Future of banking: Say goodbye to the branch

Future of banking: Say goodbye to the branch

In developed countries such as the United States, United Kingdom and Australia, mobile banking — describing the use of mobile phones to make financial transactions — is transforming banking from a physical (requiring visits to a bank branch) to non-physical activity.

Visits to banks to deposit cheques, and cheques more generally, appear to be disappearing. A recent report from The Economist cited a finding from JP Morgan that over the past year in the United States, customers deposited 10 million cheques by taking pictures of them rather than visiting a branch. In the Netherlands, only half of all bank customers have stepped inside a branch in the past year.

iPods are making a difference by enabling customers to access internet banking through mobile technology. This process is new, but already well-pronounced in Australia. In the first two months of its existence, Westpac’s iPad banking app has been downloaded onto 58,000 devices and used in 137,000 transactions worth $125 million. Payments analyst Edgar Dunn & Co predicts there could be 250 million mobile banking transactions each year in Australia by 2015. This uptake has been so prompt that at last week’s Finsia’s Annual Financial Services Conference, leaders from a number of major Australian banks commented that technological developments — particularly mobile banking services — would eventually do away with physical banking altogether.

Interestingly, the early introduction of mobile banking has meant that much formal retail banking activity in many developing countries such as Kenya and the Philippines has tended to be non-physical in nature. In developed countries, banks generally relied on their branch networks and, more recently internet banking, to serve their customers.

This option has often not been available to banks operating in developing countries. Building bank branches in many developing countries is expensive, dangerous (particularly in countries in which corruption and violence are rampant), and often unprofitable given that transaction sizes are often very small (sometimes as small as $3-5). Internet banking is often not feasible due to a lack of reliable computer access for customers. As a result, many large populations in developing countries were considered “unbankable”, and so did not have access to formal banking services at all.

This situation has changed in recent years as the price of phones has decreased substantially, so enabling large numbers of the “unbanked” to buy them. For example, Africa’s mobile phone population grew from eight million in 1998 to over 120 million in 2007. By 2006 there were more phones and related services sold every day in Africa than in all of North America. This rapid growth has continued since this initial take-off, and the BBC has reported that there are now around 700 million mobile phone users in Africa. This growth in the use of mobile phone use has extended to some of the least developed countries on earth. For example, the mobile phone population in Afghanistan expanded from 20,000 in 2001 to 1.3 million in 2006, and a report produced by the USAID-funded Afghanistan Media Development and Empowerment Project in 2012 put this figure at around 17.1 million.

Many banks began to use mobile phones to reach these large unbanked populations and so many of the world’s largest mobile banking markets now exist in developing rather than developed countries. By the end of 2011, over 140 mobile money ventures operated globally, most of which were situated in developing countries. In a World Bank paper written by Michael Klein and Colin Mayer, it was reported that 45 mobile banking schemes existed in Africa, 25 in Asia and the Pacific, and 12 in Latin America.

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