Key players to trigger the mobile banking revolution

I don't think we always realise that we are witnessing a major revolution. We are living in the middle of a period in which the definition of money is changing, and this is happening in a very short span of time. When looking back on inflection points in the history, it is easy to see that it happened, but not so clear when you live during the time that it is occurring.

We are quick to look at the role that mobile operators play in this revolution, and also banks in many countries, but are they the most important catalysts? If it is clear which players trigger the growth of transformational banking, it would be easier to replicate it. It is still early to be able to be absolutely accurate on who these players are, but I would like to take a stab at it.

There are only two players that hold the key to making mobile banking happen. If these two do not play, the road will be long and bumpy and will probably turn into a cul de sac. The one player is the regulator and the other the supplier of sufficient capital to carry the initiative to critical mass.

The "will-be-able-to" index for media releases

It is amazing how many mobile banking articles announce intentions rather than achievements. I read a lot of articles especially with reference to mobile banking solutions and I am convinced that this a trend that we see more in our industry than anywhere else.

Take for example the following recent article on a mobile banking service to be launched in India (read here). Careful scrutiny of the article will show that the word "will" has been used seven times in an article of three hundred and forty words. In other words 2.1% of the words are "will". I would propose that we define the "will-be-able-to" index as 21 basis points in this case. The higher this index is, the more speculative an article would be on what will happen in the future, rather than what is possible right now. It is my contention that the average index for our industry would be higher than most.

I believe that this is because of a combination of
a. projects being extremely difficult to do and
b. high excitement about what is possible.
This leads to a situation where statements are made about what will be (or better may be) available in future. One should take articles with a low "will-be-able-to" index more seriously.

The need to feed the agents of mobile wallets

Making mobile banking deployments work is like connecting the dots in a big economic jigsaw puzzle. Only if all players in the complex eco-system win does mobile banking take off. If the economic benefit to key players are not clear, then they will not support the solution and it will go nowhere.

In most deployments, agents and the agent-network are probably the most critical element for the whole thing to work. It is therefore absolutely essential that agents benefit from running the system. As a matter of fact, the more they benefit, the more they will push the solution. It is in the interest of the operator of mobile banking services, to pay the agents as much as possible.

Often, mobile payment consultants urge operators to make the service as affordable as possible. They argue that subscribers will use the system if it is really cheap. If one were to make the fees zero, people would really use the system... WRONG!

If the operator does not generate sufficient revenue from subscribers, they will not be able to offer agents a big enough incentive to sign up customers and to motivate them to use the system. It is more critical to feed the agents, and not as important to feed the subscriber.

Utilising competitive forces in regulating for mobile banking

Financial regulators have a difficult balancing act to follow. They have the responsibility, on the one hand, to ensure that the monetary system work, while also making financial products available to as many of the population as possible. A very restrictive regulatory dispensation would probably be the safest approach to protect the monetary system, but would lead to exclusion for a large percentage of people.

It would also be irresponsible to just have an approach of "everything goes". While this approach may ensure that more people have access to financial services, this would put the whole system at risk.

Financial regulators in general follow a very prescriptive approach in the way that they regulate. Their view of the world is that some rules exist and that if an institution can demonstrate that they can (or intend to) conform to those rules that the institution would receive a license. It is almost a case that any institution has a right to a license if they can demonstrate that they comply.

Another approach would be to limit the number of licenses and only offer licenses to a select (pre-determined) number of institutions in a specific sector (say mobile payments). These institutions would be carefully selected, so that a highly competitive market gets created. In this way, proper market forces would keep the industry in balance. This is a novel way of looking at regulations with many pros and cons, but worth considering.

It is my impression that this approach (of creating a competitive environment for mobile banking/payments through only licensing a limited number of players) is being considered by more than one country at the moment. The most recent announcements from CBN (Central Bank of Nigeria) and RBI (Reserve Bank of India) seems to encapsulate some of this thinking.