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Mobile Working

How much are banks risking on mobile services?

The term “mobile financial services” covers a broad church of money-related activities, from simple peer-to-peer transactions to more complex arrangements such as international transfers, loans or insurance. Despite such diversity, all models share the principle of operating our finances digitally from where we are, without requiring to meet physically with someone, say at a bank branch. 

In sub-Saharan Africa, mobile finance has expanded in prevalence due to the relative paucity of other choices. If you’re living in a rural area and the options are to ping some money to your uncle on your mobile phone or walk two days to get to the nearest bank teller, which are you most likely to choose?

In addition, the notion of having a bank account is not so familiar among poorer populations that are more familiar with cash transactions. About 7% of EU citizens above 18 are ‘unbanked’ in industry parlance, compared to roughly 75% in Africa, so it is little surprise that Vodafone's M-Pesa model — which expanded the idea of a pay-as-you-go phone card to a mobile money brand — took off as it did. Continued demand in Africa has led commentators such as BCG to suggest it offers a “$1.5 Billion Revenue Opportunity by 2019.”

In Western economies we are blessed with being both better off but hampered with the legacy infrastructure that has evolved to support our financially oriented lifestyles. We are used to being able to drive to a bank branch, pay in a cheque, berate an assistant for the foibles of the company they represent, take cash from the hole in the wall.

And so we do: 67 million bank branch transactions still take place in the UK, even though we are being inefficient in the process. In consequence we have not been the greatest adopters of mobile finance. “The proportion of mobile phone users actively using mobile money services remains tiny,” says Ernst and Young.

This situation may not last however, simply because accessing bank branches is becoming less of an option. Between 2009 and 2013, about 20,000 (8%) of Europe’s branches were closed, and this trend continues. In the UK, it has been reported that half of all branches have been closed since 1989. 

The ‘digital revolution’ is generally cited as the reason why such moves are necessary — people’s habits are changing and banks claim that subsidising unprofitable branches is a luxury they cannot afford. While it may be true that branches equate to 60% of retail banking costs, the other compelling aspect is that mobile service delivery offers additional ‘upside’ — when, back in October 2014, UK bank Lloyds reported that 200 branches (6%) would close, this was on the back of a digitally-driven jump in profits.

So should banks keep branches open regardless? Do we deserve a friendly face at our beck and call, simply because we want to store our money at one place rather than another? The question may be moot, given that banks show little intent to slow down their branch closure programs (despite UK business secretary Vince Cable’s best efforts).

Whatever their internal closure strategies, banks are already struggling to maintain any semblance of trustworthiness — they need to be careful not to play too fast and loose with the Western tendency to stick with the companies they know, as it could only be the albeit inefficient journey to a bank branch that is keeping them loyal. As the European and African models converge, people on both continents will decide precisely what they are prepared to pay for, and from whom.

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Jon Collins

Jon Collins is an analyst and principal advisor at Inter Orbis. He has over 25 years in experience of the tech sector, having worked as an IT manager, software consultant, project manager and training manager among other roles. Jon’s published work covers security, governance, project management but also includes books on music, including works on Rush, Mike Oldfield and Marillion. See More

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