Agenda✓ 1 What is Mobile Banking? 2 Amazing growth of mobiles 3 Benefits 4 How prevalent it is in developing countries? 5 What is the potential impact on the economy? 6 Possibilities
What is Mobile Banking? • It‟s a set of applications that enable people to use their mobile telephones to manipulate bank accounts, store value in an account related to their handsets, transfer funds or even access credit or insurance products. • It‟s about buying and selling products and services through wireless handheld devices such as mobile phones, or simply „saving‟ money on the handheld. • Used to provide financial services to the banked, under- banked and, particularly, the “unbanked”.
Unbanked • 50% of the world‟s adults do not use financial services • (Financial Access Initiative – a consortium of researchers) • In Latin America with a population of 570 million (2006) only 14.5% of the poor households had a savings account and only 3% had access to credit. • In the Caribbean less than 50% of the population have savings accounts • (Terjerina & Westley‟s 2007 survey) • Barriers to financial access occurs due to: – Need for formal employment – Need for formal identity documents – Need to maintain „high‟ minimum balances – Monthly and transaction fees – Availability of locations (Beck et al)
Banking Agent • . . . . is a retail or postal outlet • the owner or an employee of the retail outlet conducts the transaction and lets clients deposit, withdraw, and transfer funds, pay their bills, inquire about an account balance, or receive government benefits or a direct deposit from their employer. • Banking agents can be pharmacies, supermarkets, convenience stores, lottery outlets, post offices, and many more.
A typical mobile transaction
Agenda 1 What is Mobile Banking✓ 2 Amazing growth of mobiles 3 Benefits 4 How prevalent it is in developing countries? 5 What is the potential impact on the economy? 6 Possibilities
Amazing growth of mobility 6 in 10 people around the word now have mobile phone subscriptions. Its now the communication technology of Mobile phone choice particularly in poor subscriptions countries. 4.1 bn Fixed-line Mobile phone Fixed-line subscription subscriptions subscriptions 1bn 1bn 1.27bn 2002 2008 Source: UN Report 2010
Mobile Banking SubscribersIn the USA Internet Banking Users Mobile Banking Users 50Millions 45 40 35 30 25 20 15 10 5 0 2007 2008 2009 2010 Source: Aite Group
Comparison of ‘bricks andmortar’ penetration withMobiles140 Bank Branches, ATMs per 100,000 people;120 Mobile Subscriptions per 100 people100 80 60 40 20 0 Branches ATMs Mobile penetration Source: World Bank
Mobile penetration vs Banked Mobile Penetration Banked90%80%70%60%50%40%30%20%10% 0% Guatemala India Argentina Mexico Columbia Peru China Kenya Nicaragua Brazil Chile South Africa Source: World Bank (2007)
Current Statistics McKinsey Quarterly • 75% of the 4 billion mobiles phones currently in use Feb 2010 worldwide are in developing countries McKinsey Quarterly • 1 billion people in emerging markets have a mobile phone Feb 2010 but no access to banking services McKinsey Quarterly • In emerging markets formal banking reaches 37% of the Feb 2010 people whereas for mobiles its 50% Based on • Compound Average Growth rate over of Mobiles over the Nokia 2008 estimates last 15 years has been 27% per annum. McKinsey Quarterly • It’s predicted that in the next decade there will be more Feb 2010 mobile subscriptions in the world than people.
Agenda 1 What is Mobile Banking? 2 Amazing growth of mobiles✓ 3 Benefits 4 How prevalent it is in developing countries? 5 What is the potential impact on the economy? 6 Possibilities
Benefits to customers• Easy access from mobile phone at low/no additional cost• Mobile wallets, capable of being loaded up with and storing money (aka electronic purse).• Money transfer or simply transferring funds between accounts• Electronic bill payments. Becoming a „virtual debit card‟• Rapid person-to-person payment over distances• Notification on account changes and time critical information• Encourages savings instead of putting money in the mattress• Banking on the go/salaries can be rec‟d directly on the phone.
