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The Department of International Development (DFID) and the Information for Development Program (InfoDev) have released a report on the status, opportunities and challenges of Mobile Banking in the Developing World. The report Mobile Banking: Knowledge map and Possible donor support strategies was released in July 2006. Together with Alex Weir I explore possibilities and hindrances for implementation of this promising service in Africa.

With the rapidly increasing penetration of mobile phones in the developing world, new mobile-enabled services are being explored. One of the services that is expected to have an important social and economical impact is mobile-banking. Mobile-enabled financial services (m-banking) are one of the newest approaches to the provision of financial services through ICT. It involves the use of a mobile phone or another mobile device to undertake financial transactions linked to a client’s account. A mobile network offers a high technology platform onto which these new services can be provided at low cost by the network provider. M-banking services which use channels like sms can be carried at a cost of less than US $1c per message. The low cost of using existing infrastructure makes such channels more amenable to use by low income customers.


In spite of the high possible impact of m-banking services, the report Mobile Banking: Knowledge map and Possible donor support strategies notes that donors have given little support to explore its potential and develop solutions. However, according to the authors, there is sufficient theoretical evidence that m-banking will have an impact on the people that do not have access to banking services at the moment. This conclusion is based on two reports: The Enabling Environment for Mobile Banking in Africa and Micro-Payment Systems and their application to mobile networks by InfoDev.


The report identifies three main barriers to the emergence and growth of m-banking:
  1. Uncertainties over the speed and nature of customer adoption

  2. Lack of interoperability with existing payment systems

  3. Regulatory barriers, i.e. lack of openness to new models and lack of policy certainty


Donor support should therefore focus on activities that work towards removing these barriers.
In the recommendations the report states that donors should adopt a strategy that supports activities to improve the informational, policy and regulatory environment in which m-banking initiatives will be appreciated. Direct support to banking institutions and/or telecommunication companies to develop workable solutions is not expected to lead to quick results. At the same time more research is promoted to fill in current knowledge gaps:
  1. Further and ongoing client survey work to monitor adoption, to understand the main drivers especially under the unbanked and poorer people

  2. Systematic analysis of emerging models, and especially the role and business case telcos and banks

  3. Scan of the emerging models outside of well known places


Although the report advocates a clear case for the donors to support the development of a m-banking regulatory environment, it gives surprisingly little attention to the technical infrastructure that is needed to support mobile financial services. Therefore the question remains whether m-banking in the Africa with the current ICT infrastructure is feasible.

Alex Weir is a Zimbabwe-based software designer who has developed several sms-based systems. Over the past period he tried to draw attention to the possibilities of m-banking on the African continent and has proposed a cashless sms-based payment system. In his concept paper Low-cost highly-secure electronic banking for the 3rd world - SPS - SMS Payment SystemWeir explains the workings of such a system. With him I look at the why m-banking has not been adopted on a wide scale in Africa.


VvR: What are the advantages of m-banking for a nation and for Africa?


AW: The provision of cash in an economy has a high but often unseen cost. The Government, the Reserve Bank, and ultimately the citizen do pick up this cost. The expansion of a nation’s banking reach and the minimisation of cash holdings has security benefits for businesses and individuals, benefits for the velocity of circulation of money in the economy, etc.. For example hopefully women who are engaged in business and small business will find it easier to keep money out of the hands of their husbands if that money is in electronic and not in cash form.

VvR: What are in your opinion the most important hindrances for the implementation of m-banking in Africa?


AW: The lack of affordable systems which are also secure. Banks come from a traditionally high cost base, and MPP’s (Mobile Phone Providers) come from a very high-profit environment. Neither of these two are enthusiastic about embracing any low-cost model. There are a few exceptions in the banking arena – Central African Building Society of Zimbabwe and Equity Bank of Kenya are two worth noting.
The possibility of non-banking, non-MPP operators to create m-banking systems is made much less economic by the fact that MPP’s effectively control the pricing of mobile messaging (e.g. sms/text messages) and that they seem unwilling to discount such pricing to levels close to their actual cost. Even banks or building societies are likely to encounter this high pricing policy problem if they try to offer seriously low-cost systems.Governments and regulators and very often closely tied (formally and/or informally) to MPP’s and to banks, and are therefore slow to adopt any drive to lower the costs of banking for the masses.
If one examines most of the present offerings (all of them recent) one sees that they are aimed at the urban middle-class or upper-middle-class – they require up-market phones, existing bank accounts, and often credit cards. Those offerings (like Kenyan Equity Bank’s Easy 24/7 Phone Banking) which are aimed at lower market strata, in fact usually do not yet have any inbuilt payment method – they are effectively passive accounts with sms alerts only. Two relatively middle-range m-banking offerings are South Africa’s Wizzit and Zambia/DRC’s Celpay, but note that even Wizzit’s transaction charge for Wizzit-to-Wizzit account transfers is a hefty US$ 0.43. Therefore Wizzit seems to be selling its service on being urban, fashionable and trendy, and not on being an affordable service for the masses.

