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mobile banking

Policies to foster mobile banking development

Eva M. Gutiérrez's picture

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.

Triggering Disruptive Innovation in Retail Banking in the Digital Age

Ignacio Mas's picture

See what a profound transformation the internet is producing in information-based sectors. Newspapers are under threat from online news sources and blogs. These same web destinations are becoming less relevant as people simply lift and filter the information they want using RSS feeds. The music CD is being unbundled as customers buy individual tracks online. These songs get remixed and re-distributed across an ever-growing number of online content repositories. Books are increasingly digitized, and customers can now sample content and search for information across entire libraries.

The internet is a destroyer of digital products but a great creator of new kinds of customer experiences. Power has shifted to users: it’s no longer about the packages of content suppliers want to sell but about the content mash-ups users want to consume. Providers’ best response is to try to extract more customer information with each interaction, and use that to deliver even more relevance and convenience to their customers. Think Google and Apple and Amazon: the new corporate battlefield lies in the control of the user interface and the customer intelligence system that supports it.

Yet there is one information-based sector that seems deaf to the great sucking sound of the internet: banking. What is banking but managing information of who has what financial claims on whom? For banking, the internet truly is still just another channel. Sure, it has added transactional convenience, but has it changed how banks talk to us?

Low Cost Banking: How Retail Stores and Mobile Phones Can Transform Access to Finance

Ignacio Mas's picture

More than 3 billion people in the world today don’t have access to savings accounts. Many of these 3 billion fall below the less-than-$2-per-day benchmark of the world’s poorest people. Why are banks not doing a better job to help them manage their financial lives?

The problem is largely one of cost. Providing financial services to the poor is prohibitively expensive for banks. Each time a client stands in front a of a teller’s window it costs most banks from $1 to $3. If poor clients make transactions of $1 or $2, or even less, banks won’t be able to support the costs.

It’s also too costly for the poor. Most poor people, especially those in rural areas, live far away from bank branches. Let me give one example of a woman in Kenya. The nearest branch may be 10 kilometers away, but it takes her almost an hour to get there by foot and bus because she doesn’t have her own wheels. With waiting times at the branch, that’s a round-trip of two hours – a quarter or so of her working day gone.  While the bus fare is only 50 cents, that’s maybe one fifth of what she makes on an average day. So each banking transaction costs her the equivalent of almost half a day’s wages.