The introduction of Mobile Money Services by various mobile money service providers to customers has become a way of gaining competitive advantage through diversification, maintaining customer loyalty and increasing the market share in order to grow their profitability and improve their financial position. The main purpose of this article is to assess the impact of Mobile Money Services on the performance of financial institutions. This article will contribute to the growth in scholarly understanding and knowledge on the impact of Mobile Money Services on the performance of financial institutions and recommend areas of improvement in Mobile Money Services. This article may be used to help financial institutions’ policymakers to identify areas of co-operation with Mobile Money providers as well as to make necessary policies aimed at mitigation of some of the effects of the adoption and use of Mobile Money services on their businesses. A financial institution is a company engaged in the business of dealing with financial and monetary transactions such as deposits, loans, investments and currency exchange. Financial institutions provide financing, facilitate economic transactions, issue funds, offer insurance and hold deposits for businesses and individuals.
Rivalry among existing competitors
To analyze how intense the current competition is in the market place, we shall look at the last force of Michael Porter’s Five Forces, which is determined by the number of existing competitors and what each competitor is capable of doing. Rivalry tends to be high when there are a lot of competitors that are roughly equal in size and when customers can easily switch to competitors offering the same services at a lower cost.
When rivalry is high, competitors are likely to actively engage in advertising and price wars, which can hurt a business’s bottom line. In addition, rivalry will be more intense when barriers to exit are high, forcing companies to remain in the industry even though profit margins are declining. These barriers to exit can for example be long-term loan agreements and high fixed costs. Looking at the Mobile Money industry in Zambia, we see that the industry is extremely competitive because of a number of reasons which includes low barriers to entry and low switching costs for customers.
How Financial Institutions have responded to the penetration of Mobile Money service providers.
The most interesting question one can ask is how financial institutions have responded to the penetration of Mobile Money services. It is very cardinal to note that the penetrating of Mobile Money services in the market has an impact on the financial institutions, which has led them to come up with strategies such as introduction of agency banking and internet banking so that the impact of mobile money services can be neutralized.
Financial institutions have adopted the hybrid model in order to minimize the impact of mobile services on their operations. Lake (2013) defines Hybrid Model as a combination of a financial institution, Mobile Money Operators or other third parties that combine characteristics to provide services to customers. An example can be payment services that handle payments internally with cash in/out through Mobile money operator’s agent network by enabling communications with the bank and transfers between the user’s cell phone payment account and accounts at the bank.
Another example is the issuing of loans to customers through mobile money services. Financial institutions are now signing Memorandum of Understandings with mobile money services that enable them to provide loans to customers.
Services / Products provided by Mobile Money Providers
The following are some of the products/services that are provided by Mobile Money operators
- Over the counter bill payments
- Intra country remittances, both over the counter and based upon the Mobile Transaction accounts. An example is the National Pension Scheme Authority who will now start accepting payments through mobile money.
- Savings products
- Lending products
- Merchants-payment
The above products introduces a set of risks and some of which are common across the product lines. It is therefore important to note some of the disadvantages of using Mobile Money systems to transact.
Identity theft
There is an increase in fraud as the customer data has been compromised which is allowing other people to replicate the customer’s identity giving opportunities to fraudsters to conduct transactions.
Impersonation of provider status
An unauthorized agent acts as an authorized agent, mostly performing cash in and cash-out transactions but charging fees which are not agreed to by the scheme operator, or for the purpose of confidence trickery to gain access to the customer’s secret information. There have also been incidents where such “agents” have defrauded the depositor and absconded with the deposited amount.
Inability to transact
The transactions within a mobile payments network travel through many communications systems to reach the MM backend. Any breakage in this chain can lead to an inability to transact.
Lack of cash or electronic float at agent outlet
Most of the Mobile Money agents do not have sufficient cash or electronic float to perform a transaction and this can cause an inconvenience to the customers.
Abuse of customer details by any member of the supply chain
Mobile Money agents abuse the customer details by opening accounts using customer’s details without their knowledge. This imposes a risk as this can allow the person to use the account for other fraudulent purposes.
Advantages that Mobile Money Services have over Services of Financial Institutions
Easier Accessibility and Convenience
Accessibility is another factor that disadvantage financial institutions in a way that one needs not to register with the bank to get access to mobile money services. Mobile money services are everywhere these days and one needs not to queue up and wait to be attended to. This has resulted in the loss of customers for financial institutions as they do not operate 24 hours as compared to mobile money services providers.
Mobile Money services have increased access to financial services as well as convenience. Through Mobile Money customers enjoy a wide range of services without necessarily having to visit their domicile branches. Such services include money transfer across accounts, balance inquiry, making payments (utility bills), phone banking and buying airtime. It can be agreed that mobile money services are one way of coping with the changing customer expectations.
