones, and transaction costs are driven down. Even when individuals have access to bank accounts with low fees, m-banking can reduce the opportunity cost of financial transactions.
Mobile banking has also been identified as a potentially significant contributor to financial inclusion by the G-20. While half the adults worldwide do not have access to formal bank accounts, it is estimated that more than 2 billion of those unbanked already own a mobile phone. Unbanked individuals cite difficulties in obtaining a bank account such as living too far away from branches, not possessing necessary documents, or high banking costs. All such barriers to finance can in theory be overcome through a pivot in business model that is supportive of m-banking.
M-banking has flourished both in developed and developing countries in various forms in response to structural characteristics. The model of providing financial services through a mobile phone linked to a bank account is referred to in the literature as the additive model. The use of m-banking in developed economies often follows the additive model. This contrasts with the practice of using m-banking to target the unbanked - the transformative model. Under this model, non-banks issue electronic currency to offer costumers payment services and value storage services.