An ?Easy? Step-by-Step Guide to Mobile Banking
Last July CGAP issued a new report about the main building blocks for any bank that is thinking about offering mobile phone financial services to its customers. (Shame on me for doing this post so late).
Banking on Mobiles: Why, How, for Whom? is, not surprisingly, a very good report. After all, these are the people currently in the forefront of research efforts to understand and develop mobile phone banking and the place to go for anyone interested in this market. An additional point in their favor is that their reports are “waffle-free” and go straight to the point.
The report takes the perspective of a small/middle sized bank or microfinance institution in a developing country that wants to start offering mobile phone financial services, but does not really know how or where to start.
First, how does your bank intend to use mobile phones?
- Will you use it as a virtual card like any debit card?
- Will you use it as a point-of-sale terminal to communicate with the bank to ask for transactions?
- Will you use it combined with stores willing to join the system as an ATM?
- Will you use it as an internet banking terminal? (More about this point coming in my next post).
- ? Or are you thinking about a combination between these four possibilities?
Second, how do mobile phones fit into your strategy?
- Are you thinking about increasing market penetration and thus going for underserved market segments?
- Do you want to sell more services to existing customers and target their unmet needs?
- Are you trying to keep your most valuable customers by offering them quality and breadth of services?
- Are you trying to reduce costs of service provision by moving into something cheaper?
After having outlined the commercial strategy of the new service and its general aim, the bank should turn over to implementation. The key variables here are:
- What customer experience do you want to build?
- Which data security framework will you choose to protect your customers?
- What will your bank do and what will your bank outsource? What role do you want to play in front of the customer?
- How much interoperability do you want to have with other competitors?
These four aspects are closely linked and are often determined by the technical platform selected by the bank. As you might imagine, choosing a technical platform is not easy. The first key technical decision is the wireless bearer, or the communications channel that is used to transmit data to and from the mobile terminal. This is a very important choice because it will affect the m-banking performance in its speed, reliability, cost and security.
The second key decision is the way the communications security will be managed and by whom. The third key decision is the software platform that will control how the service is presented in the user’s mobile and will determine the range of interactions between user and bank. The authors of the study stress that all these technical choices condition the mobile banking service a bank can roll out, so it is important to think about these details from the very beginning.
Mobile operators will therefore need to be brought to the table and involved actively in building the service. Finding the right technology partner and optimizing the operator’s resources is critical. These resources are not only technical. Mobile operators can also offer marketing support with cross-marketing activities. They can use their networks of stores and resellers to sign up customers for the banking service and help to provide liquidity through selected agents.
Additionally, you may want to consider using mobile branding to have a stronger appeal to customers with more affiliation to mobile phones than banking.
Furthermore, the bank should always take into account key regulatory factors such as:
- Regulatory restrictions on banks to outsource cash-in/cash-out functions to third parties.
- Regulatory obligations for banks to “Know Your Customer” (KYC) and maintain transaction records.
- Consumer protection rules in the E-banking field.
- Regulatory restrictions on account issuance by nonbanks or the outsourcing of the operation of bank accounts to nonbanks.
- Taxation on telecommunication services.
Finally, the study ends with some useful “lessons for the road”:
- The M-Banking opportunity will be largest for growth-oriented banks.
- Banks need to work with mobile operators if they want to offer successful m-banking services.
- Liquidity is the key value proposition for customers.
- Banks who want to attract unbanked customers will need to mass-market the service.
- Ensuring adequate security through a combination of technology and operating processes.