Mongolia is about the size of Alaska and has a population of fewer then 3 million people. This translates into one of the lowest population densities in the world. With almost half the population living in Ulaanbaatar, the capital city, and the rest spread out across the country, it may seem that Mongolia is not the ideal landscape for mobile financial services. Think again! Because that's what the key players in the market are doing.
Last month, I had the opportunity to visit Mongolia to assess the mobile banking landscape there, and I came away surprised by what I found—and excited by the possibilities.
One very unexpected finding is that Mongolia is actually one of the most banked countries in the world, at least according to one of the country’s leading bankers. And he may not be far off in that assessment. The Bank of Mongolia, the country’s Central Bank, provided me with updated figures that claim there are 2.5 million current accounts, 1.3 million deposit accounts, and more than 500,000 loan accounts in the country. The figure that kept popping up was 60% of the population was banked—larger by several factors than the percentage you would expect to find in a developing country. A likely explanation of this phenomenon is government payments which are made to a large number of children and pensioners, and which go directly into bank accounts.
Cell phone penetration is actually lower than financial service penetration, another unfamiliar finding for a developing country. Based on the information uncovered, I estimate there are currently 1.1 to 1.2 million unique cell phone customers in the country. Even though the number of unique cell phone users is lower than the number of deposit accounts, the rate of mobile uptake is climbing. Soon the number of cell phones will equal or surpass the number of people with bank accounts.
Another interesting aspect of the Mongolian financial services landscape is the fact that there is limited interoperability between existing payment networks. Over the years, banks have built largely proprietary ATM and point of sale (POS) systems that are shared by only a few banks. Although there have been many attempts to introduce a national payments system, none have succeeded because the banks have not figured out how to overcome issues related to revenue sharing and recouping past investments. As a result, merchants have multiple POS terminals in their shops and customers do not have the option to use their cards interchangeably between devices.
What this landscape could translate into for Mongolia’s banks and mobile operators is an opportunity to provide a financial service platform that leapfrogs over the limitations of the existing systems, providing customers with the ability to move money easily wherever they want—even over large distances. If such an approach could work, then it might also serve as a catalyst to finally bring the banks together around their other payments platforms.
Another piece of good news is that the regulatory environment in the country is quite conducive to transformative strategies as it is quite open, and hence does not preclude banks or non-banks from testing innovative models. The Central Bank plans to collaborate with market players to find a balance between innovation and risk mitigation, developing appropriate regulations and laws as the market unfolds. This is a laudable approach that aligns with global best practices.
About two years ago when CGAP first looked at the mobile banking landscape in Mongolia, there was not much activity. A lot has changed since then. Now most of the big banks have a mobile banking service for their current customers. Since these are additive models that have been introduced with limited marketing or customer support, the uptake has not been dramatic. But that may change as players enter the space with innovative and transformative solutions.