The world in your palm’ could best describe the utility of a mobile phone, whereas the cause of its innovation was the option of calling anyone at anytime. The mobile phone has helped remove obstacles that earlier stood in the way of accelerating the pace of an ordinary job like banking. The new arena called mobile banking has made all sorts of financial transactions as convinient as the pressing of a button.
Money transfers, utility bill payments, mobile accounts, international home transfers, easy loads and donations are now routine activities of mobile communication. The recent and smart way of doing business carries benefits for both consumers as well as merchants. The former could avoid travelling all the way to banks, standing in long queues and filling in documents for bill payments and money transfers.
For merchants, such as WAPDA, it means timely collection of payments and for others it implies extra revenue in the form of commissions on every transaction. Branchless and paperless banking is giving way to an environment where more people could route their finances legally and become a part of the financial system that provides a safer and more progressive business environment. These “branchless” schemes typically allow customers to deposit and withdraw cash through a mobile operator’s airtime-resale agents, and send money to other people via text messages that can be exchanged for cash by visiting an agent. Workers can then be paid by phone; taxi-drivers and delivery-drivers can accept payments without carrying cash around; money can be easily sent to friends and family. A popular use is to deposit money before making a long journey and then withdraw it once you reach, which is safer than carrying cash with you. There is no need to set up a national network of branches or cash machines. M-banking schemes can be combined with microfinance loans, extending access to credit and enabling users to establish a credit history. Some schemes issue customers with debit cards linked to their m-banking accounts. All this has the potential to give the “unbanked” masses an access to financial services and bring them into the formal economy. According to the Bureau of International Information Programmes at the US State Department, around one million of Tanzania’s 41 million inhabitants use mobile phone technology to carry out financial transactions and save money. At the same time, only 12 per cent of the population has a formal bank account, while almost half of them own a cell phone. In developing countries like Kenya, the arrival of an accessible communication network – for most, their first – has had a profound effect on economic growth. Studies by London Business School, World Bank and the consultancy firm Deloitte found that for every additional 10 mobile phones per 100 people in a developing country, GDP rose 0.6 per cent to 1.2 per cent.
There are more than 2.5 billion people in the developing world who are “financially excluded” that is they do not have access to basic financial services such as bank accounts, bill payments, credit and saving and insurance products but these 2.5 billion adults either own or have an access to mobile phones. If included into the mainstream of financial services these adults could benefit any economy enormously in terms of high per capita saving, rising foreign reserves and expanding businesses. Presently, these people are engaged in risky, costly and unpredictable money management techniques. They borrow or lend amongst friends and families, obtain short term loans from employers, form illegal saving clubs or seek for illegal moneylenders. Most of the “unbanked” people do so because of inhibition of entering the financial world. Financial exclusion is often a result of lack of credit history, overly complicated financial products, limited access to banks and little trust in existing financial institutions. Having a mobile could break that cycle. According to BCG’s study, mobile financial services lower barriers to adoption, through reduced entry cost, reduced service prices and better suited products. One should not assume that a mobile financial service is a replacement to traditional banking. It is just an added flare to the financial market working most of the time to benefit high income earners. Telecommunication companies have a unique advantage of bringing mobile financial services to people whom traditional banks have difficulty reaching.
Financial services for the un-banked are among the most promising opportunities for mobile-telecom operators hoping to counter slowing subscription growth with auxiliary offerings, such as banking, health care, and education services. In emerging markets, formal banking reaches about 37 percent of the population, compared with a 50 percent penetration rate for mobile phones. For every 10,000 people, these countries have one bank branch and one ATM—but 5,100 mobile phones. Different estimates indicate that the value of revenues from financial services over mobile channel will be around 20 billion euros in 2015. The service will be a rival to traditional money transfer operators like Western Union and MoneyGram initially, but could replace credit cards in the future. Telenor has the credit to introduce Mobile Financial Services in Pakistan. Telenor and Tameer Microfinance have jointly established the easy paisa service that was launched in October 2009. Services currently available include bill payment, domestic and international remittance, as well as savings and insurance. More than 1.5 million transactions are conducted every month through easy paisa. “As we have seen with our service Easy Paisa in Pakistan is now covering more than 10 million people after a little more than one year of operation, companies like Telenor have a unique advantage in bringing mobile financial services to the un-banked. We have a pre-established relationship with the customers, who already have mobile devices in their hands. And we are a trusted and established brand in the regions we operate, with a large and secure distribution network.” The secret of easy paisa’s success is simplicity. In a world where sending money home used to require a hard-to-obtain bank account, Pakistanis can now send as little as Rs500 to one another for minimal cost, with no risk, in seconds. The advantages over a regular bank are clear, some businessmen want to deposit too little, for them to stand for a long time in a queue. Others are shabbily dressed or illiterate or they forget their signatures. It’s just easier to operate with easy paisa.
According to a research conducted by Boston Consulting Group in collaboration with Telenor Pakistan, mobile financial services have the potential to step up GDP by three per cent in Pakistan by the year 2020. This growth would come through an increased access to credit, promotion of new business opportunities, as well as through the benefits of formal remittances and increased savings. Research shows that five to twenty per cent less people will be financially excluded by the year 2020. With credit and saving products supporting entrepreneurs, there would be more jobs with the creation and expansion of new businesses. Similarly, positive cost affects coming from the elimination of middleman could be transferred on better purposes. As far as Pakistan is concerned 85 per cent of people are financially excluded and they often manage their finances illegally. BCG’s research has shown that mobile financial services could reach 71 per cent of the “unbanked” population of Pakistan. According to Pakistan Telecommunication Authority, mobile subscription has reached the 100 million mark in 2010, making mobile phone the most accessible tool for financial services in Pakistan. Research has shows that Pakistan has impressive potential to exploit the saving account option offered by mobile financial services. It is estimated that 27 million adults would have saving accounts in Pakistan by 2020. A total of 17 million additional customers would be using mobiles to facilitate bill payment by the same year, marking an increase of 31 per cent. The mobile phone can also be used as means to access credit services for an additional 10 million Pakistanis by 2020. International remittance services in Pakistan can also increase by 24 per cent by 2020. Similarly, the Pakistani government can distribute subsidies and welfare through mobile financial services making the entire procedure less tedious and inexpensive. Passport application and social security requests can also be managed through e-government services. Telenor Pakistan CEO Christian Albech spoke about the benefits of mobile financial services on individuals and society in Pakistan. “The study shows that mobile financial services can help families and businesses to respond in a better way to expense shocks, and can have positive effects on entrepreneurship. They can help improve children’s chances of completing primary school. Women’s access to funds can be improved, with positive effects on child education and health. Mobile financial services can prove to be invaluable in supporting Pakistan’s social development goals.”
After talking to a number of mobile and security experts, I’ve come to the conclusion that far from being less secure, mobile banking may even be more secure than logging on to your bank Website over your PC. And the consensus is that it’s probably less risky than using cheques, which can be forged, and credit cards, which can be stolen or skimmed at ATM machines. To safeguard against security risks, mobile users should use their device PIN codes, download mobile apps only from their financial institution, switch Bluetooth off when not in use, and avoid lending their phone to strangers to minimize the chance of someone downloading a malicious app onto the device.
In his seminal 2004 book, The Fortune at the Bottom of the Pyramid, development economist C.K. Prahalad outlined a huge opportunity for businesses that had long assumed that being poor meant having no money. The poor did have a little money, it turned out, and there were billions of them, a massive untapped market for the companies that could figure out how to serve them. Mobile banking is the best evidence yet that Prahalad, who died in April, was right. Before mobile technology, most of the developing world was un-banked.
