When Should a Bank Contemplate Launching a Mobile Banking System?
Relevance of Mobile Banking Strategy
The mobile banking strategy is only one component of a bank's strategy to reach rural clients. Market needs have to be analyzed, and adapted products and processes have to be defined. As we have seen, whereas outsourcing cash transactions will be a very significant cost reduction mechanism for savings and deposits as well as for remittance and payment services, it is only a minor part of the costs of credit delivery. And simple SMS-banking is very adapted to improve communication between bank and client. Thus, depending on the bank's strategy for a given market, which itself depends on the unmet needs of this market, mobile banking might or might not be a good complement to increase outreach. In certain environments, “old-fashioned solutions” might be more relevant and successful. These have considerably gained in security from the introduction of ICT and are far from being obsolete. The mobile banking hype is thus definitely not a sufficient reason for engaging in such a heavy project.
To be profitable, a bank's mobile banking strategy needs to include a whole range of services addressing the needs of different market segments (not only those of the rural market). Mobile banking requires costly investments that need to be absorbed by a high volume of activity which can, depending on the context, be generated either by the sole bank with its whole customer base or by the use of a modularized system, based either on an external provider or on one set up by a group of banks.
In a given market a bank might need to offer a number of mobile-banking services, not necessarily the whole array (e.g. SMS-banking or account to account transfers), in order to just keep up with the market. This has to be analyzed on a case by case basis.
When considering technology-driven solutions, a bank should thus consider the type of services to be delivered to clients, model the solution's economy in the bank's given environment and make sure the necessary pre-conditions are in place. In a favorable environment, mobile banking can considerably help to extend the outreach of rural finance, but this requires to define at bank level (i) a comprehensive strategy to reach rural clients (including products, processes, etc.), and (ii) a mobile banking strategy (for both urban and rural areas).
A bank planning to use or set up a mobile banking system including provision of rural and agriculture loans will need to be already successfully offering financial services to rural/agricultural customers. Rural lending is a difficult field and mobile banking will not create the necessary skills.
Introducing mobile banking must be consistent with the bank's strategy and business plan. Financial projections must show sustainability of the project taking into account the following possible advantages:
x Reduce production costs per unit and/or transaction costs, at MFI and/or client levels;
x Reduce congestion in branches;
x Improve satisfaction and retain existing customers;
x Better face competition;
x Reach new customer segments or new geographic areas, at better conditions than those offered so far, including by the informal financial system;
x Marketing argument (build customer loyalty).
Minimum regulatory conditions must be met, mainly permitting banks to engage third-party retail outlets with minimal financial risks for both banks and their customers, and tiered know-your-customer regulations in line with the possibilities of documentation of rural outlets for low-value transactions.
Another critical element is the existence of potential agents: pre-existence of commercial networks is a favorable element and presence of potential agents of sufficient financial caliber in the region where mobile banking is contemplated is necessary. The bank needs to have a good understanding of the capacities and limits on the agent level.
The Role of Government and Donors
A positive role for the government is in creating an enabling environment, and in particular setting up adapted regulation enabling the use of technology and thirdparty agents while ensuring protection of consumers and of the financial system as a whole. Consumer protection is indeed a major concern to be addressed when regulated institutions outsource operations to non-regulated agents. Main related policy objectives are:
x Protecting client funds held as electronically stored value;
x Ensuring safety and reliability of services;
x Reducing opportunities for agent fraud and other harmful conduct;
x Ensuring clear and effective disclosure;
x Protecting clients' personal information;
x Ensuring clients have knowledge of and access to effective redress and complaint procedures.
Donors and development finance institutions (DFIs) have an important advocacy role by engaging in a dialogue with governments on conducive policies and frameworks for expanding financial services through use of third-party agents, and by facilitating exchange and learning on lessons and good practices.
x Using technology for expanding outreach in rural areas is a new field presenting high risk and uncertainties for banks. In this context, it also makes sense for donors to support pilot projects that can build reference for future replication. In a context where mobile-banking is very much in fashion, an important contribution donors can make to its healthy development is helping banks gain a comprehensive understanding of stakes and issues.