Ten years ago, there was no active mobile banking (m-banking). The Brazilian Central Bank was promulgating the first set of regulations that would allow bank correspondents to open banking agents. Microfinance had caught the eye of some beyond its circle of enthusiasts and practitioners, but financial access was considered a niche, and not a mainstream policy emphasis. Global cell phone penetration stood at 8 percent (0 percent among low-income countries), and there were still several countries with no mobile service.
Now, in 2009, much has changed. (See CGAP report Financial Access 2009). Branchless banking channels, using devices, such as ATMs, EFT-POS, PCs, and mobile phone, are now widely accepted as a means of extending the reach of the banking system. Banking correspondents are widely accepted as a means of extending access to financial services. The potential of m-banking is sometimes described in breathless terms, based in part on the meteoric increase in wireless coverage (now some 80 percent of the world’s population is within coverage) and penetration: there are over 4 billion cell phone subscriptions, over 50 percent of the world’s population (and over a quarter in low-income countries).
A conventional view of what is likely to unfold with regard to branchless banking over the next 10 years might look as follows. The underlying forces driving the use of electronic/branchless channels for financial services remain very powerful, both on the provider side (reducing transaction costs while expanding to new markets) and on the client side (with increased mobility for one thing driving the greater need for remote payments and with increasing trust in new instruments such as mobile).
Therefore, we would expect a continuing increase in the extent and use of electronic banking channels, while paper instruments, such as checks, are phased out. We would also expect a slow, but steady, rise in the proportion of people using these channels globally. The rates of increase will vary considerably by customer segment (younger quicker than older to adopt, for example) and by country. We accept the possibility of some leapfrogging, or acceleration, especially in low-income countries. The recent experience of MPesa in Kenya may be considered an example of this. Nonetheless, we believe that we are at least one, more like two or more, generation away from approaching a cashless society, except perhaps in isolated and special cases.
The early experience with branchless banking provides ample evidence to indicate some salient issues that will more than likely shape branchless banking. However, our understanding is not always deep enough to say precisely how they will play out. We know that regulation can be a major enabler or hindrance to the deployment of new channels and models, and we have identified key regulatory “hinge issues.” But we don’t know exactly how they will unfold in today’s key reference countries, let alone other nations where branchless banking is yet to take off.
Equally, we think that market structure, within banking and telcos, will have a big effect on the strength of competitive pressures and opportunities; but we are not sure how these will play out. Clearly, how low-income, low-education users respond to the notion of doing financial services via new technologies is also important. We are only beginning to understand the major drivers of adoption, though its importance is obvious.
By contrast, some forces are only beginning to unfold now. How will governments respond to not only the global financial storm, but the preexisting crises of high food and fuel costs? And still other forces add even greater uncertainty. We know that new communications technologies, such as LTE and Wimax, will be deployed alongside already pervasive standards in ways that affect the speed, reliability, and cost of data transmission. But we don’t fully understand their implications or those of other technologies that are little known today but that may erupt onto the scene.