The Rise of Mobile Banking

From the Economist

SOME 35% of consumers use a mobile phone for making payments, and 45% use one for banking, according to a recent survey of 14 countries by ACI Worldwide, a payment systems company, and Aite Group, a research firm. A group labelled “smartphonatics”—those who change their shopping, financial and payment behaviour as a result of owning a smartphone—are said to be driving demand for mobile financial services. Smartphonatics are most common in developing countries (India and China), probably because of the lack of access to traditional financial services. In India, where only 35% of adults have an account at a formal financial institution and less than 2% have a credit card, 60% are smartphonatics. In Canada, where nearly everyone has a bank account and most people own a credit card, only 7% are smartphonatics. One of the main reasons people gave for not making payments with their phone was the lack of capability. But in seven of the countries surveyed, over two-thirds of consumers said they would like to replace payment cards with their mobile phone.

“Lack of access to traditional financial services” have been a common feature for nations with a large share of informal economy, like the Philippines. Much of these has been due to stringent Anti Money Laundering based regulations for opening of an account on traditional financial platforms.

On the other hand, with a large penetration level of mobile phones, transfers and payments made on the mobile platform seems to be a lot more convenient, and perhaps less regulated yet, and may have contributed to the increasing use of mobile banking.

Notes the McKinsey Quarterly,

In the Philippines, for example, mobile-subscriber penetration is almost 80 percent, but banking penetration is only around 35 percent, leaving 21 million mobile subscribers with no bank account (Exhibit 1). If operators in the Philippines could bring mobile-money penetration rates among the unbanked into line with those achieved by best-practice operators elsewhere, they could acquire four million to five million new customers and add two to three percentage points of growth to their revenues. And these numbers don’t include earnings on loans and deposits, which we conservatively estimate could be a further $60 million to $80 million. Introductory mobile-money services also set the stage for additional cross-selling and up-selling in the future. In addition, eight million unbanked people in the Philippines don’t have mobile phones, and mobile money could make phone subscriptions more attractive to this segment.

I also think that the “lack of capability” in developed economies represents a temporary hurdle which will likely be resolved by the explosion of the use of tablet computers with mobile connectivity features.

Yet with surveys saying that “over two-thirds of consumers said they would like to replace payment cards with their mobile phone”, this should serve as further evidence that mobile banking is a global sunrise industry, which also represents part of the massive lifestyle and commercial changes that is being brought about by the deepening of the information age.