Banking with Mobile Phones - A Case for "Beyond Branch" Banking

The ubiquity of mobile phones today in Nepal as well as in other developing countries lends itself as a formidable medium to bring formal financial services to all, right at their door steps.   With a push of a few buttons, users can not only deposit, withdraw and transfer cash from their mobile phones, but also use the stored cash value to make purchases at shops and stores.  The mobile banking system requires a good ecosystem of agents and merchants in order to effectively serve the customer base.  This method of banking is truly disruptive as it will bring down the barriers and cost of banking to everybody in Nepal.

Why is mobile banking relevant to Nepal?  The explosive proliferation of mobile technology across Nepal means that this technology can be leveraged not only as a medium of connectivity, but can also serve as a medium to conduct financial transactions, with the ability to spur various entrepreneurial activities that contribute directly to the socio-economic development of the nation.  In order to understand the transformative capability of mobile phones, it is instructive to look at the rapid spread of mobile phones all over Nepal.  The year over year growth of mobile subscribers is estimated at 36% for 2009 and beyond.  In 2007, of the 3,914 Village Development Committees (VDCs) across the country, 1,886 did not have access to a basic telephone service.  Today all of the VDCs have telephone service, thanks to mobile phone technology.  And most importantly, developing sustainable financial services in Nepal is fraught with complexities primarily due to the lack of needed infrastructure.  Currently, Nepal has approximately the following penetration level of various services: 

Penetration per 100,000 people:

1.       Bank Branches                                 4.12

2.       ATMs                                                 3.40

3.       Debit/Credit Cards                         2000

4.       Mobile Phones                                25000

While looking at the statistics above, it is important to remember that formal banking era in Nepal started about 75 years ago, while mobile phones have only been around for approximately eight years and while only less than 30% of Nepali population has access to formal financial services, the number of mobile phone users in Nepal is currently 75 lakhs and is projected to reach 1.5 crores by 2014.

 Based on the promise echoed by the data above, Kumari Bank, in partnership with Leapfrog Technology, a US based Software Company, in August 2010, launched “Kumari Mobile Cash”, a revolutionary service that uses mobile phones to provide access to financial.

Through this revolutionary service, the bank plans to deliver financial services in a new and innovative way to all Nepalese, including those that do not have access to banking services, in a fast, secure and low cost manner.  The bank stresses that one does not have to have a bank account at all to use this service.

The first of its kind in Nepal, this service pioneers the “mobile wallet” concept, which allows users to store cash balances in their mobile phones.  Users are then able to deposit and withdraw cash from their mobile phones, and use the stored cash value to remit to anyone, anytime, anywhere, with the push of a few buttons. At present, this service is available through all of Kumari Bank’s 28 branches and their growing number of authorized agent locations nationwide. 

Kumari Mobile Cash will save time, effort and money for everyone in Nepal.  For instance, this means, someone does not have to travel by bus for 8 hours to deliver money to family.  It means that an elderly woman no longer has to walk for five hours to a remittance agency to withdraw the funds that her son has just sent her. 

Kumari Bank intends to use the mobile banking platform to extend microcredit loans and payment facilities to its rural customers, saving them substantial amount of time and money in the process.

Kumari Bank says that its motivation to start this service became stronger after thoroughly studying some of the precedents to this idea, prevalent in other countries such as Kenya and the Philippines.  In Kenya, Safaricom (part of the Vodafone Group), launched M-PESA (Pesa is the Swahili word for money and M stands for mobile), in 2007.  Currently M-PESA has more than 7 Million customers out of a population of 38 Million of which 18 Million have mobile phones. Its positive social and economic impacts have been well documented.  For instance, M-PESA turnover amounts to 10 percent of the country’s GDP, and research indicates that those who use M-PESA on a regular basis have realized 5-30 percent increase in their income.  This rapid adoption is a clear sign that mobile bank is continuing to fill a gap in the market that was left out by the formal financial services. 

Delivering financial services through mobile phones is a game changer.  Traditional banking outlets will never adequately serve the remote areas of Nepal.  The economics is simply not there.  However, the challenges involved are enormous.  In order for this service to realize its potential, it has to be supported by an extensive awareness campaign.  In Nepal, Bottom of the Pyramid (BOP) represents 86% of the economically active population.  BOP population are those that live on less than USD 2 per day, have no access to financial resources, and are most vulnerable population because of their susceptibility to predatory lending, and are exposed to risks of carrying cash.  Making mobile banking successful in Nepal requires this class of people to be made comfortable with technology, to help them overcome illiteracy and their resistance to change.  In addition, the regulatory framework in the space is practically non-existent.  Overcoming these challenges is a feat that one bank alone cannot achieve.  The banks need to think beyond competing with each other and join hands in this quest for social transformation, which not only delivers tangible benefits to society, but also promises good profit potential, not with excessive fees, but with economies of scale.

This article is co-authored by Sanjay Poudyal, Head – Corporate Strategy & Development, Kumari Bank, and Himal Karmacharya, Co-CEO, Leapfrog Technology, Inc.