Mobile finance - a new challenge for banks

No one can deny the fact that something big is happening in the world of finance in Bangladesh. Mobile financial services (MFS) have been changing the relationship between the banks and the consumers. In Bangladesh, as in many other developing countries, dramatic growth in MFS has emerged as the most promising development in financial inclusion.
Mobile money solutions have been growing steadily and mobile financial inclusion has shown the promise of emerging as the most viable method of accessing financial services to rapidly expand the customer base. Like other innovations, MFS have the potential to efficiently reach millions of people and present an opportunity to develop economically viable business models targeting low-income populations.
The customers' acceptance of the usage of mobile banking services depends on many factors, including motivating factors that drive towards the acceptance of such usage such as pursuance, speed of transaction, communication, ease of use and assurance. The total number of mobile phone subscriptions in the country has reached 129.6 million in February 2017 implying that most households have access to mobile phone in Bangladesh. Bangladesh also has one of the most successful MFS market globally, having 54.4 million registered clients, along with the possibility of developing a growing ecosystem of products such as savings, credit and micro-insurance, riding on the mobile money rails. In July 2017, the number of total transactions is recorded at 152.3 million involving BDT 233.7 billion. The total number of agents is more than 772 thousands. The transactions covered inward remittances; cash-in/cash-out transactions; P2P, B2P and P2B transactions; merchant and government payments, among others.
Shifting payments from cash to electronic medium helps drive greater financial inclusion and economic opportunity. The government is laying the groundwork through regulatory measures, and an innovating private sector is also driving the shift from cash to digital. Although all forms of digital payments are increasing in Bangladesh, the MFS industry, in particular, is notable for its rapid expansion. G2P digital payments have also grown significantly and further digitisation of G2P payments could bring large saving in costs.
Nevertheless, the overwhelming majority of payments in Bangladesh are still made in cash. Achieving further progress will require continued efforts to implement policies that create enabling conditions and evolve the regulatory environment to overcome key barriers such as bringing more competition and interoperability enabling payment transactions between different service providers and platforms.
MFS present a unique opportunity for Bangladesh to close the financial inclusion gap that has been persisting for decades. MFS also enables significant opportunities to improve service delivery, enhance transparency and accountability, increase operational efficiencies and reduce costs of operation. Further, MFS and new technologies offer great potential to overcome many development challenges in Bangladesh. With millions of people deprived of access to formal financial services and thousands of micro, small and medium enterprises (MSMEs) lacking access to financing they need to grow, expanding access to finance still remains a great challenge. The benefits of digital finance extend well beyond conventional financial services and can be a powerful tool and an engine for job creation in Bangladesh. For example, the use of mobile money can contribute directly to generating many multiplier effects in the economy with significant macro impacts.
Delivering financial services through technological innovations, including mobile money, can be a catalyst for the provision and use of a diverse set of other financial services - including credit, insurance, savings and financial literacy. Those who are now excluded can enjoy expanded access to money-transfer, microfinance, and microinsurance services.
Digital finance also has an important role to play for small businesses. It not only provides them with access to finance but also to electronic payment systems, secure financial products and a chance to build a financial history. prepaid enable people to live more secure, empowered and included lives.
Mobile devices, including smart phones and tablets, have started to transform the way consumers are performing financial transactions. Now-a-days, most adult population in Bangladesh has a mobile phone; many mobile phones are smart phones (internet-enabled); a large number of smart phone users access the internet regularly; and increasingly more smart phone users are using mobile banking. No doubt, convenience is the biggest advantage of mobile banking customers. On the other hand, security is the most critical concern to mobile banking expansion.
In such a situation, a practical approach for the banks could be to adopt a segmented approach to the mobile banking universe rather than taking a 'one-size-fits-all' approach for easy customer acquisition, utilisation, retention and differentiation.
For the banks, checking balances using a phone is not full engagement of mobile banking; and growth of use beyond such a level would require a better understanding for the banks of the mobile customer base and the barriers that keep non-users from using mobile banking. For the banks, this is necessary to reduce operating costs and identify new revenue sources.
One useful option for the banks is to devise and adopt segment-based strategies for mobile banking. For this, the banks must first understand the mobile banking customer universe and its dominant characteristics. Then the banks may consider segmenting the customers based on mobile adoption, desired features and benefits, mobile devices and monetisation potential. For example, the use of mobile banking services, age and income level of the consumers could be a good starting point. By segmenting the mobile customer base, the banks will be able to collect useful information, such as -- level of variation of mobile adoption levels across consumer segments; preferred mobile banking features and applications of different segments; difference between tablet users and smart phone users; potential opportunities for monetisation.
The biggest challenge for the banks is to understand the mobile banking consumers. Despite rapid growth of mobile banking, the adoption levels are still low across all segments and age categories. In general, younger, wealthier and more tech-savvy consumers are more engaged with the mobile channel. The challenge for the banks is to replicate the higher adoption level for other segments.
To move beyond a standard mobile banking offering, banks need to provide increased functionality. Some examples may be the introduction of remote check deposit and increased promotion of real-time alerts and advanced bill payment. With time, more consumers are likely to move away from branch network. This will also raise concerns for mobile banking security. The challenge, however, can become an opportunity for the banks if they can provide enhanced security capabilities.
Security concerns are not only prevalent with mobile banking usage, but are also a significant deterrent to mobile payment usage. The banks may consider providing safeguards and guarantees for mobile transactions similar to those provided with card transaction. Otherwise, the value proposition of conducting a mobile payment vs. card payment will not be present. The challenge is that consumers expect ease-of-use and seamless operation along with effective security practices. These desires can conflict at times where multiple authentication processes are implemented. The banks must find out the perfect mix of security and simplicity. Biometric security features such as fingerprint matching are important as well as mobile alerts.
The banks must find out how to offer a complete banking experience on a small screen; and how to take advantage of this mobile opportunity. It is a challenge no doubt, but can open up new opportunities, such as-- the mobile multiplies the frequency and depth of interactions (either in the App or on the bank's website); enables banks to learn more about their customers and offer personalised services; and allows real communication at any time and place.
The banks should, however, be aware that the rise of mobile has also come with greater abilities for customers to change accounts and banks. Thus, banks are not protected from the lack of loyalty. Therefore, when creating a mobile banking app, it must be done from the point of view of the user.
In a traditional bank branch, there are a variety of advertising materials to show products to the customers. But in the case of mobile banking, the products need to be promoted in the mobile format. As with any other digital tool, we have access to a huge amount of user data related to both transactions and behaviour. And it offers wide flexibility when it comes to how and when to use display content and advertising. Thus, success in mobile banking will depend on taking advantage of these opportunities and offering smart targeted marketing services.
Gathering data and integrating customer insight has immediate and obvious benefits. The more databases the banks develop on their customers, the more they can identify not only what these customers have done in the past, but also what they are more likely to do in future. Banks can use different methods to identify profiles and identify customers who are predisposed to a particular financial product or service. One thing is clear: mobile banking is a powerful technology. And great power carries a great responsibility; so banks need to exploit the mobile opportunity properly and enjoy the benefits of mobile banking services.
Understanding the customers are always important for banks; particularly if the banks want to deliver value added services that are tailored to meet the diverse needs of the growing customer base. The banks can emerge as role models in the financial service industry through adopting MFS that meet global corporate governance standards, excellent service quality, and innovation.

The writer is Executive Director, Institute for Inclusive Finance and Development (InM). [email protected]