Mobile Banking: A marriage of technology and banking

Mobile Banking:  A marriage of technology and banking

THE Philippines has drawn notice for its revolutionary success in providing microfinance services in the rural areas. A recent study by the Economist Intelligence Unit ranked the Philippines second in terms of overall business environment and in terms of growth and reach for microfinance, with financial inclusion of the poor reaching six percent against two percent in India and one percent in Pakistan.

Rural banks have been using leaps in technology to bridge the divide between providing banking services to the poor and keeping overhead costs low to allow a measure of financial returns for banks.

The Rural Bankers Association of the Philippines―Microenterprise Access to Banking Services (RBAP-MABS) program supported by the United States Agency for International Development (USAID) may have found the solution in providing a viable scheme to spread microfinance services especially in rural areas where these are most needed.

By forging tie-ups with Globe Telecom’s G-Xchange Inc. (GXI) in 2005 and more recently, with Smart Communications using their Smart Money platform, RBAP-MABS introduced the use of cell phones and mobile money to allow rural banks to spread its reach in providing financial services at lower cost.
Among banks’ biggest costs is the expense of collecting loan payments. Higher costs of door-to-door collection practices require banks to charge higher interest rates. With the use of mobile money payments, this is now changing.

A study made by Singapore-based mobile money technology platform provider Utiba showed that in the Philippines, the problem of the high cost of providing microfinance services is accentuated by the local geographic conditions of an archipelago of more than 7000 islands, as well as mountainous roads, waterways, remote villages and a population of over 90 million spread across a difficult terrain.

The use of cell phones and mobile money platforms allows savings for both the clients and the banks. More importantly, it is now changing the way clients transact business in rural areas. Clients are able to buy and sell products and services and even purchase from suppliers remotely and more efficiently than using a check payment.

In the recent Utiba study, a mobile payment would cost around P10 in mobile charges. However, a banking transaction would cost a minimum of P16 in a roundtrip jeepney fare, and P200 in opportunity costs due to lost hours in traveling to make a banking transaction. The study cited an example of a tricycle driver who earns a potential P200 for the four hours on average spent to make a physical banking transaction. The whole cost for a client to transact with a bank thus would be P216 against P10 to make a mobile payment via GCash. There is also the risk of theft when traveling to the bank, which can be reduced through a mobile transaction.

Utiba said that the mobile commerce ecosystem in rural Philippines is one of the most evolved in the world. It also cited the significant work of the partnership between G-Xchange, RBAP-MABS, and the more than 67 partner banks with almost 1,000 banking offices that helped make this happen in many rural parts of the country.

Bangko Sentral ng Pilipinas (BSP) Gov. Amando Tetangco Jr. recognizes the initiative, which he described as strategic in a country where roughly 99 percent of total enterprises are micro, small and medium enterprises (MSMEs) employing about 70 percent of the workforce.

Tetangco noted that mobile banking in the countryside is significant for the Philippines, where cell phone use is one of the highest in the world. At the same time, the rural banking sector is well positioned to take advantage of mobile banking in the countryside. Not only does it have the widest outreach with over 2,700 branches and other banking offices, but the sector as a whole continues to strengthen. The latest BSP figures showed an increase in the capital adequacy ratio (CAR) of rural and cooperative banks at 18.89 percent in the third quarter of last year, up from 18.79 percent in the second quarter.

The Philippine rural banking sector combined with new technologies such as mobile phone banking is set to improve the lives of the poor and provide even greater access to banking services where it is needed the most―the countryside!

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