Increasing accessibility to banking is considered one of the key determinants in improving living standards around the world. The boom in mobile technology over the last 20 years has begun to open boarders for governments and the banking sector alike, with benefits extending far beyond day-to-day deposits and withdrawal transactions.
Access to banking in the first world is a privilege often taken for granted. The shift from physical banking, commonplace only a decade ago, to digital transactions has been monumental. However, in developing and third world countries throughout Africa, Asia, and the Middle East, the banking revolution has been slow until recently.
The Mobile Phone – Opening Doors to the Unbanked World
The mobile revolution has created two distinct avenues for mobile banking and micro finance institutions (MFIs). The principle that mobile phones can enable greater reach to more customers in hard-to-reach locations and at lower costs is at the key to expansion within these sectors. The two occupy different market spaces and utilize different technologies. MFI’s are naturally credit-based with some savings transactions, while m-banking is payments-focused and more transnational banking. M-banking systems employ sophisticated back-end systems while the MFI sector uses relatively uncomplicated back-ends to drive the platform.
Driving Growth with MFIs
Banking is a fundamental instrument of control for governments. Money in the bank is taxable and controllable, while cash is the driver of the black economy. M-banking is a tool that governments want to see succeed, however MFIs can also add similar stimulus to an economy. Finance enables businesses to grow, but small business finance throughout the developing world is not easily accessible or easily administered. Mobile technology has enabled MFIs to broaden the reach of small business finance in a simple way that enables credit approval, loans, and repayments through one easy channel.
Today the mobile phone serves as the agent for loan applications, credit decision making, and due diligence. Customers benefit from simplicity, as their only choice is the proximity of the nearest agent versus the proximity of the nearest branch. For example, the success of this model has been observed in Pakistan, where an NGO MFI serving in excess of 300,000 customers began using Omni agents in 2011 as an option to make loan repayments. At the point of the study, 40% of loan repayments were made through a network of 1,800 Omni agents. Customer choice between repayment options typically depended on what was closer, the Omni agent or the branch.
China Fintech Leads the World in Mobile Transactions
China has become the world’s hotbed for financial technology almost overnight. China has emerged from a cash society to the world’s largest digital payments market in a surprisingly short period of time. Today, 65% of China’s mobile users use their phones as mobile wallets. That is almost half a billion people purchasing products at retail outlets with simple QR scanning or shopping online. Ecommerce platforms now approve credit on small purchases through mobile transaction history and the explosion of mobile transactions is considered the model by which the rest of the world can follow.
Mobile phones have changed the ability for finance to be accessed and, just as importantly, repaid.