The 2015 State of the Industry Report on Mobile Financial Services tabled at the World Mobile Congress in Barcelona brings some interesting but not unexpected figures on the state of mobile money today. I say “unexpected” because any innovation that delivers simple, affordable and accessible product is bound to make its presence felt and disrupting the traditional systems.
The report said mobile money is reaching more than 411-million people globally and available in 85% of countries where the vast majority of the population lacks access to a formal financial institution. It also states that more than one billion transactions were processed in December 2015 which is more than double what PayPal processed globally.
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It’s no secret that even in countries where mobile money is slow in adoption like South Africa, banks are watching with keen interest driven by fear of being left behind especially in a world where some speculate that virtual currency might replace cash in the near future. To say these things are impossible with technological innovation that we are witnessing today would be delusional.
Like any other business, banks should be interested and eager to be part of any financial revolution that makes sense to their bottom line. In South Africa where close to 30% of the population is unbanked financial institutions should be asking themselves hard questions on how to reach this market with affordable, accessible and simple products to use. Mobile money is the answer; the ability to pay in store or online using a phone or access insurance policies and other financial products by the click of phone buttons without touching cash.
South Africans , after all, are said to be very fond or attached to their mobile phones and very embracing to products that are easy to use and can be accessed via a cell phone like FNB eWallet or airtime top up or transfer. E-commerece companies like Takealot should by now be offering a mobile payment option to free those who love the convenience of online shopping but fear credit card fraud. This also applies to those who don’t own credit cards. Mobile money apps can provide solutions to make payment online accessible to all and less scary.
What’s in it for banks?
In countries where the banking system is said to be poor, mobile money agents do step in and play the role of being a banker to the community. But in countries where the systems are strong like South Africa, banks can still play a bigger role through options like creating a standalone application or to make it part of their brand or product extension.
By creating a standalone app or through buying in existing product banks are able to provide merchants with a more affordable way to accept payment and provide their customers with a more convenient way to pay. By making it part of the banks’ product extension, it still provides both merchants and customers with the same capabilities but the level of trust awarded to it by the users are much higher. People are more willing to trust something provided to them by their bank than any other product.
In South Africa mobile money will not only attract the so called neglected population but we will also see emergence of very innovative mobile money apps that will be very attractive to the millennial generation. Uber should also serve as a warning to any industry including finance that tradition can be replaced any time in an unprecedented speed.
For banks to generate revenue they will need to embrace mobile money and stop seeing it as a solution for the unbanked or underbanked but a solution for all. MarketsandMarkets forecasts that Mobile Money Market will be worth US$78.02-billion by 2019. The questions Banks would legitimately ask are – is the mobile money profitable and is security a concern?
Profitability
Banks are spending millions daily on VISA and Mastercard licences and Interchange fees. According to the South African Reserve bank the average Interchange fee for a debit card transaction is 0.44% and credit card transaction is 1.48%. Working with local fintech companies, banks can develop ways for their customers to make and receive payments not using the card rails at all, meaning banks can save huge amounts of money on interchange fees and merchants can save money on card processing fees.
Recent statistics shows that Safaricom’s M-Pesa accounted for 91.88% of the mobile commerce transactions valued at over US$932-million. Airtel came a distant second with just over US$42-million, 4.19% of the total mobile commerce cash, followed closely by Equity Group’s Equitel with US$39-million – about 3.87 per cent share. Looking at these figures it’s clear that mobile money implemented correctly can be very profitable for banks.
Seeing that over 30% of the South African population is unbanked local banks can increase their profits by providing these people with basic banking needs via Mobile Money. Services like funeral policies, basic savings and easy access to loans means banks can generate more revenue in this market. South Africa’s informal economy is estimated be around R160-billion and most of these transactions are cash based. Providing these merchants with a more reliable more secure way to transact should not be an option to the banks. It is a must!
Security
According to the South Africa Banking Risk Information Centre (SABRIC), revealed that the banking industry’s gross fraud losses due to South African-issued credit card fraud increased by 23% in 2014, from R366.8-million in 2013 to R453.9-million.
Debit card gross fraud losses rose 5% from R117.7-million in 2013 to R123.5-million in 2014. The majority of debit card fraud losses relate to counterfeit fraud (65%), followed by lost or stolen fraud losses (33%). It says that South African banks are continuously investing in new technologies to assist with the detection, prevention and reduction of bank card fraud, and that crime trends are followed closely and adjustments to monitoring systems are made to mitigate associated risks.
Banks shouldn’t only focus on ways to prevent card fraud but rather on ways to enable their customers to transact without cards. Systems like Snapscan and Zapper has proven that the South African population are keen and ready to use their mobile device to make payments.
Most mobile money applications require multiple levels of security. For example Apple Pay requires the user to touch their finger to the screen in order to send the payment. This means that you must have the correct fingerprint code in order to access the payment system at all. An incorrect fingerprint code will cause the system to reject payment.
With Google Wallet you are required to input a preset 4 digit security code (PIN) each time you want to use the application. Without the PIN you are unable to access any of the features. Snapscan requires a pin before completing a transaction. For these reasons mobile payments are a lot safer than paying with cash or swiping your card.
Although these systems as very popular they still require the user to have access to a debit or credit card, making the system unusable to a huge part of the population. Working with these companies and local fintech companies like Wallettec, banks can enable these types of products to process transactions straight out of a customer’s bank account bypassing the card rails. It makes transacting more secure, cheaper and giving millions of people access to more convenient payment mechanisms.
Feature image: warrenski via Flickr
