The new frontier for UK Banking – just look at your phone (Part one)

The rise of the payday lenders is in direct proportion to the mainstream banks' lack of interest in this sector. The media's lambasting of payday lenders might be thought unreasonable when the only alternative for these customers is the loan sharks. I'm no friend of the payday lenders, but they're serving customers with real needs that no-one else will offer loans to. Perhaps the mainstream banks could improve their image, and their level of deposits, by addressing the needs of the underbanked in the UK – or perhaps the media should be attacking the banks for shirking their responsibilities, writes Paul Makin

The rise of the much maligned payday lenders is in direct proportion to the mainstream banks’ lack of interest in this sector. The media’s lambasting of payday lenders might be thought unreasonable when the only alternative for these customers is the loan sharks. I’m no friend of the payday lenders, but they’re legal, and they’re serving customers with real needs that no-one else will offer loans to. Perhaps the mainstream banks could improve their image, and their level of deposits, by addressing the needs of the underbanked in the UK – or perhaps the media should be attacking the banks for shirking their responsibilities, writes Paul Makin

When you use the term ‘mobile money’, your audience generally assumes you are referring to the phenomenon of mobile phone-based money transfer schemes in emerging markets, in particular its poster child, M-PESA in Kenya. This perpetuates the view that mobile money is exclusively an emerging market phenomenon – a view that I disagree with, if not in actuality, certainly in potential.

Banks and Mobile Money

Consider what constitutes a mobile money scheme:

  • Customers’ access to their account, for carrying out transactions or for managing their account, is primarily through the mobile phone;
  • Cash can be deposited and withdrawn via human ‘agents’ in local shops;
  • Cash can (sometimes) be withdrawn at ATMs;
  • Transactions are fast, and tariffs are low;
  • Registration is simpler and faster than for a bank account.

It is true that mobile money schemes are generally aimed at the unbanked market – that is, people who are unable to access traditional banking services, however basic – but I would argue that that is a characteristic of the available, underserved market, rather than any law of nature. The dramatic growth of such services in these markets is a consequence of the huge size of the unbanked market in those countries, coupled with the launch of services that provide people for the first time with readily accessible basic financial services.

There are mobile money services in the so-called ’emerged’ markets. In the UK, for example, a prime example is O2 Money. This has all of the characteristics of a mobile money scheme, but with one important extension to ensure its applicability to the British way of living – it has a companion plastic card, which allows O2 Money to be spent in shops, and which can also used for ATM withdrawals.
But none of the schemes in the emerged markets have broken through in quite the same way that M-PESA has in Kenya.

This is principally due to the differences in the markets. As an example, in the UK, people with a bank account can access the types of services offered by mobile money using cards on line or in person and most have access to mobile banking. So people with UK bank accounts are unlikely to be regular users of a mobile money scheme.

Read part two here!