Banking on Mobiles: Why, How, for Whom?

This CGAP Focus Note No. 48 discusses the possibilities of banking by mobile telephone. It examines how banks can translate the potential of mobile phones into greater financial access for economically poor people. It focuses on smaller banks or microfinance institutions (MFIs) that face a much higher cost-of-service delivery because of the smaller transaction values they handle and the likely more remote and dispersed location of at least some of their customers.

The paper describes mobile banking as primarily a front end to a financial institution’s information technology (IT) system, which is not a possible function unless there are adequate back office IT capabilities and sufficient internal controls. It describes a number of mobile banking solutions with an emphasis on finding the right "fit" within the bank’s overall customer strategy.

The document "identif[ies] what it is about a mobile phone that can make it a potentially useful tool for banks as an access device compared to other electronic banking interfaces." It "map[s] 'inherent' benefits of the mobile phone to four typical strategic drivers for banks: increase penetration, sell more services, retain the most valuable customers, and reduce the cost of providing services." Then it "develop[s] a set of mobile banking cases or prototypical strategies banks may use." Finally, it describes steps in a bank or MFI's implementation choices.

Some of the reasons to engage in mobile banking from a bank standpoint include:

* gaining the potential of the customer base of mobile phone users;

* using the phone as a virtual identity (PIN and account number) storage system;

* using the phone as a transaction terminal like that of a retail store (as a screen and data entry keyboard to capture the user’s transaction details, a card reader to capture stored client information - identity and account location, and a secure communications link with a bank);
* using the function of moving virtual cash to pay for goods; and
* using the phone to check on account information,  move money, and make payments.

As stated here, there is not a great deal of new functionality involved in mobile banking vs. internet or ATM banking, but "...there is a characteristic of the mobile phone’s architecture that sets it apart from most other computing devices that could be used for banking purposes. This is the existence of a device within a device, or a SIM [Subscriber Identify Module] card inside the mobile phone. Neither of the two devices is functionally new: the SIM card is a smartcard (a card with a chip) and the mobile phone is a limited computer. But having one inside the other enables interesting security features.... Combining the tight security of the SIM with the more open architecture of the phone itself allows mobile phones to attain the best of two worlds: a secure kernel within a flexible, service innovation-friendly shell." Thus, the built-in data-handling capabilities of mobile phones represented an already-deployed technology where broadband is not available. However, the user interface may be the hurdle that stands in the way of broad adoption of mobile banking, according to the document. Widespread use of mobile banking means that its "virtual" money will have high liquidity. However, if there is not broad acceptance, particularly if cash is still the expected form of payment, it becomes necessary to have cash-in/cash-out points of service where virtual savings can be converted.

The document cites mobile banking's advantages to banks, depending on the objectives they seek. They can add value to their services through mobile banking, retaining and increasing their customer base; increase convenience and ubiquity of service at a low cost; and penetrate underserved and new-to-banking groups without increasing physical facilities. The implementation of choices is reviewed through a discussion of technological choices and their implications. Also cited is information on possible relationships with mobile operators, including regulatory considerations, as well as interoperability considerations.

Five major types of interoperability sought by potential banking clients include:

* "I can start using mobile banking service on my current phone/[Short Message Service] SMS." (Bank can acquire customers who happen to be with any mobile phone operator)
* "I can send/receive money to/from anyone with a bank account."(Service offers full payments capability)
* "I can use other people’s mobile phone number to transfer money into their account." (User interface based on phone numbers rather than account numbers).
* "I can use my phone to deposit, withdraw, or remit cash at any [Automated Teller Machine] ATM or authorised and enabled banking agent." (Maximum liquidity options with minimum cash-handling costs)
* "I can switch my mobile banking provider, and keep my mobile banking service." (Banks are unlikely to seek this possible customer preference, but a national interoperability application for mobile banking would make it possible.)

Finally, the document poses the question: "Why can’t my mobile phone be my wallet?" The possible shift from standard banking/ATM/cash usage of clients to mobile banking appears possible based on current client perceptions and behaviours: phone kept in pocket with wallet; prior rapid client uptake of banking technology represented by ATM use; and the perception that money already functions as information stored and disseminated electronically. Lessons that conclude the document are:

1. "The mobile banking opportunity will be largest for growth-oriented banks.
2. Telecommunications companies have substantial leverage in mobile banking, and banks need to sit down and negotiate with them.
3. Liquidity (conversion to/from cash) remains the anchor of the value proposition for mobile banking customers.
4. Banks who want to use mobile banking to reach out to unbanked customers need to develop strong partnerships for mass-market promotion of the service.
5. Mobile banking does not raise any inherently new security issues; still, ensuring adequate security through a combination of technology and operating processes is paramount."

The document includes an annex entitled: "Comparison of selected mobile payments systems" which is a spreadsheet of questions and answers about interactions in 4 banking systems: Smart Money, Philippines; GCash, Philippines; M-PESA, Kenya; and WIZZIT, South Africa.