In many ACP countries, mobile banking services have expanded rapidly, giving millions of people in rural areas access to financial services without the need to ever visit a bank.
When mobile phones started to become popular in Africa, people quickly realized that they could use their prepaid airtime credit instead of cash. Rather than use the credit to make calls, a user could transfer the same amount via a text message. The receiver could then use that credit to top up their own airtime, or even transfer it again to a shopkeeper, for example, in exchange for goods. The system wasn’t perfect - a percentage of that credit was often deducated as government sales tax - but it did show that people needed a system for transferring small amounts of money. There was demand, and the market responded. The result was mobile banking, also known as m-banking.
A few banks and mobile network operators (MNOs) were first to supply mobile banking services. In April 2007, ICT Update reported on one of the frontrunners in the business, a South African company called Wizzit. The company began offering mobile banking services in 2004 operating as a division of the South African Bank of Athens Limited, and has continued to expand ever since.
‘When we first started many big banks said that mobile banking would never work,’ says Wizzit’s founding director and CEO, Brian Richardson. ‘No one would accept making payments on their phone, they said. But there has been a complete u-turn since then and now almost every major bank in the world has its own mobile banking service or is in the process of evaluating the possibilities of introducing one.’
And, he explains, it is customer demand that continues to drive expansion in the sector. 'As people became comfortable buying airtime they started looking at what other services they could get access to,’ Richardson says. ‘The first step was to provide the customer with the possibility to make banking transactions, to send and receive payments from one account to another. Once that was established, we then looked at other services including savings accounts, loans and insurance policies. All of these services can now be offered over the phone.’
In fact, mobile banking customers can now open an account, start saving, secure a loan and an insurance policy without ever having to enter a bank branch. Removing the need for customers to travel long distances has been crucial to providing financial services to those living outside the main towns and cities.
‘If people in rural areas are to have any chance of having access to banking, then the banks have to go to them, not wait until they come to the banks,’ says Richardson. ‘The technology makes that possible as mobile phones are used for so much more than just a means of communication. The phone has become a tool to do so many things, and people are comfortable using them. Mobile banking simply makes use of that tool.’
But while many have welcomed the spread of mobile phones for giving rural communities better access to banks, Richardson is disappointed that the cost of the technology is still beyond so many people. ‘Five years ago when we were first starting in this business, I was looking around for a mobile phone costing about US$20, which I would consider to be a reasonable, affordable price. Despite the fact that there is a massive market for mobile phone handsets, and that everyone says they’re getting cheaper, it’s still not possible to buy a handset for less than US$20. The prices haven’t come down to a level that would make them affordable to the rural poor.’
Richardson is still positive about the continued growth of mobile banking. ‘People in rural areas are now in a better position to open a bank account than they were two years ago. As long as the companies supplying mobile banking services don’t start telling customers that they need a new phone or they have to upgrade or change their network, but make use of what they already have, then they will trust the services they are offered.’
With increased competition coming from MNOs and other major banks, even Wizzit, one of the first companies to offer mobile banking, needs to assess its position on a regular basis, and to look at how it can continue to meet customer demands. ‘We are still working our way through a very steep learning curve,’ says Richardson. ‘The mobile banking world is tough, it’s unpredictable and we don’t have all the answers. We’re still learning something new every single day.’
At the moment it is the mobile banking businesses operating in Africa that are learning and innovating more than anywhere else. And as the industry continues to mature, Richardson believes these companies will only improve, and offer better services to their core customers – people with low and irregular incomes.
‘The governments of many emerging economies now realize that providing banking services is an effective way to alleviate poverty. As many countries work their way through the current financial crisis, there is probably no better time to explore different banking models, and Wizzit does provide a different model. But it isn’t only about technology, or even mobile banking, the most important thing is to think about is how we can offer financial access to people on a low income in a way that is affordable and convenient’
Read the ICT Update article in issue 36, April 2007