Mobile Banking And Microfinance: What About The Clients?
Within a decade, the use of mobile phones quite simply exploded in southern countries and especially on the African continent. Between 1998 and 2009, the equipment rate soared from 0.53 to 42.82 devices per 100 inhabitants. At the same time, the average price of a 2G telephone fell from $150 in 2003 to $75 in 2008. Even though the continent does not have a reliable fixed telephony infrastructure, it has fully adopted the mobile with more than 650 million subscriptions in 2015. It is now the world’s second-largest telephony market, just behind Asia!
New technologies fulfil a crucial role in the life of Africans and in the economy of certain countries on the continent, driving progress, economic growth and development. With the gathering pace of information sharing in a growing number of African countries, even rural dwellers are now connected to the cities with access to new financial services.
The mobile also boosts financial inclusion. For example, it has enabled the emergence of mobile payments and money transfers. Quite surprisingly, the telecoms operators have been the first to develop these services while microfinance institutions (MFI) and banks lag behind somewhat. A new model has thus gradually been established, with part of the customer relationship handled by the telecoms operator. In this context, what role will the MFIs and banks play as the telecoms operators deploy their solution? A new partnership needs defining and it may result in the MFIs focusing more on their social role.
One of the first mobile operators to use its own network and infrastructure to let its clients exchange money without going through a bank account was Safaricom, the leading Kenyan mobile operator. In partnership with Vodafone, they introduced M-PESA, a financial services and mobile telephony offer for the underprivileged in 2007. It is now easier to make mobile payments in Nairobi than it is in Luxembourg! The M-PESA service is currently used by 17 million Kenyans, equivalent to two-thirds of the adult population
The payment system does not require advanced technology because money can even be transferred via an SMS, with online payments, international money transfers, insurance services, credit and savings also possible. Microfinance clients are thus able to reimburse their microcredits in just one click!
For the MFIs, these services help agencies improve efficiency, reduce errors and time wasted on the manual processing of cash transactions, reduce the risk of fraud, while minimising geographic constraints and transactions costs.
However, the switch to mobile banking services involves significant costs for the MFIs. As such, many institutions are only just catching up with the mobile service offering and others are simply unable to keep pace with the technology revolution.
Despite the benefits mentioned above, the online payment service also comes with a number of risks, particularly when it comes to advising and tracking clients, which appears to be given less importance in M-PESA services. Another question: how can these services be adapted to the poorest people who cannot buy a mobile or can barely read or write and will therefore have trouble using phones?
There may also be a risk of MFIs becoming dependent on new technology and on the main telecoms operators. In light of this, is the long-term future of the agencies under threat? Is client data well protected against the risk of fraud? If the MFIs’ operating costs are falling, are clients benefiting with lower interest payments?
These questions and many others were addressed during the 36th Midi de la Microfinance et inclusion financière lunchtime conference by our two speakers, experts in the telecoms and microfinance sector: Devyani Parameshwar, lead development manager of the Vodafone/M-PESA product, and James Onyutta, managing director of Musoni Kenya, an MFI that conducts 100%-digital financial operations. The debate was moderated by Laurent de la Vaissière, director of the Information & Technology Risk department at Deloitte.
Adapted from: ada-microfinance