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Mobile banking and mobile money

ESSCA Budapest | International Finance 2018/2019
What is mobile banking and mobile money transfers
Advantages and disadvantages of mobile technology
Mobile banking nowadays
Mobile banking and impact on banks’ performance
Mobile banking influence on money markets
Basile Mouigoum
Laura Meneses
Ludovic Diguet
Louis Bensahel
Moundo Daniel
Owen Mcdade
Budapest, April 2019
What is mobile banking and mobile money transfers
Mobile banking is the technology that enables people to conduct financial transactions using a mobile
device such as a tablet or a cell phone. However, this is not a new: mobile banking started around
twenty years ago and was boosted by the development of the smartphones. Mobile banking rapidly
became very popular amongst consumers and nowadays it is considered a vital tool. This allowed
consumers to have an easier access and control over their finances anytime, anywhere. A bank that
does not provide mobile banking services yet, is one step behind the others and will certainly lose its
customers, whom in turn will opt for banks that go beyond offering the basic services (loan granting,
long-term deposits, etc). People will only be willing to open an account in a bank if it satisfies the
new consumers’ needs such as access to the balances, making transfers and pay the bills with only
one click, anywhere, anytime.
Back in 1999, the first remote banking services used SMS (SMS banking). At that time, some
smartphones had a wireless connection feature which permitted the access to mobile web. Several
European banks started to offer mobile banking solutions to their clients.
There is also another concept that is intimately linked to mobile banking: mobile money transfers
(MMT). The latter refers to an electronic service whereby customers use their smartphones to receive
and send money domestically or across borders. In order to make transfers/payments, most of the
times, an interconnection with the bank of the receiving entity is necessary (this is the part when
mobile banking enters). By settling the connection between the smartphone and a corporate/ personal
account, the transaction can be concluded successfully.
Mobile banking advantages and disadvantages
Regarding mobile banking, one of the advantages is that some of the mobile apps might use the
connectivity of the telecom operator and discard internet connection. Mobile money services are
available 24h a day, 365 days a year in any place, even in rural areas (contributed to integrate
previously isolated places into the Banking sector). There is a wide range of services that these apps
supply: fund transfer, bill payment, account balance check, recent transaction review, debit card
block, investment management, etc. This is also told to be more secure than online banking and very
On the other side, the users of this service are at risk of receiving fake SMS asking for information
or driving customers to links with scams. Also, the loss of the mobile device implies an eventual
access to the banking PIN by third parties. In some cases, banks can charge specific fees for the usage
of mobile banking features.
Mobile banking nowadays
According to Alice Millingan (2018), “Mobile banking use is skyrocketing as more consumers
experience the benefits of greater convenience, speed and financial insights driven by new app
features and upgrades”. In the United States, using mobile banking apps is the third more common
mobile activity and roughly “81 percent of people use their phones to manage their money on nine
days in every month”. “ Nine out of ten users confess that prefer using mobile apps over going into a
branch and 68 percent of millennials said they could see their smartphone replacing their physical
wallet” (Mobile Banking Study, 2018).
As the popularity of mobile banking increased substantially in the past years, banks are now
competing through service expansion, in order to keep people engaged. It is foreseen that in next
years, recent features will be even more common, such as instant replacement requests for stolen or
list cards and financial insights based on analytics of each individual’s account. It is important to
notice that personalization in banking solutions- for example, expenditure analysis by sector or brand
in bank’s app - is much more valuable in the finance sector than in any other sector concerning
consumers’ lives. Just like in any other kind of app, there is a need for having tailored-made apps that
incorporate consumers’ needs and preferences.
Banking institutions key priority in the coming years is to develop ways of making these services
faster, simpler and more convenient for customers. The increasing innovation will in turn attract more
and more people, making of mobile banking, a potential candidate for the primary channel used by
people to get in touch with their banks.
