The past two decades have witnessed rapid changes in technology. Telecommunication and the spread in uptake and use of mobile phones stand out as very significant in this space. It is estimated that today, about 5.5 billion people across the world have mobile phones. This translates to 71% of the world population.
In developed economies, smart mobile phone ownership ranges from 58% (Greece) to 95% (South Korea) compared to emerging economies statistics: 24% (India) and 60% (South Africa). These statistics present huge opportunities in emerging economies and specifically to the financial sector. Primary gainers in this regard are financial institutions – saccos, microfinance institutions, microfinance banks as well as commercial banks. A critical analysis on these statistics however presents both blessings and curses to the financial sector.
On the positive side, mobile phones utilization has significantly improved financial inclusion. Unlike in the past when majority of people did not hold bank accounts, mobile phones and improved technology has widened financial inclusion, offering a wide customer base to saccos, microfinance institutions, microfinance banks and commercial banks. Today, many people – even in the remote parts of the country – can have bank accounts and transact without the need of a brick and mortar set up. This presents a huge benefit to players in the financial sector considering that they can increase their business operation without significantly raising the cost of doing business. They can have customers in remote areas who will operate accounts remotely and execute a host of banking transactions without the need to visit their respective branches.
The convenience offered by the mobile banking platform has seen the customer base for most of the said players grow significantly. These customers have through the mobile banking platform enjoyed convenience of instant access and transacting at the comfort of their homes without the need to visit branches or join the traditional queues in banking halls. The opportunities are even made better by integrating mobile transfers where money can be moved from bank accounts to mobile phones instantly and at a reasonable cost, earning banks additional non-funded income. It also saves on cost of travel, time and visits to branches while increasing the financial institutions’ wallet share.
Furthermore, the mobile banking platform has greatly improved the client base for financial institutions – the main target being the younger generation that value convenience. This in essence means that unlike in the past when financial institutions’ staff numbers were directly proportional to the number of customers based on propositions such as teller transactions, this has significantly changed, thereby enhancing productivity in the sector. Mobile banking has also provided additional opportunities such as utility payment services including electricity, water, books, health, sports, television channels among others thereby increasing the opportunities to earn non-funded income. Besides, the convenience of opening and transacting bank accounts has greatly improved.
Despite these benefits, players in the financial sector have also faced significant threats on their profitability on the back of mobile banking. For example, pseudo banking platforms offered by mobile phones pose a great exposure to financial institutions. Foremost, traditional money transfer services were a preserve of banking institutions but this business has significantly moved to telecommunication companies, earning them huge profits in the process.
Mobile banking has also threatened the payment service solutions which were traditionally cash based or offered by banks. Today, payment solutions offered through mobile platforms such as Safaricom’s Pay Bill or Buy Goods solutions have significantly reduced the market share of point of sale (POS) terminal payment solutions that are offered by banks and based on card services. Given Kenya’s SIM connection penetration standing at 100.1%, the extension of the mobile wallet allowing both deposit and withdrawal of funds with huge limits of up to Kshs. 140,000 (currently Kshs. 300,000 due to the covid-19 pandemic) means that approximately Kshs. 14.7 trillion can be held within the phone accounts without transitioning into banks. In essence
then, mobile phones are offering current accounts which is a huge headache to commercial banks. Moreover, the soft loans offered by fintechs pose a serious threat to the traditional loans provided by financial institutions because of their flexibility and convenience.
Moreover, digital business is prone to fraud and mobile banking is not an exception. Nevertheless, it is important to note that despite these challenges, mobile phones have transformed the financial sector in a big way and there still exists a huge potential that remains untapped. With smart phone penetration of just 40% in Kenya, huge opportunities remain available for banks and telecommunication industries alike. The big challenge is for the financial institutions to design products that can compete effectively with the ones being offered by telcos.
Finally, digital banking has enhanced multiplier effect on the financial sector and it provides a huge opportunity to improve banks’ deposit mobilization. It has also enhanced cashless transactions, hence significantly reducing the costs associated with handling money. Banks as such have the opportunity to ride on the mobile phone technology to double their customer base without significantly incurring additional costs of doing business.
The writer is a CPA – K and CHRP(K). He holds an MBA, BBA 1st Class Hons. HDHRM, BD ; currently undertaking doctoral studies at UON.