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12 Apr 2017MOBILE BANKING – IS THE FUTURE HERE YET?


The announcement by a Berlin-based bank that it had grown its customer base to 300,000 was met with interest in the media last week. On the face of it, there's no major reason why this is such big news. The bank, named N26, started in 2015 as a Mastercard checking account in Austria and Germany. They now service 17 European countries, can process money transfers in 19 different currencies, and offer the same suite of features that most other banks offer, including loans and investments. But what makes N26 truly different is that they are a mobile bank. 300,000 users is impressive, but a mere drop in the ocean when compared to other parts of the world. So why is it becoming increasingly popular, and perhaps more importantly, is it safe?

Mobile banking (ie banking using a mobile phone) has been around for quite a while. It was first adopted in Germany in 1999, and utilized SMS. It was primarily a method by which people could access information about their accounts and payments quickly and easily via text message. Alerts that payments had been received or were pending, checking account balances, receiving statements, and other useful notifications were now available at the touch of a button, where previously, a person might have to wait in line at their local branch. At around the same time, online banking became a thing, with banks harnessing the might and convenience of the internet to make it easy for customers to manage their financial affairs. This proved to be a popular move, with large banks in the USA able to boast one million online accounts each by 2001. But we were, at the time, still tied to desktop computers, and the invention of the smartphone, which would make the internet truly mobile, was still some years away from being invented. However, in some less-developed parts of the world, a revolution was already well underway.

For pastoral cattle farmers in Kenya, the mobile phone had already changed their lives immeasurably. Unable to communicate over long distances, herders would be forced to move their livestock on foot from market to market under a cloud of uncertainty. Would potential buyers still be there when they arrived?  What were their requirements? Without knowing the answers to these questions, farmers had to herd their entire stock over long distances, often only to realise that they had missed the buyer or had made a journey in vain. A cheap feature phone changed all of this, almost overnight. Now farmers could communicate with buyers in advance, talk to other farmers to find the best grazing areas, and even more importantly, could keep track of the price of their cows, the single most important possession in many people's lives. Given that mobiles had made such huge improvements in people's lives already, it's no surprise that the first mobile banking success story comes from Africa.

In March 2007, mobile phone company (and interestingly, NOT a bank) created M-Pesa, a money transfer service that has grown into the world's biggest. It has now spread across the African continent and further afield, launching in Afghanistan, India and Romania. The results of 10 years of mobile banking in Kenya are clear – the number of people with bank accounts has skyrocketed, and the levels of financial inclusion and security are better than ever before.

Sometimes, very different problems have the same solution. In Africa, a lot of the issues solved by mobile banking are related to isolation (in that there are long distances to travel, and it's often the case that you won't run into other people along the way) and lack of information. In China, it's an answer to overpopulation that needs to be addressed. For example, if you want to get some cash out of your account in the USA, for example, then it's pretty easy to visit a cash machine without having to queue as there are, on average, only 144 people per ATM. In rural China, there are over two and a half thousand people per ATM, and only one physical bank branch for every ten thousand. No wonder people have been keen to adopt simpler, more convenient options, and the numbers get larger every year. Last year, online banking customers made over five billion transactions, translating to over three billion dollars.

Elsewhere, modernization has proved to be the key driver to adapting new tech. In India, the demonetization process that began in November last year made 90% of the country's cash completely worthless. While the fallout of this surprise announcement caused a sustained period of economic chaos in the country, the government remains keen to move things forward and stop people falling back on old habits. To this end, they've requested that all Indian banks have a mobile banking arm set up by the end of March this year.

While mobile banking continues to rise amongst consumers, small businesses seem reluctant to get on board. Penetration rates for mobile banking, while on the rise, are relatively low in the western world – of the top ten countries by user, the top six are all in Africa, the USA is in seventh place and the only European country to make the rankings is Sweden in eighth. Why is this the case? Well, part of the problem seems to be some (well-founded) concerns about security  - in a recent test, researchers discovered that ALL of the mobile banking apps that they tested were vulnerable to being hacked. Perhaps it's seen as more of a luxury or a fad over here. But where it's truly necessary, mobile banking has become a very important part of life.