Communicating through radio link has come a long way since World War II. With voice calls, text messages, mobile internet access and built-in cameras, today’s smartphone is already a remarkable all-in-one handheld computer — but its potential could be even greater in the developing world.
This is particularly true in banking. Asia’s fragmented payments infrastructure and large unbanked population mean that millions lack even limited access to branch-based banking, but rising mobile penetration is creating new options for person-to-person payments.
“Mobile banking works because the individuals and small businesses in the emerging markets have access to a mobile phone,” said Richard Davies, Asia-Pacific director of Logica’s global products business. “Similarly, in the more mature markets, it would be strange to see somebody who does not own a smartphone.”
Telecommunications service providers have been quick to pick up on this trend. Mobile banking and payments solutions, such as GCash in the Philippines and MPesa in Kenya, have been very successful in the emerging markets. “Banks in Southeast Asia are interested in mobile banking to get ahead of the game and provide additional services for their customers,” said Dean Young, vice president of product management at SunGard’s ambit retail banking business arm.
Technology is of course an important driver behind the adoption of new mobile payment tools but, according to Marc Mathenz, senior vice president and head of Asia-Pacific at First Data, the key influencers around mobile-based technology and applications are likely to be the central banks, regulators and, ultimately, the merchants using the services.
The end of bank branches?
Sending payments through a mobile device is simple, but whether it is a bank, convenience store or another distributor, the need for a brick-and-mortar setup to fully complete a transaction will arise. “The delivery of cash is the biggest problem when moving small sums in markets where the infrastructure is underdeveloped,” Davies explained.
Building branches in poor, rural areas might never make commercial sense for banks in emerging markets, but it is questionable whether a mobile device can really be a replacement for the traditional bank branch.
“The mobile phone is just another channel for banks to reach out to their customers. It is definitely not a replacement for something else [bank branch],” said Davies.
Some selected services can be offered through a mobile device, but it is easy to overlook the less tangible benefits that can only be derived from a bank branch.
“Banking services can be delivered by internet banking, augmented with the mobile channel, but relationships cannot, at least for now,” said Gil Gadot, executive vice-president and chief technology officer at Fundtech.
Gadot himself says he became loyal to a certain bank after he visited a branch and established an effective business relationship with a branch manager. Even though he meets this relationship manager once or twice at most per year, it is exactly this intangible advantage that a branch will always have over any sort of relationship formed through the internet or a mobile phone.
According to George Ravich, executive vice president and chief marketing officer at Fundtech, this is because the mobile channel is really just an extension of the cash management offering of a bank.
“The branch is certainly not dead in Southeast Asia, even though much of the population is not comfortable or familiar with it,” Young explained. “However, as their wealth increases and they begin to deal with larger amounts of cash there will be a hesitancy to complete transactions through a mobile phone and that’s when the branch network becomes important again.”
The business case for mobile banking
“The smartphone today is not just an entertainment device,” said Gadot. “People are beginning to understand that it is a business machine and are therefore more willing to use it when dealing with business matters.”
While the chief financial officer of a multinational corporation (MNC) may be reluctant to approve a multi-million dollar deal through his mobile device on the move, an entrepreneur who owns a small business and is meeting potential clients on a daily basis may find it more convenient to deal with transactions through his smartphone.
“Mobile banking is really for the solo business person or small company that does not have an office or a desk to sit at,” Ravich noted.
This is probably due to the difference in transaction size. Security was also an issue when internet banking was first introduced and this is the case for mobile banking, especially for larger corporations.
“The small and medium-sized enterprises are certainly more interested in mobile banking when compared to the large corporations,” said Ravich. “MNCs and their information technology departments are concerned about security as they deal with much larger amounts in general.”
As companies expand and their cash and treasury operational needs become increasingly complex, it is common for them to reconcile certain functions and centralise internal processes. Further down the line, shared service centres or even regional treasury centres may be developed to drive down costs and simplify finance and accounting functions. The mobile channel offers an additional option at each stage of a company’s development.
“For banking corporations in emerging markets, multi-channel banking and banking automation in general is really about convenience for customers and compliance with regulation rather than cutting costs,” Young explained. “Through the mobile and internet channels, many previously paper-based procedures can be properly enforced through transaction or file limits whereas written procedures can easily be ignored.”According to Young, there is nothing that can physically prevent a payment that is not compliant going through if it is on paper. A payment made over a mobile device, however, can be intercepted if does not comply with preset limitations.
For banks, focusing on developing mobile banking services in emerging markets is an obvious choice. Many financial institutions and merchants have well-developed solutions and services for the more affluent population in Asia-Pacific, but the unbanked population in the emerging markets is becoming a higher priority.
“As the attributable revenue in the top and middle segments of the market is becoming quite saturated for financial institutions and merchants, they want to explore new avenues and channels to tap into opportunities represented by people in the lower segment of the pyramid,” Mathenz explained.
In Young’s view there is not necessarily a business benefit that can be derived from mobile banking in developed markets. In these markets it is more about attracting and locking down market share — the added value comes further down the line, when the bank compiles more detailed data from mobile banking users to cross-sell additional products.
“Mobile banking and payments is a niche and can be a solution to fix certain problems in markets where banks cannot offer a solution,” Davies concluded.
This story was first published in the Corporate Treasury Yearbook supplement to the November 2011 issue of FinanceAsia magazine.