Easy to Open an Account
For one to have a Mobile Money account they only need their National Registration Card and a registered Mobile number as compared to Financial Institutions whose processes of opening an account are a bit bureaucratic and as a result people prefer Mobile Money services to financial institutions and as a result financial institutions lose customers.
Availability
The availability of Mobile Money services gives Mobile Money providers an advantage over financial institutions in such a way that the services are easily found and can be accessed at any time. With the increase in the number of Mobile Money booths, Mobile Money Services can be accessed at times when financial institutions are closed thus giving them a competitive advantage.
Lower Charges
According to Amit, cost is certainly a factor for customers, but many people are willing to pay more when they can see the value and feel like they are getting their money’s worth. Mobile Money services are offered at cheaper and affordable prices as compared to financial institutions. For example, mobile money service providers do not charge customers for maintaining an account with them. There are no monthly charges with Mobile Money accounts and one can deposit any amount without limitations.
Recommendations to Financial Institutions
Despite the high levels of mobile money adoption in Zambia, financial institutions have continued to expand. Therefore, it is recommended that Financial institutions introduce mobile money services packages that are easy to use and can be developed to enable customers to deposit or withdraw of money using the mobile phone that will capture market niches that competitors have not identified hence expand on market share leading to improved financial performance.
Agency banking should now take a center stage in the banking institutions’ short term strategic plans to deepen financial services further and ensure inclusion of the unbanked and the underbanked as this is a huge market that remains a priority focus of the mobile money service providers.
Financial institutions should offer training to staff and if possible to customers about the ever-changing technology. Financial institutions should provide toll-free lines to enable customers who may want to use the system and also in a situation that deserve attention of the institution.
Financial institutions should recruit as many agents as the mobile money service providers have done and further reduce agency banking fees so that their services are affordable to both the rich and the have-nots.
Recommendations to Mobile Money Services Providers
There should be a Clear publishing of the fee structure to the customer, as well as consistent agent branding. Agents should assist the Mobile Money providers to identify the active, but unauthorized agents in the market. Mobile Money services are a source of income for the local council through the collection of funds paid by agents for operating in a booth. If unauthorized agents are not reported to the council, the council will be denied revenue to help it carry out its various services it provides to the community.
On the other hand, Mobile Money operators should introduce machines to print out deposit or withdrawal slips so that there is proof of transactions done. Mobile Money operator only allows customers to write their names, national registration card number, phone number, amount deposited/withdrawn and upon indicating this a signature is required. This is not the case with most of the operators as they do not allow customers to submit these details after depositing or withdrawing, therefore there is no proof of transactions done. Although a text message is sent to confirm that the person has received or deposited the money, this is not enough proof that the transaction has taken place.
Mobile Money Services provider should conduct proper verification of KYC information provided during account registration. Like Financial institutions, mobile money providers should request proof of residence from a customer when opening an account. It is common that customers now hold more than one account with Mobile Money operators provided they use a different number. This can be avoided by allowing customers to have one account in the system.
Mobile Money Agents need ongoing management to ensure that there are no shortfalls at the agent location and there is also a need to adequately fund this line of business in terms of cash and electronic float. Mobile Money providers need to invest in their agents and train them on some of the services as it tends to be that agents lack understandings of some services they provide such as withdrawing cash using a voucher number.
Conclusion
This article shows that with the high levels of mobile money penetration in Zambia, financial institutions have continued to expand, suggesting that concerns around mobile money displacing financial institutions are unfounded. However, the article shows that mobile money is complementary to financial institutions’ services.
According to GSMA report, there is no evidence to suggest that mobile money has significantly displaced financial institution’s products or has had a negative impact on the financial institutions. If anything the higher growth in financial institutions deposits and loans in countries with high mobile money penetration relative to those countries with limited adoption suggests that mobile money may have enabled growth in the financial institutions’ sector GSMA (2019).
Aaron Siame is an audit professional at KPMG in Zambia. The views expressed in this article are his own and not necessarily those of KPMG.
References
- Amit Kothari (http://tallyfy.com/customer-value/
- porteous “the enabling environment for mobile banking in Africa” 2006
- Lennart, Söderberg (2008) mobile banking –financial services for the unbanked?
- GSMA (2019) “The impact of mobile money on monetary and financial stability in Sub-Saharan Africa”
- https://www.boz.zm/financial-institutions.htm
- https://www.investopedia.com/terms/f/financialinstitution.asp
- Lake A.J (2013), Observed Risks and Proposed Mitigants for Mobile Money Operators.
- Muisyo, M.J 2, Alala, O 3, Musiega, D The Effects of Mobile Money Services on the Performance of the Banking Institutions: A Case of Kakamega Town