THE inexorable march new technology has marked the upward surge of mankind and has had a transformative effect on civilisation — banking is no exception. The advent of the mobile phone has redefined telephony, but that is not its only frontier. Applications can be used for most endeavours and if properly executed can serve to bring the great unbanked into the financial system.

According to the Office of Utilities Regulation (OUR), in Jamaica alone there are around 3 million subscribers between the three main mobile phone operators. Local bankers estimate that systemwide, there are approximately 4 million accounts (all financial institutions) here in Jamaica.

According to the Consultative Group to Assist the Poor (CGAP), an independent policy and research centre focusing on financial access, more than one billion people worldwide are unbanked but have mobile phones, and this number is expected to reach 1.7 billion by 2012. A McKinsey CGAP study expects the mobile network operators’ revenue from m-payments and other mobile financial services to reach as much as US$7.5 billion by 2012.

5 billion people have cellphones with 1.6 billion people having bank accounts

The proposition gathers greater potency when one considers the data. The United States Under Secretary for Democracy and Global Affairs, Maria Otero has pointed out that while 5 billion of the world’s 6.6 billion people have mobile phones, only about 1.6 billion have bank accounts. The CEO of mobile payments company Obopay, Carol Realini, is acutely cognisant that of the 5 billion people who have mobile phones only 1 billion are fully served by traditional banks. She further added that Obopay is fully aware that money transactions done on mobile phones potentially account for US$10 trillion in retail payments and US$400 billion in remittances.

“I think within five years, we are going to transform the planet. It has already started in some countries like Kenya and India, and what you’re going to see is it’s going to start to be a wildfire around the planet,” said Realini.

Otero asserts that around 1.7 billion low-income cellphone users do not have a bank account and in effect, they remain outside of the realm of economic opportunities that is represented by financial access.

“Financial opportunity shouldn’t be limited to those with traditional assets or credit stories that a bank can respect. Microfinance has demonstrated how low-income men and women are dignified by the opportunity to manage a business, build their business and make better economic decisions for their families,” said Otero.

Unbanked Jamaicans

In Jamaica, many people remain unbanked, particularly in the rural areas. The World Bank Group’s International Finance Corporation (IFC) believes that Jamaica’s banking penetration (21 per cent as of March 2008) is still moderate; accordingly there is an unmet financing demand from local Micro, Small and Medium-Size Enterprises (MSMEs). With over 100 per cent mobile phone penetration, the ability to utilise handsets to conduct commercial transactions will address this, and both the Bank of Jamaica and the Jamaica Bankers Association will have more data to assess banking activity in the country. As it currently stands, there are seven commercial banks in Jamaica with combined assets of J$579.8 billion and deposits of J$373.7 billion. Mobile banking will open up the entire industry and will widen revenue streams by facilitating an untapped market.

GraceKennedy’s Chief Operating Officer, Don Wehby maintains that mobile banking is the way of the future. Speaking with Caribbean Business Report from Trinidad he said: “Based on our research, mobile banking is going to be the future of the industry and we have to get ready for it now. We believe that people under 30 who form a large part of the market will be using mobile phones to conduct their banking business. However, the process must be managed carefully and regulatory issues must be clearly addressed. Also, what must be defined is the role of the Central Bank in this. There are security issues at the forefront of any discussion on regulatory aspects of mobile banking. There can be no doubt that mobile banking will have an impact on traditional banking.

“At First Global we are making mobile banking a top priority. I can see that there will be a number of strategic alliances between the mobile phone operators and financial institutions and that will happen pretty quickly. I think you will see that as a result of mobile banking, there will be growth in market share. In Jamaica we are already seeing that FirstCaribbean and Scotia are heavily promoting and pushing their mobile banking offering.”

Mobile banking has definitely loomed large on the financial sector’s radar. On December 10th, this year, the University of the West Indies will be hosting an indepth seminar on the framework for mobile commerce in Jamaica. It will focus on the legislative, regulatory and technological parameters on what most decidedly will be a game changer in the financial sector.

Back in 2008, the Inter-American Development Bank (IDB) initiated a study into the feasibility of mobile banking in Jamaica and recommended certain legislative prescriptions. The study was funded by both the IDB (US$100,000) and the Government of Jamaica (US$20,000) and was to serve as a pilot for Latin America and the Caribbean. It was co-ordinated by the Planning Institute of Jamaica (PIOJ). According to the IDB, the number of mobile phone subscribers in Jamaica is “well in excess of the minimum profitability requirements” experienced in existing m-banking markets.

Local institutions embracing mobile banking

The country’s largest bank has made a foray into this new arena and appears happy with the way things are going.

“We have a very useful mobile banking platform which goes beyond traditional provisions of balancing queries and account information and includes things like fund transfers, credit card payments and bill payments,” said Scotiabank’s senior vice president for customer experience, technology innovation and projects, Maya Johnston.

