Despite the ubiquity of the mobile platform in today’s connected world, banking is an area which has traditionally lagged behind most markets.
There are signs that this is changing on a global scale, with Berg Insight recently forecasting that the number of mobile banking users worldwide will grow from 55mn in 2009, to 894mn in 2015.
Africa has traditionally led the way in mobile banking. Due to a largely dispersed population and a limited retail bank presence, the majority of the people are ‘unbanked’ (i.e. without a bank account). Research from Gallup (2010) shows that across the entire continent, only 19 per cent of individuals have bank accounts, with the number falling to as low as one per cent in countries such as Niger and the Democratic Republic of Congo. As traditional banking remains out of reach for the majority, mobile phones are fast becoming the best way to extend financial services to the unbanked. Mobile is the platform with the highest reach of the African population and can provide the infrastructure for transactions and payments across the region. Statistics from Wireless Intelligence recently indicated that the African continent actually surpassed Western Europe during the last quarter of 2010 in terms of mobile connections (547.5mn connections for the former compared to 523.6mn for the latter). Bearing in mind this high mobile penetration and the role of the mobile thus far in the continent’s wider banking industry, it is perhaps unsurprising that Juniper Research has predicted mobile banking will grow into a $22bn industry across Africa by 2015.
The rise of smartphones and apps
In more developed markets, the advent of smartphones and the growth of app stores means that mobile banking is increasingly being touted as a convenient form of online banking. Banks are using mobile as an additional communication channel to reach the consumer and popular banking apps are increasingly becoming linked to Customer Relationship Management (CRM’s) to provide services on the go. As mobile banking apps become ever-more sophisticated, this trend is only set to continue.
While these developments are undoubtedly positive, it is important to remember that mobile banking apps are only accessible to people who own smartphones or who have bank accounts. Across Africa, where neither bank accounts nor smartphones are mass-market, apps are often of little use. According to Informa Telecoms and Media, smartphone penetration in Africa will reach 15 per cent in 2015, compared with three per cent in 2011. Though this signifies a considerable increase, smartphones alone will not serve as the key driver of mobile banking in the region. To effectively make the unbanked ‘banked’, a more wide-reaching and accessible method is required.
The appeal of SMS
Traditional banking remains out of reach for most Africans due to factors such as cost, logistics and a lack of financial literacy. Bank accounts are often expensive to maintain and most Africans live in rural or semi-urban areas where access to a bank is very limited or even non-existent. Africans often cannot go to the bank, so the bank must reach out to them.
SMS is an excellent medium for achieving this, being virtually as ubiquitous as mobile phones themselves. According to Mobi Thinking, over 6.2 trillion text messages were sent in 2010, compared with 10.9 billion mobile apps downloaded (IDC). Unlike apps, SMS is available to all types of mobile subscribers, regardless of whether they have a smartphone or are on prepaid or post-paid contracts. SMS-enabled mobile banking uses the existing mobile communications infrastructure which already reaches the unbanked, removing the need for a bank to invest in an application or infrastructure such as ATMs. A further limiting factor of apps-based mobile banking services is the lack of standardisation across mobile platforms. Currently, if a bank wishes to offer an app-based mobile money service, in order to maximise reach, they need to tailor their offerings to ensure compatibility with the iOS, Android and BlackBerry platforms. SMS does not present this same challenge. Its availability across even the most basic devices means that banks and their partners can engineer one solution to cover their entire mobile-phone owning customer base.
Realising the opportunity
The critical question around mobile banking centres on who controls the relationship with the customer: the bank, the solution provider, the handset manufacturer or the operator? The traditional model requires banks to hand over at least some control of the customer relationship to a partner. Unsurprisingly, banks are somewhat reluctant to do this, preferring instead to retain complete control of the customer relationship.
Banks can overcome this issue by outsourcing this complexity to a global messaging specialist such as MACH. With such a model, instead of having multiple relationships with multiple operators, they have just one relationship to manage with a partner that can immediately provide connections to all of their customers in one go. As well as reducing costs, this frees banks up to concentrate on their core business without having to worry about the management of multiple operator relationships.
The universality of SMS makes it an effective and accessible platform for banking in Africa. The ability to access basic financial services such as deposits and transfers from any mobile phone offers the opportunity to deliver banking services to those who have been until now unbanked. While the rise of apps-based approaches to mobile is to be welcomed, with its ubiquity and simplicity, SMS will continue to play a crucial role in the country’s banking landscape for some time to come.
Karol Nita, product marketer at MACH
