Automated Teller Machine (ATM) cards have been in existence for several decades now and have been the means by which customers of financial institutions are able to perform financial transactions such as cash withdrawals, deposits, funds transfers, or account information inquiries, at any time and without the need for direct interaction with bank staff. It has without a doubt been the most convenient way of traversing through our growing cashless society. Until now.
Since the advent of COVID-19 and the health restrictions that have been imposed that limit physical contact (social distancing) in order to prevent the spread has given rise to payment systems that until now were only mooted to benefit a particular demographic of an emerging economy.
In Zambia, the reserve capacity possessed by the three (3) main mobile companies in Zambia has led to the rapid rise of mobile money usage. According to ZICTA’s volume statistics, there were approximately 17 million registered sim cards in the country. Of that number, 9.17 million were broadband users. At 95.4% mobile penetration of the current population, the telecoms companies have been well-positioned to use their reserve capacity to enter into the financial payment system space.
As mobile telecommunications access has been increasing in the country, the price of the devices has been reducing. Moore’s law continues to reign true as the price of devices has plummeted on the on end, the complexity of the technology has increased giving consumers more complex technology that is able to adapt the financial solutions that are now being layered on them. Conversely, ATM cards have to second place to their unlikely competitor as their proliferation has been tide to commercial banks customer reach. An outreach that raises questions of distribution and capital costs associated with deployment which has greatly impacted rollout.
The competitive landscape for both banking and telecommunications has been an interesting one. On the banking side, 18 banks compete in the retail space for consumers compared to 3 on the mobile company’s side. When the latter arena announced they were launching their own financial transactions system that would rival the ATM card, some of the banks took this threat seriously and invested in their own mobile banking platforms. The biggest challenge that all players on both ends faced in the beginning was having a plethora of merchants to take and handle the transactions emanating from them. Over time, this appears to have been solved, to a certain extent, for some banks.
For the longest time, the ATM card has had its supporters and opponents. The plastic card has often been used as a means of brand visibility, identification, and interaction with physical devices that allow access to one’s financial assets. However, its opponents argue lack of security (visible card number, static plastic card that cannot be upgraded without a replacement and term of usage) and scalability. This is an area that mobile money solutions from telecoms have leapfrogged the extant banking players.
With COVID 19 with us for some time to come, the penetration of merchants able to take mobile transactions has seen a sharp increase making the mobile phone the de facto heir apparent to the ATM Card. Banks too have seen the need to partner with mobile companies and integrate their platforms albeit reluctantly. Not all the 18 banks are fully integrated with the 3 telecoms’ mobile money platforms who until now do not have integration between them. Some have chosen to have bespoke solutions that limit them to the ubiquity of their merchants or ATM infrastructure and branch network.
Integration between the ATM card providing Banks and the Mobile Money telecoms requires a nexus of contracts that can present a headache that some Executives would rather be spared from. However, COVID 19 has made the integration preposition more apparent as society moves to a more digital and contactless way of transacting. Therefore, COVID 19 may have brought forward the expiration of the ATM card but its survival now rests in the ability and desire for all financial institutions and mobile telecommunications providers to integrate.
Hence, in this era of uncertainty, the opportunity cost around whether the ATM card’s last rites are being read by mobile money remains the choice between using plastic that is backed by a financial system that has evolved and that has put in place measures such as statutory reserve ratios for participants ensuring that all transactions are meet despite limited geographic footprint or the exciting new Mobile Money whose financial regulation is still evolving, has a host of participants with fewer years of experience on platforms not subjected to stricter central bank ratios hence leaving consumers with limitations on what they can achieve if they want to scale up their desires. Financial Insight believes the future will have to accommodate an integrated “dual solution” solution that sees the seamless integration of both technologies. One cannot simply exist without the other. For now.
