This article marks the 100th instalment of the Financial Sector Spotlight (FSS). In cricket, they would call it a century. It’s been an incredible journey since mid-2010 when I started this column, and I choose to celebrate it by thanking followers of this column because we are in this together.
Sincerely, I thank you for your feedback and encouragement, without which this would have been a most hollow journey indeed.
The Society for Worldwide Interbank Financial Telecommunications (SWIFT) recently held its African Regional Conference in Kampala, Uganda and I am told by those who represented Zimbabwe the session on mobile payments was one of the liveliest and it provoked intense interest and debate. SWIFT is a member-owned co-operative that provides the network enabling financial institutions worldwide to send and receive information about financial transactions in a secure, standardised and reliable environment. Many, if not all Zimbabwean banks are members by default because they are part of the RTGS system which operates on the SWIFT platform.
The jaw-dropping statistics are that out of a world population of seven billion, five billion (70%) have phones, but only two billion (30%) of these have a bank account, spelling out a significant opportunity for banks. Secondly, consumers are using their mobile phones to make payments in over 130 deployments with more planned for the future. Thirdly, mobile payments are predicted to increase to 900 million users and $1 trillion in transaction value by 2015. Small wonder banks are pricking their ears.
When such immense value is bandied around, many banks are bound to jump onto the bandwagon with “me-too precision”. But what challenges do they face in pursuing this strategy?
Many new non-bank players, such as network operators, are investing in mobile payments, slicing away significant chunks of the value chain from banks control, so the competitive pool looks pretty bloodied at the surface, belying the opportunities for collaboration. SWIFT contends that mobile payments are still an immature business where only a few initiatives have succeeded in attracting a significant user base.
Ominously, this means many are destined to fail.
To complicate issues, legal frameworks are not yet harmonised across sectors, yet technology is evolving in a way that makes it imperative for banks to seek partnerships. Across industries, for instance, when Econet collaborates with TN Bank, it means the Reserve Bank must collaborate with POTRAZ in regulating EcoCash, but is it an easy process?
Given these complexities, should banks just stand by and watch or respond more proactively? SWIFT urges them to play to their strength and respond only to obvious customer demand. There should be a clear business case, so banks must not succumb to primitive me-too instincts. Banks should consider mobile payments as an opportunity to bring their customers closer in what SWIFT calls a “new experience banking model”.
So, where are the strategic opportunities for banks in mobile payments? SWIFT outlines three key ones, the first of which is mobile banking; the use of mobile devices to access bank accounts and make payments which is a potentially huge source of convenience for customers, especially in Zimbabwe where we appear destined for the eternal damnation of queues and cash shortages.
Currently, many mobile payment strategies focus on local person-to-person payments, but there is scope of bankers to expand the channel in order to cater for corporate treasurers, for instance. Banks can also benefit from mobile commerce, which is the use of mobile phones to buy products, driven by e-commerce companies that seek to uplift their product sales and generate advertising revenue.
Banks are therefore encouraged to partner with these e-commerce companies to learn and offer their financial services as part of that shopping experience. The third opportunity for banks is mobile money transfer, the use of phones to transfer money. This business is currently largely in the hands of the network operators, so banks are urged to consider setting up joint ventures with telecommunications companies, as well as collaborating among themselves to launch their own global money transfer service.
The long and short of SWIFT’s White Paper is that mobile payments are a strategic opportunity for banks, both as a defensive play against new entrants, as well as a growth prospect to convert cash into electronic transactions.
And of course, in all this, the self interest of SWIFT is not lost on keen observers. Are mobile payments about to move the “payment systems cheese” from the clutch of SWIFT?
Is SWIFT driven by genuine industry concerns or is it just another monopoly seeking to entrench its long-standing grip on domestic and international payments? Weigh in with your insights on firstname.lastname@example.org
Omen N Muza writes in his personal capacity. He is a banker and managing director of TFC Capital (Zimbabwe) (Pvt) Ltd, a Harare-based financial advisory company with interests in banking, technology and agriculture as well as the convergence area among them.