Mobile banking. Technologies, challenges, solutions

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Using technology to bank AfricaLessons
Yolande van Wyk Head Strategic Projects FNB
Mobile and Transact Solutions
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Topics

• A look at GSM and why its so successful in
  Africa
• Technologies typically available for mobile
  banking
• Typical business models for mobile banking
• A quick look at banking in Africa
• Mobile banking in Africa
• Other barriers to rolling out a successful
  solution
• Our lessons

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Excuse me while I take my foot out of my mouth

• Everything that can be invented has been
  invented.
• Charles H. Duell, Commissioner, U.S. Patent
  Office, 1899
• The wireless music box has no imaginable
  commercial value. Who would pay for a message
  sent to nobody in particular?
• David Sarnoffs associates in response to his
  urgings for investment in the radio in the 1920s
• This telephone has too many shortcomings to be
  seriously considered as a means of communication.
  The device is inherently of no value to us.
• Western Union, internal memo, 1876

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and put the other one in

• Vodacom's initial growth projections catered for
  250,000 subscribers within ten years.
• Vodacoms initial projections for the number of
  prepaid customers was
• 50 000
• Coopers Lybrand estimated 160,000 - 220,000
  subscribers by the year 2002
• M-Net Communications Technologies CE Ian
  Wilkinson calculated a potential base of 300,000
  - 500,000 subscribers by 2004

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The ultimate disruption

• In 2004 Africa added almost 15 million new mobile
  cellular subscribers to its subscriber base
• Equivalent to the total number of (fixed and
  mobile) telephone subscribers on the continent in
  1996, just eight years earlier 1
• Only 8 of people in Africa use a mobile phone
  but 52 of the population in low income countries
  as a whole live in areas with wireless reception
  2
• This difference fuels the expectation that growth
  will continue at rapid rates, with some analysts
  predicting that there will be close to 200
  million mobile subscribers in Africa by 20103.
• Relative to mobile phones, internet usage is low
  outside of South Africa, barely 1 of Africans
  access the internet.

• ITU data, Gray (20051)
• David Porteous - THE ENABLING ENVIRONMENT FOR
  MOBILE BANKING IN AFRICA
• IT Web Market Monitor 5 May 2006

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Why is GSM so successful in Africa1?

• GSM technology vs Fixed line
• The shorter payback period on investment compared
  to fixed line
• Lower installation costs and faster build than
  fixed line
• Straightforward scalability of mobile compared to
  other infrastructure investments.
• Greater ability to overcome geographic hurdles eg
  mountains,deserts.
• Complementary with lower levels of skills than
  needed for computers or the internet
• Illiteracy and minority languages
• Lower social/income entry barriers than the
  internet
• Lower up-front expenditure - (Vodacom SIM Pack
  Sold for R49.99 (approx 7)with R55 airtime
  voucher included)
• Greater ease of sharing mobile handsets than
  fixed line telephony.
• Business model innovations
• Pre-pay which helps overcome credit barriers
• Micro-entrepreneurship
• Mobiles as public telephones.
• Government and regulatory change
• Competition with fixed incumbent, stimulating the
  growth of the telecommunications market
• Liberalisation of the telecoms market
• Rollout requirements in licences such as rural
  coverage.

• Africa The Impact of Mobile Phones, The
  Vodafone Policy Paper Series Number 2 March
  2005

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Technologies typically available for mobile
banking

• SMS
• Good for notifications
• Keyword based services
• Micro Payment services via premium rated
  services
• Available on any handset.
• USSD
• Menu based services
• More intuitive than SMS
• Available on any handset.
• WAP
• Handset limitations (growing penetration)
• Many networks in Africa not packet-data enabled
  yet (GPRS/3G/HSDPA)
• But will become the access medium of choice in
  the future.

• WIG/SIM Toolkit
• Application has to be downloaded
• SMS based
• Encrypted
• Usability an issue?
• Java
• Complicated to implement
• Application has to be downloaded
• J2ME compatibility not ubiquitous.

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Technologies deployed in South Africa
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Typical business models for mobile banking

• Additive model
• Primarily target existing banked customers
• Offers the mobile channel as an additional
  channel
• Alongside or as part of others (such as
  internet).
• FNB, ABSA, Standard Bank, Nedbank
• Transformational model
• Intentionally reaches out to markets beyond the
  existing banked groups
• Product offering which meets the known needs of
  the unbanked groups.
• Wizzit, Celpay.

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Business models deployed in South Africa
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Banking in Africa? Depends where you are
Sophisticated markets (e.g. South Africa) Well
established and strong banking sector Good
penetration Banking a trusted sector High level
of technology and innovation.
Developing markets (e.g. Zambia) Banking
established for a significant period Processes
bureaucratic and old-fashioned Technology
limited and developing.
Conflict/post-war (e.g. DRC) Lack of trust in
the banking sector Low level of savings Marred
by inaccessibility Lack of services and
infrastructure Corruption environment of
distrust.
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What do the poor want from their bank1?
Keep my money safe
Take my cash, give me cash
I want to pay my bills and send money home

• David Porteous - THE ENABLING ENVIRONMENT FOR
  MOBILE BANKING IN AFRICA

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Good product mix for mobile banking in Africa

• Balance enquiry
• Payments and peer-to-peer payments
• Prepaid airtime.
• and supported by adequate access to deposit and
  cash withdrawal facilities.

NOTE Transactional services such as Celpay
Zambia Celpay DRC can provide the retail access
point for banks that do not have a comprehensive
retail network.
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Other barriers to rolling out a successful
solution

• Regulation as an inhibitor to the development of
  a successful solution
• Technology is bypassing regulatory guidelines
• Current regulations do not cater for new
  technology
• "Realness" is lost
• Practicality of implementing regulation is
  difficult.
• Customer education
• Usability
• Difficult to "teach" customers due to remoteness.
• Support and process
• The support of the solution is critical

• Also keep in mind
• Network coverage
• Balance the "High-tech" of the solution with
  levels of education and literacy

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South Africa 18 Months in review

• All four major South African banks have launched
  or relaunched a cellphone banking offering
• Cellphone Banking has moved from a first to
  market product to a significant transaction
  channel for banks, with millions of transactions
  worth hundred millions of rands per month
  reported
• Major customer awareness and education campaigns
  have been undertaken by all banks, with
  collective marketing spend estimated at over R100
  million for the past year
• A proliferation of technology and business models
  has been adopted, with no clear winner in terms
  of technology or business models emerging
• Adoption by all walks of life has been seen, with
  the collective registered base in South Africa
  estimated more than 500 000
• Related services, like FNBs inContact service
  now have more than 3 million registered customers

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Our lessons

• Technology alone cannot guarantee success
• Technology is an enabler
• It has to be supported by a solid product
  offering
• 3 Ps Product, people, process.
• Registration
• Education
• The needs of the market will dictate the choice
  of technology and the service/product offered to
  the market
• We need to understand the needs of our customers
• Handset capabilities
• Market segments and their needs.
• Be Afro-centric, traditional European models can
  not be applied

• Regulation should incubate, not inhibit
• How do we encourage access to banking, but limit
• Risks related to money laundering?
• Credit exposure?
• We need to find the middle ground.
• Success through strong relationships
• Financial institutions
• Regulatory bodies
• Mobile network operators.
• Good product design is crucial
• Keep it simple
• Easy to understand, easy to use
• If it breaks once, they will not try again

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• Thank you
• We must be the change we wish to see.
• Mahatma Ghandi