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Mobile banking: the changing world of technology - Muhammad Adnan Arshad - 08-12-2009

The notion that mobile phones have brought a lot of freedom, knowledge and economic benefits to the masses is now an established fact.

The experience of remaining connected and exchanging know-how of markets and quickly learning to change business arrangements and techniques is really making businesses like road-side vendors all the more agile and profitable. In places where we have bad roads and unreliable fixed-line phones, they substitute for travel, and allow for price data to be distributed more quickly and easily, enabling traders to reach wider markets and generally ease the effort of doing business. That definitely makes an impact on the lives of people.

As the penetration of mobile phones spreads, a new economic benefit is quickly being realised by the market – using them for banking purposes. Out of a population of approx 170 million, there are only 12 – 13 million people who hold a traditional ‘branch banking’ relationship with any bank that has taken the effort to reach him/her. With such a huge gap in the provision of banking services to the hugely under-served masses, there is a dire need to venture into a banking model that works on the ‘branchless banking’ concept.

Branchless banking, as the name suggests, removes the holy grail of banking ‘branches’ as the sole owner, management and control of ‘deposit taking’ and ‘cash in / cash out’ functionality and gives it to bank appointed ‘agents’. These agents are designed to serve as extensions of the bank and become simple and true customer touch-points that allow for customers to go and open a “transaction banking” account with the bank and deposit money into the account there and then – at any time of the day or night. Once the money is in the account, it could then become available for making payments – like funds transfers, mobile top-ups, retail merchants etc. The best part of this setup is that agents would serve for both cash-in and cash-out situations. In addition to the availability of agents to manage the cash handling facilities, it would be possible to give these customers ATM/debit cards for these “transaction banking accounts”, so that they can start using other electronic banking channels, including POS terminals at retail merchants for making payments where mobile payments are not enabled. Does it not seem simple and effective?

Recently, State Bank of Pakistan came out with a detailed ‘Branchless Banking Guidelines’ document that defines a number of elements that would help in the setting-up of these services in the future. The guidelines extend their purview to include ‘mobile banking’ under the same.

Looking at the mobile penetration in the country, it is amazing to see the extent to which the reach extends. Interestingly, at any given time, there are between 50 to 60 million active cell phone users in the country. By allowing these cell phone users to perform their banking needs as easily as they make a phone call, we can well imagine the extent to which it will start to affect the banking industry in general and the payments industry in particular. Surprisingly, the potential of mobile banking has already been explored and implemented in a number of countries around the world – so we are not alone!

In the developing world, countries like Philippines, Kenya, Republic of Congo, Cambodia, South Africa, etc. have all implemented pioneering projects in the Mobile Banking or Payments space. There are projects that allow customers to withdraw cash through mobile operators’ airtime-resale agents and send money to other people via text messages or other technically feasible forms that can then be exchanged for cash by visiting an appointed agent. Other projects have allowed organizations and companies to use this service to disburse salaries to staff by phone, where the customers are then instantly enabled to start using these funds in the transaction account to pay for taxis, schools and groceries etc. All these services allow for easy funds transfers to friends and family and to make payments for utility bills and retail merchants.

Within Pakistan, there are banks that offer basic inquiry services through the SMS service, which does not really come into the fore of Mobile Banking. However, one bank has already started advertising to offer transaction based services through an SMS engaged IVR call-back facility for financial transaction verification/authorization.

A number of other banks are already well ahead in their plans to launch products/services in this arena. Importantly, there are a lot of very experienced international vendors, with experience of markets from South East Asia to Africa, in Pakistan who are offering systems/solutions and knowledge in the area of mobile banking and payments. The solutions offered cover for technologies such as SMS, USSD, WAP, Java and/or SDK. The selection of what technology route to take needs to be a careful one and should be in-line with the market segment that the banks wish to focus on and therefore a strong overall strategy should be developed to venture into this business.

The extent of customer reach through the mobile banking platform is enormous and is directly linked to the number of customers that start using the mobile phone and get a connection. The mobile industry is still expanding and the telecom companies have a long way to go and sell through aggressive pricing and new package offerings. The convenience offered through Mobile Banking is an even bigger driver for the use of this service. The most interesting trend is that even people who are unfortunately not educated are quite capable and smart about using cell phones and readily accept new features. This interest of the new and the un-daunting task of getting used to the features on the mobile phone alone would be the real force behind the take up of Mobile Banking in the country. I honestly look forward to it and would encourage all banks to consider offering this service for the benefit of the masses and help bring the un-banked sector into the folds of the managed financial services market.

By Akbar Moghal
(Source Daily The News)