She further added that Scotia had considered going the more traditional SMS-based route for mobile banking, but decided to go in a different direction due to increasing local penetration of technologically advanced phones, combined with security concerns.

“One of the reasons SMS was considered was because it was felt that data plans did not have enough penetration in the market to really reach our customer base.

“But when we looked at it, we decided over the last year that the penetration of phones like the iPhone and the BlackBerry and the introduction of things like 3G to the market, really set Jamaica and certainly the Caribbean on a new trajectory in terms of the number of people that have access to these services. We do expect mobile banking to be one of the primary channels that our customers will use and we’re hoping that some of our customers find that this is another tool to make their lives more convenient,” explained Johnston.

One of the early locally developed m-commerce systems was by Software Architects. This allowed funds to be sent and received via the SMS text message application. Software Architects’ CEO, Damion Daley said: “Mobile banking can forever change traditional banking, but a lot depends on the platforms used and how mobile banking is marketed. Right now 60 per cent of Jamaicans are not in the formal financial sector and there is a reason for that which comes down to the fact that people just don’t trust banks. The banks want to champion mobile banking but if allowed to do so, it will be business as usual. It would have more resonance if there was a more ‘Mom and Pop solution’ that was legally binding and could bypass the banks. Our company can play a role here and we would want to meet all regulatory requirements although two banks have already approached us. Mobile banking has the potential to reduce credit card and charge-back fraud which is prevalent in Jamaica. The success of mobile banking hinges on two key points — how mobile banking is implemented and marketed.”

Eliminating high fees and charges

Post-Jamaica Debt Exchange (JDX), banking institutions have come under fire for charging exorbitant fees and charges for using the most basic of banking facilities. This is highly unlikely to happen with mobile banking thus making it extremely competitive. The Survey of Bank Charges conducted by the Ministry of Industry and Commerce and the Consumer Affairs Commission (CAC) last month unveiled commercial bank fees and charges this year have increased by as much as 400 per cent over 2009. The survey, which was conducted between July 29 and September 17, 2010, examined 68 separate fees and charges and, revealed some banks making upward adjustments to as much as 78 per cent of the surveyed fees and charges. Fees on personal services, including withdrawal and deposit in savings accounts, minimum balance violations and dormant account charges also increased dramatically, in some cases as much as 127 per cent. Such excesses are unlikely to occur with mobile banking as it counters high operating costs which bankers like Scotia Group boss Bruce Bowen bemoans.

In September of this year, the Minister of Finance Audley Shaw, speaking at the World Bank’s Americas Conference in Miami’s Coral Gables, said that Jamaican banks were making a Return on Equity (ROE) of around 22 per cent, which is unconscionable, given the current environment. His clarion call has been for more competition for the banks which can only benefit customers. Mobile banking may well be the way to address this.

With remittances netting the country some US$1.2 billion a year, again the value proposition of mobile banking becomes obvious. It immediately becomes an efficient way to transmit money across countries while drastically reducing bureaucracy. and middlemen. Here mobile banking can play its part in bringing in extra revenue into the national coffers. Mobile banking also reduces the reliance on cash and thereby deters theft and robbery. It can truly usher in the era of a cash-less society.

Nokia Money

One of the largest mobile phone manufacturers in the world, Nokia, has launched Nokia Money particularly with mobile banking in mind. This offers access to basic financial services to all cellphone customers and is set to benefit those who have no access to any financial services. Nokia Money has been designed to be as simple and convenient as making a voice call or sending an SMS.

“We believe mobile financial services offer a market opportunity with long-term growth potential. In many countries, mobile phone ownership significantly exceeds bank account usage, suggesting that many mobile phone users have very limited or no access to basic financial services. With around 5 billion mobile phone users and only 1.6 billion bank accounts, global demand for access to financial services presents a strong opportunity to combine mobile devices with simple but essential financial services such as Nokia Money,” said EVP and Chief Development Officer for Nokia, Mary McDowell.

Vice President and Head of Corporate Business Development of Nokia, Teppo Paavola, added to that by saying, “Rural consumers will particularly benefit from money transfers and for urban consumers used to online services, we are enabling services such as payment of utility bills, purchase of train and movie tickets, top-ups, all through their mobile phones.

“Nokia Money is simple to use, secure and available across different operator networks and on virtually any mobile phone. This means millions of new consumers will soon be able to manage all their financial needs from their mobile phone.”

Kent Lupberger, who leads the IFC’s Technology, Media and Telecoms division Declared: “Access to financial services is key to enabling full participation in the formal economy. Mobile banking is one of the most promising areas for extending those services to undeserved populations.”

Next month, we will explore regulatory and security issues.