VvR: What is the key for success for m-banking?


AW: Low cost combined with high security, ease of use, and a potential or actual large catchment population.

VvR: What regions are most likely to adopt m-banking first?


AW: Possibly regions without a highly entrenched existing banking sector. Possibly even countries like DRC with almost no infrastructure of any kind outside the major urban areas.

VvR: From a technical perspective, what are the challenges?


AW: Security is the major challenge. It is not easy to provide adequate security using the protocols which are available on low-end mobile phones. And even with higher-end mobile phones and their corresponding higher security communication channels, there are still potential loopholes inside the MPP’s who handle the traffic and also inside the National Security Services; this is in addition to the dangers of insider fraud by IT Personnel belonging to the mobile banking organisation/operation itself – a danger which threatens each and every banking operation which relies on computers.

The danger of course lies in the interception and modification of payment instructions whereby the payment recipient is changed and/or the payment amount is inflated. In fact the suspicion of existing mainstream banks (see for example here) towards even their own internet banking offerings is such that they seem to want to disclaim liability for customer loss.
To offer a high level of security for payment transactions over sms protocol on bottom-end mobile phones it is necessary not only to move from the use of PIN numbers to TAN numbers (Transaction Authorisation Number) but also to move further to what I term ‘Dynamic TANs’ (DTANs - dynamic transaction authorisation numbers – which are calculated by simple addition to make what in technical jargon we call ‘checksums’ on the payee’s account number and the payment amount. This process is described in some detail in the SPS concept paper as above.
Since people do not want to spend their entire lives and spare time performing simple arithmetic, then many users of such systems will decide to operate two such electronic accounts – one which holds moderate amounts of money and with which the holder always uses the DTAN method, and another account which only ever holds relatively small amounts of money and with which the holder always uses the much faster alternative TAN method.

VvR: What role do the regulators (ICT and financial sector) have to play?


AW: A major obstacle is the high charges levied by the MPP’s. It would be possible for the regulators to set maximum prices for quota volumes of sms and other mobile messaging systems which are dedicated to m-banking systems.
Another regulatory requirement in most countries is that a bank or building society must be involved in any electronic or mobile banking system; this probably makes a lot of sense and should probably be maintained; alternatively the e or m-banking organisation must follow the same strict regulations governing for example liquidity and liquidity ratios which are followed by existing banks. Possibly even their net deposits can be handled on a daily basis by the country’s Reserve Bank.
Regulators also have a role in extending geographic coverage across a country – i.e., setting mobile phone reception coverage requirements for percentage of total population which MPP’s must attain within set time-frames.
Regulators could even require that MPP’s offer m-banking at or below maximum set rates per transaction, with the minimum number of accounts on offer as a set ratio to their mobile customer base, but that would be quite radical.
As these new low-cost (or even zero-cost) m-banking services emerge, a way for the existing players to keep them out of the game will be to make inter-bank ICT systems unaffordable and/or too complex to be participated in. Regulators can have a role in controlling or eliminating that tendency by setting maximum charges and on insisting on simple but secure interoperability standards. To be practical, these factors can affect whether the low-cost competitors can offer affordable access to competitors’ ATM cash machines.

VvR: What do you expect from the donors and what is it that they should not do?


AW: The donors should stop to support all kind of workshops and seminars - as was suggested in the report. Also I am in favour of setting up a technical African task-force to develop one or several standard recommended solutions.
Donors could integrate m-banking into some of their programs such that the donors themselves, the recipients, and the m-banking operators all benefit. For example, possibly the World Food Program could change their famine relief distribution model in some countries and regions, whereby they issue e-money which is only redeemable with selected food stockists for certain food supplies. Troop demobilisation operations are other obvious targets for e-money systems.
Donors could also assist m-banking start-ups by absorbing some or all of the risk, but then of course m-banking operators may be encouraged to expect failure (and when failure is expected, it often arrives).
Finally, any and every e-money system depends on trust and having a guarantee that if all else fails, someone will convert your e-money into real goods, services or even good old hard cash. Maybe at the start of m-banking projects, some kind of temporary and condition-linked donor guarantee or endorsement will be advantageous.
More information on m-banking in Africa:




This article has also been published for the World Dialogue on Regulation