By Leendert Bottelberghs MSc, Business Development Manager Latin America, Innopay
Leendert Bottelberghs has been working for Innopay in the field of online payments, e-invoicing and e-identity since 2006. As a senior consultant, he was engaged in various projects that involved the development of new products and services within this field for banks, corporate organizations and government. As of September 2009, Leendert leads the consulting activities for Innopay in the Latin American region stationed in Guatemala. Due to the regional situation he has chosen to focus on mobile banking as a means of enabling access to basic financial services to the un-banked.
Attention given to m-banking has grown enormously in the past 5 years. It seems not to be on par with the hype that mobile payments received 10 years ago, but a more profound interest and belief in the opportunities that the mobile infrastructure could bring to financial services. One of the main focuses of m-banking is creating access to financial services for the un(der)-banked population in emerging economies. The geographical focus of m-banking is therefore mainly on developing countries in Asia, Africa and Latin America. Research conducted in 2009 by Signals Telecom Consulting predicts that 35% of the mobile subscribers in Latin America will use m-banking services by 2014. Various existing programs to stimulate investigation and investment in this area support this belief. The Inter-American Development Bank provides several serious funding programs for m-banking initiatives: infoDev and CGAP offer dozens of research reports and some toolkits to further investigate market opportunities for m-banking.
Emerging Markets Payments Infrastructures Existing payment infrastructures in emerging economies typically are underdeveloped and modestly used. If an Automated Clearing house (ACH) or similar system is present to facilitate inter-bank transactions the volumes processed generally are very low in comparison to Western Europe. The reason for this can be found in a number of factors. First of all the society in these countries is very much cash oriented, due to limited access to banking services and distrust in the financial system. The main alternative for cash that is offered is the cheque, which is not (or only partially) processed electronically and can not be regarded as an efficient and secure payment method. Secondly, the payment services that make use of electronic channels such as Internet and mobile are often mono-bank solutions offered as additional services to existing customers. Cooperation between banks to jointly offer payment services to the general public, which allows for inter-bank transactions, rarely occurs.
Basically in every country the number of Mobile Network Operators (MNOs) that operate in the market is significantly lower than the number of commercial banks serving the market. In many cases just one MNO that has a dominant position, often due to previous state ownership. Additionally the regulation for the financial market has a longer history and is more developed than the regulation for the telecom market. Regarding the topic of mobile financial services, cooperation between regulators is lacking and much remains unclear.
The market coverage of MNOs in emerging countries is significantly larger than that of banks: only 20% - 30% of the people have bank accounts, whereas more than 80% of the population has a mobile phone. It is obvious that MNOs have easier access to the market as they already own the relationship with the client and can offer them additional services. Moreover, MNOs control the phone’s SIM and the mobile network. So, whether a SIM toolkit or USSD based services are used for m-banking, the MNOs are responsible for both which puts them in an even more powerful position.
Banks Must Co-operate in Order to Gain Market Advantage Now where does this leave the banks? There are some bank services offered that involve mobile, but these remain very much mono-bank solutions. And even for these services in a lot of cases a single mobile operator is involved. These initiatives are certainly sub-optimal, and provide limited benefits to the end user. Moreover, they are mostly aimed at providing additional services to existing customers. A primary goal of the m-banking movement is about banking the un-banked: getting new customers to use banking services versus moving customers to a new channel. So most of the mobile services that banks offer nowadays do not embody what IDB, Worldbank and CGAP foresee with m-banking. Moreover, a lot of banking services such as payments are by nature a 2-sided market and therefore will only be successful when they can benefit from the network effects; large, collaborative networks are essential to make this happen.
In order to catch a ride on the m-banking train, the banks should seize this opportunity to work together and create an efficient and inclusive banking infrastructure with broad reach. By doing so, they can potentially enlarge their client base by a factor of 4, and all participants would gain. Moreover, cooperation between the banks will strengthen their position relative to the MNOs and ensure that all operators take part in their system, instead of the other way around. One of the factors that may prevent cooperation is existing financial regulation that could prevent banks from working together on this scale. But if they jointly create a new, common payment infrastructure where all banks may continue to provide unique services, it will be hard to forbid. Alternatively, banks could combine existing ACH services with their mobile financial services and effectively make use of all existing infrastructures, lowering both investments and transaction costs.
A huge potential exists for banks to use the mobile communications infrastructure to provide both basic and advanced financial services, especially in emerging economies. But in order to seize the full potential cooperation between banks is crucial. Both financial regulators and central banks can play an important role in facilitating and stimulating banks to create a common infrastructure and protocols for m-banking. If this is not realized, competition on an infrastructure level will occur and will unnecessarily increase costs, which will benefit no one. The resulting association of cooperative banks will then need to work together with the mobile network operators to jointly agree on business models and service levels that allow each party to create its individual value proposition. If the banks do not collaborate, the MNOs will remain in the lead.
This article was published in Spanish by Payment Media and in English by GTNews: http://www.paymentmedia.com/scripts/templates/pagina_principal.asp?nota=contenidos_nuevos/Opiniones/Esp/2010/abril/Leendert_Bottelberghs_innopay&despliegue=desarrollo_noticia.asp http://www.gtnews.com/article/7980.cfm