Opportunity to serve unbanked New banking channel Capture Security new from cash market theft segment Mobile Banking Improve information Lower cost flow: to serve bank/client Expand reach of offerings
Mobility will also changebanking and payments Account Person to Person to Person to Merchant Manage- Person Physical Online to Person ment Payment Merchant Merchant Payment Consumer uses mobile Payment Payment to review transactions on bank account and credit card Give $5 to my daughter. Send relative in US $100 from Peru Consumer uses Consumer uses mobile to mobile to purchase a purchase song from Nokia Merchant uses groceries mobile to offer coupons and targeted adsUser estimateglobal 2012 440M 330M 50M 150M N/A Source: Juniper Research, Feb 2008
Overall Impact Increase Decrease formal Increase the cost Increase merchants Increase people’s Decrease to serve traceability when money in control use of the un- in the every circulation of their cash and economy phone is a (e-money) money under- Point-of- banked Sale
Collateral benefits Lower prices on That’s Money Transfers transformative Improved Product and Services As a direct result of mobile banking Increased efficiency of Banks Increased transaction velocity
Agenda 1 What is Mobile Banking? 2 Amazing growth of mobiles 3 Benefits✓ 4 How prevalent it is in developing countries? How prevalent it is in developing countries? 5 What is the potential impact on the economy? 6 Possibilities
Use in developing countries Transformative m-banking models > than half the adultService Location Provider Scope Impact populationMPESA Kenya Safaricom, a 12 million users out Being used to buy private company of Kenya’s 38 million goods and services, jointly owned by 18, 000 MPESA pay bills to insurance Vodafone and agents, six times the brokers , taxi fares, Kenyan Govt number of bank school fees, branches and ATM s microfinance lenders and utility companies; used a savings accountsBolsa Brazil National govt Mechanism for govt Reduced programmeFamilia social welfare cost and delays in payments affecting delivery 45 million people
Use in developing countriesTransformative m-banking modelsService Location Provider Scope ImpactSmart Philippines Smart and Globe 3 million users Cash depositsMoney currently use the Cash withdrawalsG-CASH service. There is Transfers of credit to potential for a further the prepaid account 4 to 5 million growth Inward international in customers if remittances from penetration rates Overseas could match best Filipino Work practice operators elsewhere.Wizzit South Division of the 450,000 people use Targets the 16 million Africa South Africa Bank Wizzit people in South Africa of Athens who are unbanked or who have difficulty accessing formal financial services.
Agenda 1 What is Mobile Banking? 2 Amazing growth of mobiles 3 Benefits 4 How prevalent it is in developing countries?✓ 5 What is the potential impact on the economy? 6 Possibilities
Impact on Economy By 2012, 360M US$5billion without US$3billion annual direct traditional bank annual indirect Revenues from accounts is Revenues from fees for financial expected to use voice and SMS services mobile money Source: Vodaphone policy paper
Impact on Economy Increases Increases Increases effective employment communications circulation of money infrastructure [e-money] Growth in An increase of 10 formal mobile phones financial per 100 people system boosts GDP growth by 0.6 percentage points Source: Vodaphone policy paper
Remittances compared with other resource flows Source: World Bank Migration and Immigration Fact book 2011 Note: Does not include data for Anguilla, Montserrat and Bahamas
Remittances to Caricom US$4 billion Source: World Bank Migration and Immigration Fact book 2011 Note: Does not include data for Anguilla, Montserrat and Bahamas
Remittancesto Caricom 87%
Remittancesto Caricom (percentage of GDP)
Remittances to Caricom 2010 % of GDPJamica 13% ↑ > 43%Haiti 31%Guyana 33% Source: 2010 Remittances to Latin America and the US$ millions Caribbean/IDB Group
Agenda 1 What is Mobile Banking? 2 Amazing growth of mobiles 3 Benefits 4 How prevalent it is in developing countries? 5 What is the potential impact on the economy?✓ 6 Possibilities
Enabling Conditions Infrastructure • Need for ubiquity • Need for availability of high capacity SIM cards Regulation • Protection from frauds/secure service • Protection from money laundering/”Know your customer” requirements Partnerships • With banks and retail store • Microfinance institutions (to offer other added value services) Scalability • Volume is Key especially as the targeted market is BoP Establishing trust/overcoming ignorance
Potential Threatsto mobile banking service • Cloning (coping the identity of one mobile phone to another) • Hacker gains access to victim’s financial accounts • Hijacking (hijacker takes control of communication between 2 parties) • Gains access to victim’s financial accounts • Malicious code • virus/worm or other “malware” software loaded onto handset, SMS Gateway or bank’s server • performs unauthorized processes that affects integrity and confidentiality of financial transactions • Malware • Malicious software inserted into system to compromise confidentiality of victims data, applications or operating system • Man-in-the-middle attacks • Phishing • Tricking victim into disclosing sensitive personal information or downloading malware through email
Summary M-banking Can be additive or transformational • Transformational? Kenya and Philippines are success stories • Economic impact Increase money supply/labour/etc. • Major features already exist in Environment developing countries • Political will and/or bold What is required? entrepreneurs
"Now this is not the end. It is not even the beginning of the end. But it is perhaps, the end of the beginning.“ Sir Winston ChurchillTHANK YOU!
Economic Impact Burgess and Pande (2005) Mbiti and Weil (2011) Mbiti and Weil (2011) 1 “ . . . . branch 2 tA preliminary, . . 3 tThe average over expansion into rural ., conclusion from the period January- unbanked locations this exercise is that June 2008 of in India significantly the currency (M0) was reduced rural transactions 85.2 billion shillings poverty. We show velocity of M-Pesa (Central Bank of that this effect (either 11 or 14.6 Kenya, Statistical was, at least transactions per Bulletin, June partially, mediated month) is probably 2008). By through increased higher than other contrast, our deposit mobilization monetary calculated value of and credit components that outstanding e-float disbursement by are held by in August 2008 was banks in rural households, particul 757.2 million areas.” arly cash. shillings.