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Infrastructure sharing can lower costs

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Last week’s article, which interrogated the concept of bank service fees, how they are derived and what is currently driving the cost of banking services in the economy, drew tremendous interest from a wide spectrum of readers.

By Clive Mphambela

Some felt the article was merely an attempt to defend the banking system, but others warmed up to the need to put in place robust mechanisms that can assure the public that banking services will be available well into the future.

Here we look briefly at some of the key issues that can result in even lower costs of banking and other financial services in the economy.
How can financial innovations result in lower banking costs?

Financial innovations can change the way services are delivered to the end customers, as well as the way consumers access and consume financial services.

Do we have faster, more innovative and more convenient ways to make payments?

As consumers, we are always looking for faster, safer and more convenient ways to make our payments for goods and services. In this regard, new innovations and technological advances have been helping us to achieve this.

The natural consequence of these innovations should be the continuing decline in the use of the most rudimentary payment method, which is cash!

Where are we in this regard?

Zimbabwe is among a few countries in the world that while having a substantially developed financial sector and infrastructure for financial services, has also hugely become a basic cash economy.

While a significant portion of our economic transactions are settled via electronic and other means, there is ample evidence to suggest that the majority of business-to-business, person-to-business, and person-to-person transactions in the economy are settled via cash. From our previous discussion, we found that some of the costs of banking are emanating from the use of physical cash in transactions in the economy.

Not surprisingly therefore, it is imperative to understand that one of the ways in which consumers can reduce the costs of servicing their accounts is to embrace options that:-

l Do not result in the need for one to carry cash and thus cut out the need to visit the bank;

l Use electronic means of payments where these are available.

Use of cash in transactions should be the last option rather than the first or only option.

Do we have the alternative technologies?

Undoubtedly, the technologies to support such a cashless society already exist in some large measure and possibilities for new innovations are also unearthed every day.

The convergence of mobile and computing technologies has opened up new possibilities and enabled mobile based EFTS which are the subject of discussion today.

Making more use of plastic money

Plastic money refers to the use of plastic cards over an electronic funds system both to access cash and to make payments.

Using mobile-based payment systems

Mobile-based payment systems which have given rise to mobile banking as we know it today give access to banking and payment services via hand-held mobile devices such as mobile phones.

Mobile phone-based services have now offered financial institutions the ability to electronically “include” a wider cross section of the previously unbanked market.

Mobile money should bring other benefits to the economy such as lessening the dependence on overall use of cash as a payment instrument.

While a vast amount of transactions can now be done via mobile payments systems, quickly and securely, sometimes eliminating the need for people to carry cash around, people still use mobile transfer services predominantly to access cash from agents, and then use the cash for transactions.

To achieve a truly cash lite economy, we would need to have fewer cash-in and cash-out agents, but more transfers of the electronic value between people and businesses, without the need for first encashing the value stored in one’s wallet.

This is especially important in Zimbabwe, where we have said banks have to import cash into the country at a great expense.

Interoperability of infrastructure is necessary for driving costs lower and therefore increasing access

The interoperability of retail mobile payment instruments and platforms has been identified as a key success factor in the drive towards mobile-based cashless society and greater financial inclusion.

The sharing of mobile-based payments infrastructure promotes what is known in economics as productive efficiency-avoiding costly duplication of infrastructure and over investment on one hand and also leads to dynamic efficiency in the market (promoting competition among players and product diversity).

Interoperability is crucial for the promotion of fundamental consumer rights

Because interoperability implies cost sharing, services are delivered at the least cost to consumers. Therefore regulators and government and market players need to prioritise and promote interoperability of mobile platforms in order for the mobile revolution the country is experiencing to provide maximum benefits at the least economic cost.

Consumers have a right to efficient services at the least cost

Presently in Zimbabwe, there is the Zimswitch network, which is a good example of how sharing service delivery channels can reduce the costs of financial services and promote a cashless economy.

The ZimSwitch network comprises 19 member banks, which have deployed 4 000 ZimSwitch enabled Point of Sale devices nationwide in all the major regional and local retail outlets. In addition, there are close to 400 ZimSwitch-compliant ATMs, some of which are located in remote areas so that financial services are within the reach of many more people.

However, with mobile telephone penetration now over 100% in Zimbabwe, mobile payment systems have become a logical extension of any national strategies aimed at meeting the financial inclusion challenge and the success of a cash lite society.

Banks are advocating for interoperability of mobile platforms as well as the setting up of appropriate infrastructure sharing policies, which will positively impact the trajectory of mobile money growth in Zimbabwe, resulting in lower service delivery costs. Greater interoperability within the mobile telephony space as is happening on the ZimSwitch platforms will allow players to compete on service and price factors and could unlock the pathway to a cashless economy.

l Clive Mphambela is a Banker. He writes in his capacity as Advocacy Officer for the Bankers Association of Zimbabwe. BAZ expressly invites stakeholders to give their valuable comments and feedback related to this article to him on clive@baz.org.zw or on numbers 04-744686, 0772206913.

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