Mobile banking and its impact on banks’ performance
The introduction of mobile banking channels can
improve bank’s performance in different ways. This
technology is cost-efficient, meaning that by
adopting this strategy, banks can be more efficient
when managing costs. The costs associated to
processing data and transactions through a mobile
app are almost fifty times lower than executing the
same tasks via a bank branch and 48 times lower than
via an ATM.
According to Deloitte (2018), “a bank with a footprint of 100 branches and 250 ATMs, and an
average daily deposit/withdrawal volume of 165 branch transactions and 65 ATM transactions,
could expect to save about $5 million annually if the bank were able to convert 20% of those branch
and ATM transactions to its mobile channel. Features such as remote check deposit or person to
person transfers (P2P) will enable those transactions to take place through the mobile channel —
and reduce dependency on branches or ATMs”.
If banks manage to drive most of their transactions to mobile apps, there is a greater chance that they
can signal and close branches with poor performance, increasing its operating costs efficiency by
shifting the employees that were working in those branches to some sort of advisor department,
responsible for giving tailored advice to the customers via mobile app.
There is also room for increasing the revenues through banking apps. Banks can conduct targeted
marketing campaigns based on consumers’ preferences (discovered through customer analytics) and
create premium features with personalized services.
Mobile banking influence on money markets
In looking at the influence on money markets, we looked at the impact mobile banking had
on sub-Saharan African countries. Inclusion into money markets has rising dramatically in this part
of the world thanks to mobile banking.
Mobile banking has reduced the amount of COB (currency out of banks) in this region of the
world as more people put their money into bank deposits. This additional money, that used to be held
in cash outside of traditional banks has allowed for growth of the banking sector in this region of the
world (Kipkemboi & Bahia, 2019). This additional influx of deposits in the banking sector has also
had a positive effect on the money multiplier. People have less need for cash as they can transfer
money electronically, thus increasing deposits (Kipkemboi & Bahia, 2019). With less need for cash
as mobile banking allows for paper less transfers to take place, banks have been able to increase the
amount of money they can loan. This can only be seen as a positive sign for economic growth in this
region of the world.
It was noted by Kipkemboi & Bahia (2019) that there were beliefs that mobile banking would
drive inflation up as money changed hands more often (velocity of money), but this was found to not
be true. In fact, it was found that mobile money growth actually lead to a decline in the velocity of
money as cash was not actually changing hands. Mobile banking was also found to have no effect
on inflation (Kipkemboi & Bahia, 2019).
Finally, Kipkemboi & Bahia (2019) found that as more currency and assets were flowing into the
financial system, monetary policy became more effective. This was due to a deeper financial system.
“The growth in the multiplier also appears to level off or at least slow down once mobile money is
mature, meaning that it returns to a degree of stability, which is a key requirement for effective
monetary targeting (Kipkemboi & Bahia, 2019) “.
We can see that mobile banking has had a positive effect on the money market in this region
of the world. As more people are able to access the banking sector more money flows into the sector,
creating growth of the sector. Furthermore, e-money has lessened the need for cash, allowing banks
to lend more money and stimulate economic growth.
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https://www.goodreturns.in/2014/12/05/mobile-banking-what-are-the-advantagesdisadvantages-325811.html (Accessed in 3/4/2019)
Account, A. 2017. The impact of Mobile Banking.
https://www.techopedia.com/the-impact-of-mobile-banking/2/29475 (Accessed in 10/4/2019)
Deloitte. 2010. A catalyst for improving bank performance.
performance.pdf (Accessed in 10/4/2019)
Kendal, J. Central Bankers Shouldn’t fret over mobile money: research says it doesn’t cause
inflation, and could be beneficial in monetary policy.
https://nextbillion.net/mobile-money/ (Accessed in 12/4/2019)
McCarthy, J. 2018. The difference between E-Money, mobile money & mobile banking.
https://medium.com/bank4yougroup/the-difference-between-e-money-mobile-money-mobilebanking-5cc09430b9dc (Accessed in 12/4/2019)
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