Mobile phone technology is changing banking

Once you are connected, mobile money services are exciting. From your mobile phone you can buy several services that used to require a physical visit to an agency during business hours. Buying electricity, which usually runs out when the agencies are closed, has never been easy; and so is paying for satellite television, buying mobile phone airtime for self and others, paying merchants, or transferring funds to friends and relatives. In a way, telecommunication companies (telcos) world wide have created transaction intermediation as a form of automating physical transacting between users and service providers.

Trundling through payment chores usually involves going to a bank branch or ATM, cashing out and visiting each of the agencies to pay for your services. There is one to the bank and several others to service agencies. In Lesotho Mpesa (Vodacom Lesotho) and EcoCash (Econet Telecom) have eliminated visits to participating service providers and that is a huge convenience; at least initially. It is not before long, however, before the visit to the bank is needed to cash up in order to load up the Mpesa and EcoCash wallets with money. To be able to transact on these services, one needs to load up with cash first and that is an important inconvenience that remains.

Mobile money has brought mobile telcos into the finance industry, previously the purview only of banks. But the banks are fighting back and want a share of the transaction intermediation now being exploited by telcos. Their online banking and electronic financial transfers (EFT) reach only those bank customers with reliable internet connections, which in Lesotho is a tiny fraction of customers. To extent their reach into transaction intermediation, banks are offering wallet services running on mobile phones. These bank-provided wallet services eliminate that remaining inconvenience of visiting the bank because money can be transferred directly from bank accounts into bank-operated transaction accounts.

The infusion of technology into the financial sector is already transforming both the banking and telecommunication sectors. By encroaching into financial intermediation, the telcos now have to undergo some form of financial regulation. Telcos could bring into intermediation the unbanked public that would otherwise never get to know a bank branch. For the banks, this would be free deposit mobilization from people who would be too remote for banks to reach out to. As the proportion of mobile-based transactions increase, banks will dispense less cash and this will have implications on physical bank structures and staff competencies with falling front office accommodation need and rising demand for back office work.

Financial and social media technology could ultimately transform the banking industry as we know it.

Hotels are useful because with one phone call to a published number, one can find a place to stay in an unfamiliar town. In that same town there are many residential rooms which are available to stay in, but you cannot know about because they are not advertised. What if there was a mobile application that brought together potential guests and residential hosts together in manner that undermines the need for a hotel? The technology company Airbnb already provides such a service and there are fears that it would ultimately disrupt the hotel industry. Uber, a technology company, uses a social media mobile application to link volunteer drivers with riders in a manner that is disrupting the taxi industry as we know it. Their underlying approach is to bypass the traditional “middle man” or intermediate and link suppliers directly with customers.

There are already technology firms that are developing bypass technology in finance and there are now fears within the industry that banking is facing an irreversible disruption. Are these fears legitimate?

These ideas seem quite remote for an economy like Lesotho. On the other hand does the experience with mobile money not suggest that leapfrogging is possible?