Academic journal article The McKinsey Quarterly

Could Mobile Banking Go Global?

Academic journal article The McKinsey Quarterly

Could Mobile Banking Go Global?

Article excerpt

People who have never had a bank account could enjoy basic banking facilities for the first time thanks to mobile financial services--a good reason for service providers to turn their sights to emerging markets.

If mobile financial services are proving a disappointment in the developed markets of Asia and Europe, the financial institutions and telephone companies that provide those services could do worse than to explore the world's emerging markets. Indeed, the providers could even find more fertile ground there.

For the fact is that one day, in most of the world's emerging markets, more people will use mobile telephones than use fixed telephone lines. Businesses that are based on mobile financial services will thus be a natural fit for these economies. What is more, there is no need to wait for the next-generation mobile networks; these businesses can be built using today's technology. But to capture this significant opportunity, financial firms and telecommunications companies will have to forge partnerships with one another and, possibly, with merchants and retail chains as well.

Emerging markets: The greater opportunity

Mobile financial services are just that: financial services delivered through the medium of mobile handsets. Users can make basic inquiries about their balances or, in a more complicated maneuver, their payments. Basic services are already widely available in developed countries and in the more sophisticated emerging markets, such as Hong Kong and South Korea. So far, though, users in these markets remain unimpressed by the services, and providers haven't been able to charge anywhere near what they cost to deliver.

But mobile devices are bound to have more impact in countries that have limited wired networks, and this probably explains why consumers seem to like data-based mobile services in those emerging markets where they are available; in the Philippines, for example, people have taken rapidly to the Short Message Service. By 2005, when there will be more mobile phones in the world than TVs, fixed-line phones, or personal computers, the lead of mobile devices over PCs will be even greater in emerging markets than in developed ones. Indeed, it is in emerging markets that mobile devices seem likely to beat PCs in the race to become the primary conduit of Internet services to the multitudes.

Similarly, consumers and businesses in emerging markets are likely to find mobile financial services more attractive than do their counterparts in developed markets, because they have fewer alternatives. For many remote or low-income consumers, mobile handsets and the mobile Internet could for the first time provide access to financial services such as basic banking and electronic payments; otherwise financial-services providers find such segments impossible to serve cost-effectively. Mobile networks are cheaper to build than fixed-line networks, and mobile services are generally cheaper to roll out than their precursors (see "Connecting the unconnected," in the current issue); a mobile-payments network, for example, can cost less to create and operate than an electronic point-of-sale (POS) merchant network (Exhibit 1). This means that some countries will be able to leapfrog over intermediate technologies and move directly from a paper-based payments system to a mobile one, without ever having to build an ext ensive wired POS or automated-teller-machine network.

We have identified eight business models for mobile financial services (see sidebar, "Models for mobile businesses," on the next page), ranging from payments platforms and content services to mobile portals. [1] Which model will be most appropriate in a given market? What sort of alliance between providers would have a particular advantage there? How much value could the model create?

Offering the right service in the right market

Not all mobile services are relevant to all emerging markets: some are better suited to more financially sophisticated ones, others to the less developed. …

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