Mobile banking makes sense

From the comfort of our homes or offices, we can transfer funds, pay bills, renew fixed deposits, update contact details and complete many other transactions, helping us to stay clear of those endless queues at the bank.

With mobile devices taking on more and more functions previously possible only with personal computers, banking done via mobile devices, or mobile banking for short, is a logical step.

One of the most significant and tangible benefits of mobile banking will be to bring basic financial services to the hitherto "unbanked" people in emerging economies, where the rural nature of their neighbourhood makes a less than compelling case for the opening of a local branch of a bank.

Mobile banking, done in the privacy and comfort of one's own environment, will go a long way towards overcoming this barrier.

In many developing countries, people already use pre-paid airtime as a virtual currency. For example, if bread costs one dollar, a customer may pay the baker by transferring pre-paid airtime worth one dollar when they buy the bread. The credit system could also help people own mobile phones by facilitating small loans.

The cost of buying a phone is a significant expense for most people, although it is likely to be small in comparison to the running cost. If the barrier to access is cash flow rather than cost, issuing small loans through the phone credit system could help.

To put the immense opportunity in perspective, there are more than 6 billion people in the world today. Soon there will be 4 billion mobile phones, but only 1 billion bank accounts and 1 billion credit cards. In many parts of the world people still rely on using cash, which poses several limitations.

Various forecasts by industry analysts are pointing to this. For example, Juniper Research expects 816 million mobile-banking users by 2011, a tenfold increase since 2007.

Similarly, Fiserv, which provides IT services to financial institutions, released a commissioned survey in September last year showing that three quarters of respondents (1007 regular American mobile users 18 years and above) would consider using mobile banking services if they were offered. A similar survey, done in March 2006, put the figure at only 49 per cent.

Mobile banking has been around for nearly a decade, and it did not get off to a very wonderful start. But that is behind us. Some issues remain, like revenue and cost sharing among the various parties involved. But, other equally important issues, like security and ease of use, have already been nicely addressed.

The financial industry is now undergoing some significant changes. In trying to overcome its current problems, the industry will take a long, hard look at various spending needs.

Obviously, investments in channels and systems that make business sense will get priority. They now have an opportunity to expand their reach to customers and the mobile platform is an obvious way to do so.

Shumit Kapoor is general manager of Nokia (Thailand).