Mobile banking (also known as M-Banking, mbanking, SMS Banking) is a term used for performing balance checks, account transactions, payments, credit applications and other banking transactions through a mobile device such as a mobile phone or Personal Digital Assistant (PDA). The earliest mobile banking services were offered over SMS. With the introduction of the first primitive smart phones with WAP support enabling the use of the mobile web in 1999, the first European banks started to offer mobile banking on this platform to their customers.
Mobile banking has until recently (2010) most often been performed via SMS or the Mobile Web. Apple’s initial success with iPhone and the rapid growth of phones based on Google’s Android (operating system) have led to increasing use of special client programs, called apps, downloaded to the mobile device.
Most poor people in developing countries still have to rely on physical delivery of cash to make payments or access financial services. But with the emergence of new delivery models which drastically alter the economics of banking the poor, that is changing. An estimated 1.7 billion unbanked customers have access to mobile phones. These and other new technologies are now enabling poor people to make financial transactions that are accessible and reliable.
One of the major impediments to providing convenient financial services for the poor has been the high cost inherent in the traditional brick-and-mortar branches model. The rapid growth of mobiles and point-of-sale (POS) devices has now created an opportunity to reach more unbanked people than ever before. Branch-less banking encompasses the provision of a broad range of financial services outside conventional bank branches, and often involves agent banking, technologies such as card-reading point-of-sale terminals, or mobile phones to access financial services and execute financial transactions.
Agent banking has become particularly widespread over the past decade because by using retail points as cash merchants, banks, telecom companies, and other providers can offer financial services in a commercially viable way. Though the early experience with branchless banking is encouraging, it is not a foregone conclusion that such services will reach poor people at scale, or go beyond payments and transfers. The number of branch-less banking services has grown rapidly, but the vast majority of registered customers are not actively transacting. Of the over 140 live branch-less banking services around the world, only 26 have reached more than a million customers.
One key to success has become clear: branch-less banking services depend on a widespread distribution network of non-bank retail agents to foster a positive and consistent customer experience that creates and maintains trust in the system. There are several types of branchless banking business models. In some cases, the bank is the main driver of the business. In others, it’s the mobile network operators (MNOs) by themselves or in partnership with other banks and third party providers. The industry as a whole is still working to demonstrate the viability of these different models and partnership arrangements.
Branch-less banking provides a path to scale for financial inclusion. For example, by early 2012, M-PESA in Kenya had 16 million customers served by a country-wide network of almost 30,000 agents. Early successes have shown the huge potential that technology can offer, but the journey toward financial inclusion via branch-less banking is just getting started.