Virtual banking is reality - catch up, banking sector
Until recently, local bankers knew their customers intimately and provided the level of attention and services which come with years of interaction. With the rapid expansion and globalization of banks, that customer connection seemed to disappear. It is now making a comeback — through the use of technology, be it social media, mobiles or analytics which use big data. However, there is an emergence of branchless banks like E-Bank, and a whole lot of cellphone banking. These are changing the playing field.
Despite banks’ responsibilities as custodians of the public’s deposits and their need to manage risks and comply with numerous regulations, banks have been slower than other industries to adopt new technologies. Some, however, are partnering or collaborating with nimble-footed technology companies and following well-thought-out plans to meet the expectations of today’s consumers.
In the past, the proximity of the bank branch was the primary reason for opening an account with a bank or switching to another one. Now, according to a recent survey of younger customers, the desire for mobile banking capabilities is a main motive for switching banks. The three main features which attract these customers are mobile remote deposit capture, mobile payments and actionable offers. It’s very embarrassing to bank with a bank which doesn’t have Internet banking neor cellphone banking. If banks do not adopt these innovations, they run the risk of becoming irrelevant to their customers. Bill Gates was quoted as saying “Banking is necessary, but banks are not”. The statement remains valid today.
In Namibia, we are lagging in banking innovation. Imagine, banks in Poland can now deliver special offers to customers directly in their Facebook accounts, personalized with respect to their transactions. The Commonwealth Bank of Australia can facilitate peer-to-peer payments between Facebook ‘friends’ by using mobile phone numbers and addresses, and can enable customers to request payments, check balances and transfer money between accounts. In India, the ICICI Bank gives its customers account information through Facebook, an application which is hosted on the bank’s servers. When can I expect to see the same in Africa, I wonder?
In France, Crédit Agricole introduced a financial application marketplace called the CA Store, modelled on Apple’s and Google’s method of recruiting outside developers. It exposed a set of APIs (application programming interfaces) to external developers to build applications and solutions compatible with its own system. This approach afforded clients a better customer experience. The developers are paid on the basis of client usage. The three principles which guided Crédit Agricole in this successful venture are:
• Trust the customers for ideas.
• Open only the data of the application developers.
• Make the applications secure.
People in emerging markets are quickly gravitating towards mobile banking because travelling with cash or storing it at home is dangerous. For customers of Safaricom and Vodacom, the largest mobile networks in Kenya and Tanzania respectively, using a mobile phone eliminates a great deal of risk because if the phone is stolen, the thieves will have to know both the code to unlock the phone and the code to enter the owner’s M-Pesa account. M-Pesa is a mobile phone-based money-transfer and micro-financing service launched by Vodafone in 2007. It allows a user with a national identity card or passport to deposit, withdraw and transfer money easily with a mobile device. In Kenya, virtually every adult has an account with M-Pesa, and manages their money and payments by mobile phone. Whether we like it or not, we will move in the same direction. The only difference with Namibian customers is the pace of adjusting.
The fascinating thing about M-Pesa — aside from the fact that it is run by a mobile carrier, not a bank — is that it has made banking services available for the first time to an entire population. By breaking up their transfers into smaller pieces, urban migrants end up remitting more money back home. In addition, rural recipients save money when retrieving cash. They no longer need to pay for transport costs to urban centres, where most of the money-transfer services are located. Instead, they make withdrawals directly. Although a bank sits behind the account, everything is controlled by the mobile network. M-Pesa has demonstrated that its ability to do business with the poor in a responsible way can be both profitable and sustainable. In Kenya, the banks are in catch-up mode, and they should do the same across Africa.
In 2013, Bitcoin received a lot of bad publicity when its value soared to $250 and then plunged to less than $100 in a matter of days. Its use in such illicit activities as drug sales further damaged its reputation. The technological foundation of math-based currencies (MBCs) could prove transformational for financial institutions. Bitcoin’s core functions are currency mining, transaction logging and ledger replication. The robustness of the protocol has kept this core of the ecosystem free of security issues and breaches. Merchant services, wallets and vaults, currency exchanges and secondary markets constitute the enablers and complete the Bitcoin ecosystem.
One of the simplest uses of MBCs involves a payment rail. This transaction is a ‘push’ payment between two endpoints, so it avoids settlement risk. There is no authorization message or hour-long settlement lag. Because entering the transaction into the block chain (the public transaction ledger) to produce validated evidence of its application would take 8–10 minutes, it is best-suited for such business-to-business segments as interbank trading and settlement, online micro-payments and international money remittances — all at a fraction of the cost of conventional methods.
Virtual banking is at the intersection of banking, financial services and technology. Technological frontiers include geolocation capabilities to enable pop-ups and alerts on the mobile phones of consumers whenever they pass favourite malls or restaurants. The fingerprint access introduced on smartphones, card details stored in digital wallets, the acceptance of near-field communications as a standard and contactless point-of-sale terminals at stores — all will lead to ‘one-click’ payments. The pace of innovation is so rapid that with the pace banks are moving, we shall catch up when we have virtually done away with them.
By Mr. T