Innovation
Global Investor Focus, 02/2007 Credit Suisse
Global Investor Focus, 02/2007
Credit Suisse
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GLOBAL INVESTOR FOCUS <strong>Innovation</strong> — 22<br />
Banking on the mobile<br />
Klaus Tischhauser, Managing Director, responsAbility Social Investment Services AG<br />
We have long grown accustomed to using automatic teller machines<br />
(ATMs), paying for purchases in non-cash form and hardly ever<br />
entering the lobby of a bank to carry out simple business transactions.<br />
With the help of the Internet, e-banking has now entered<br />
private households. Mobile telephone-based services – so-called<br />
m-banking – have spread at a somewhat slower pace. Nevertheless,<br />
thanks to technology, for years practically everyone in industrialized<br />
nations has had access to low-cost financial services, independent<br />
of time, place and the presence of a bank.<br />
In developing countries, the modern banking industry is also<br />
being transformed by technology use, with the expansion of financial<br />
market structures for poorer segments of the population (so-called<br />
microfinance) just taking root. Here, the trend in m-banking services<br />
is moving even faster than in the industrialized world.<br />
One reason lies in the spread of mobile telephony. Of the more<br />
than three billion mobile phone users worldwide today, a greater<br />
proportion live in developing nations than in developed ones. Another<br />
factor is that mobile-telephony network operators and the<br />
microfinance industry have something in common: they both deal<br />
with vast numbers of customers and transactions, but with minute<br />
amounts of money. Thanks to the user-friendly nature of the mobile<br />
telephone, m-banking services are playing an increasingly significant<br />
role, particularly in Africa – the fastest-growing communications<br />
market – but also in other developing countries with lowly<br />
populated rural areas, poor infrastructure and, in some cases, lower<br />
educational levels among customers.<br />
Trend-setting cooperation<br />
Technology companies, banks and microfinance institutions specializing<br />
in serving the poorer customer segments have been compelled<br />
to enter into cooperative agreements, primarily because the<br />
financial sector is strongly regulated in most countries, with access<br />
often limited just to banks. The following examples from Africa reveal<br />
how cooperation and innovative technology can pave the way for<br />
the development of financial services, such as m-banking, even to<br />
remote clientele.<br />
The field of operations for mobile telephony within the scope of<br />
m-banking services is multifaceted. In Kenya, for instance, Vodafone<br />
has set up the M-PESA service in conjunction with local provider<br />
Safaricom, the Commercial Bank of Africa and the local microfinance<br />
institution Faulu. With M-PESA, customers are able to borrow<br />
money, call up their account balances and transfer funds, all via<br />
their mobile phones. Another example in Kenya is the cooperation<br />
between microfinance specialist Equity Bank and a network of<br />
traders aimed at providing mobile phone-based banking services to<br />
around 1.7 million Kenyans, most of whom live in rural areas far<br />
from bank branches. Meanwhile in South Africa, a consortium of<br />
companies is dispensing entirely with the traditional banking infrastructure,<br />
establishing a virtual, purely mobile phone-based facility,<br />
WIZZIT. Customers using WIZZIT appreciate this service since it is<br />
faster, safer and roughly one-third cheaper than making the journey<br />
to a bank branch or ATM.<br />
In the Democratic Republic of Congo, the transportation routes<br />
are extremely long and difficult to maneuver through, infrastructure<br />
is patchy, and the financial sector is very underdeveloped, with only<br />
an estimated 30,000 bank accounts. In this environment, Celpay<br />
offers the possibility of making payment transactions via mobile<br />
telephone. For example, Celpay enables traders to execute money<br />
transfer in a split second, rather than having to pay their suppliers<br />
in cash, and allows suppliers to confirm the transaction locally on<br />
their mobile phones. The security advantages of non-cash payment<br />
transactions are obvious. In addition, traders can offer low-cost,<br />
long-distance payment services to customers who do not personally<br />
own a mobile telephone or receive payments on behalf of customers.<br />
Celpay already settles 500,000 of these types of transactions<br />
monthly.<br />
Diverse uses of technology and innovation<br />
Besides m-banking, technology is being applied in many other areas<br />
of microfinance: for example, ATMs, point-of-sale (POS) systems,<br />
devices for detecting biometric data for customer identification<br />
(e. g. fingerprints for those who cannot write), as well as handheld<br />
devices for loan officers visiting customers. These applications<br />
have a number of advantages: they reduce the use of cash and the<br />
involvement of bank employees, as well as, in some cases, dramatically<br />
lower costs and diminish risks. This, in turn, allows companies<br />
to offer a larger assortment of financial services through additional<br />
distribution channels at lower costs. These firms are able to reach<br />
more customers and new segments previously unserviceable due to<br />
cost. In light of the fact that an estimated two billion people living<br />
in developing countries still lack basic access to financial services,<br />
this is a very promising trend.