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Home / Opinion / Mobile banking will soon be the very face of banking

How often does “go to the bank" figure in your daily to-do list? Very rarely or probably never. It’s out of fashion these days to visit your bank, wait in a queue, fill forms, and follow their complex processes. Banks have made it convenient for customers to use remote channels such as automated teller machine (ATM), Internet and phone. However, the digital disruption and the ensuing change in customer behaviour is causing a paradigm shift in the way banking itself is thought about. The digital mega trend is profoundly impacting all businesses globally. Ubiquitous and high-speed connectivity, instant information, cheap and unlimited storage, secure digital identity, influx of multi-feature and affordable access devices, are all contributing to a rapid change in the ways consumers can be served. We have been witness to the complete transformation that the music and media industries underwent after the advent of digitalization. Iconic technology companies such as Google Inc., Apple Inc. and Amazon.com Inc., with their technological prowess and operational excellence have provided customers with unparalleled digital experiences. Customer expectations are being driven very high by their experience.

In such a scenario, some of the long standing paradigms in banking and financial services may need to be revisited.

Non-bank challengers such as Apple Pay in the US, Alibaba in China, and Safaricom in Kenya are redefining delivery of financial services. They are operationally built for continuous innovation, and are often more agile with speed-to-market on products and software upgrades. The line between services offered by banks and non-banks is getting blurred. Equity Bank Ltd in Kenya has, through its wholly owned subsidiary, announced its entry as a Mobile Virtual Network Operator. Recognizing the shifting trends, banking regulators have responded with different measures to promote competition, innovation and financial inclusion. The Central Bank of Brazil (Banco Central Do Brasil) and the financial services regulator in Peru have issued regulations that allow for the creation of a new and specialized legal entity for e-money issuers under licence from the financial sector authority. The Reserve Bank of India has recently issued draft guidelines for licensing of payments banks. Regulators in many geographies have also been instrumental in driving payments infrastructure and common standards to adapt to new customer requirements.

A recent study said that mobile phones will outnumber human population by the end of 2014, reaching 7.3 billion against the human population of 7 billion. In over 100 countries the number of cellphone accounts exceed their population. By 2020, over 6 billion consumers will be connected to the Internet with a mobile device. There are now more than 1 billion people around the world who have mobile phones but not bank accounts. In India, there are 900 million mobile subscriptions, and 450 million bank accounts; but only 67 million mobile connections are linked to bank accounts, and an even smaller percent of that are active users.

Most banks across the world offer additive mobile banking services for their existing client base. On the other hand, countries with low banking but high mobile penetration have seen a rapid rise in mobile money services being offered by mobile network operators. Kenya has moved its proportion of the population excluded from financial services from 38.4% in 2006 to 25% in 2013, thanks to mobile phones. Kenya is probably the only country to have more active mobile money accounts than adult citizens, and with the rapid use of digital payments, the extent of currency usage outside the banking system is coming down—an important parameter being tracked by the Central Bank of Kenya. Closer home, Bangladesh has 22% of its adult population using mobile banking services with an aggregate transaction value of over $1 billion per month.

Incumbent banks in India need to reinvent themselves in this new paradigm. Month-on-month, banks report a significant increase in their mobile transactions, but a major part of this is only channel migration, i.e., the customer is now using a mobile phone instead of a branch or Internet channel. This does not add value to the economy.

With the rapid growth of mobile usage in our country, along with advancement of technology and facilitate regulation for expanding the reach of financial services, there is tremendous opportunity for transformational innovation through mobile and agent networks to reach out to underserved customers, introduce new products, deepen customer relationships, explore new sources of revenue, rationalize costs and, most importantly, digitize the economy.

As a first step, every new account should be mobile-enabled, including for the millions of accounts being opened under the Prime Minister’s Jan Dhan Yojana. Banks should take the lead in creating an ecosystem for digital payments through alliances with telcos, merchants, small businesses, transport companies, agent networks, and others, which would make even small value retail digital payments more convenient and safer than cash. Use of high-end analytics on a customer’s digital footprint can provide banks invaluable information about the customer. This should be supported by a regulatory approach that is proportionate and encourages innovation and growth. The regulator may adopt a test and learn an approach to allow the market to develop before being overly prescriptive or burdensome. Further, to facilitate interoperability and enhance customer convenience, the regulator should insist on common standards to be adopted by all and prevent exclusivity in alliances.

In the context of digital banking, relevance of branch location is minimal. Mobile banking is not an alternate channel; it will soon be the very face of banking. Regulation should recognize this and relook at the stipulations with reference to branch location. It’s time to breakdown the various silos of alternate channels, financial inclusion, consumer banking, technology, and others, and redesign a new business model that makes banking a part of everyone’s life, the way a mobile phone is.

Smita Aggarwal, Centre for Advanced Financial Research and Learning.

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