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Banking out of the box
Maya Fisher-French
17 August 2005

It would be a mistake to view the recent launch of MTN Banking as simply another banking channel. It is the first step towards true cellphone banking where bricks, mortar and tellers could be relegated to the history books.

It is not about a bank offering cellphone banking, but rather a cellphone company offering banking. With the recent approval of second tier banking licences, it was obvious that retailers and cellphone companies could soon transform into financial institutions. Standard Bank met this challenge with the “if you can’t beat them, then join them” approach and formed the joint venture with MTN to create MTN Banking.

The cutting-edge technology that cellphone companies have access to allows you to open a bank account via a cellphone in five minutes with simply your ID number. Your cellphone number doubles as your bank account number, and the best part is you never have to set foot in a bank -- you can even make deposits at EasyPay points such as Pick ’n Pay.

At this stage, their first product, MobileMoney, is aimed at the unbanked. Because of its transactional limitations that only allow a bank balance of R25 000 and monthly transfers or withdrawals of up to R5 000, the product falls outside of the Financial Intelligence Centre Act, hence only an ID number is required.

MTN currently has 10-million customers and from next week every pre-paid starter kit and contract renewal will receive a bank-enabled SIM card -- about three million will be handed out over the next year. For those who already have contracts, their SIM cards can be enabled using software downloaded over the air.

These are penetration levels banks can only dream about.

In South Africa, a fifth to a quarter of the people who have never had a bank account have access to a cell- phone, according to David Porteous in his book Banking on Change.

Porteous says this offers opportunities for online banking far beyond the reach of people who have Internet access. Moreover, the penetration of cellphones is much higher among the young, of whom a much higher proportion is unbanked.

Johan Roets, director of direct distribution at Standard Bank, envisages that once critical mass has been achieved, micro-payments will start to take place using the cellphone. For example, taxi passengers will be able to pay their fees straight to the driver using their cellphone.

The catch at the moment is the fees. While they are marginally lower than other accounts, in some cases higher than Mzansi fees, the R3 fee per transfer would inhibit any micro-payments at this stage. But Roets says they will start to look at costings once the product has built up some critical mass and they have a clearer idea about what people are using the account for.

The bigger picture is that this could be the first step towards the creation of a new bank in South Africa. Once the Mobile-Money initiative has been tested as a deposit-taking and money-transferring product, we could in all likelihood see MTN Banking applying for a full banking licence offering a range of products from lending to mortgages and life cover.

Once a financial institution has managed to cut the costs of distribution radically by negating the need for branches and distribution channels, a virtual bank could take on the rest of the banking industry through massive reductions in banking fees and increased convenience.

This has far-reaching consequences for banking in Africa, and both MTN and Standard Bank have made it clear that Africa is a big part of their strategy. In a continent where less than 10% of the population is banked, there is a desperate need for innovative technology to get people into the banking system. In many African countries more people have cellphones than bank accounts.

Roets says that MTN Banking will first be launched in Uganda, where both MTN and Standard Bank already have a large market share. From there, they will look at penetrating countries like Nigeria where only 10% of the population is banked and there is only one branch or ATM for every 41 900 people.

It’s so simple it’s scary
To demonstrate how easy it is to open an MTN Banking account, I was taken through the steps using a cellphone that had a bank-enabled SIM card.

It was incredibly easy, a matter of scrolling through the menu options to reach MTN Menu, where you select MTN Banking and then MobileMoney. The phone asked me to enter my ID number, which is checked against a database. I then had to select a five-digit pin.

I then received an SMS requesting me to call the call centre, which again is a menu option under MobileMoney and the call is free. In fact, all transactions on the cellphone do not attract an SMS charge.

The aim of the call centre is to set up voice recognition, so that if you want to make any changes to the account your voice acts as verification. I then received an SMS confirming my bank account, which is my cellphone number plus one digit (to match the number of digits needed by the banking system) as well as my secret code, which is sent through with each confirmation of a deposit or transfer into my account, so that I know it is not a hoax SMS.

From there, I went through my MobileMoney menu options to SMS my bank details to another person. I was asked for my secret pin. She was also connected to MobileMoney and transferred R50 into my account. A record of the transfer was SMSed to me with an updated balance, the reference she had chosen and my secret code. The transferee’s phone received an SMS confirming the transfer and current balance. All of this took less than a minute. Anyone from another bank can transfer into the MobileMoney account via the Internet or as a direct deposit.

At this point, I transferred money to my Absa credit card using my menu function and had the confirmation SMSed to my Vodacom number within seconds. Tomorrow I am going to sign up on the website and activate my ATM card.

The one catch is that being a Vodacom subscriber means I have to carry a separate phone to do my MTN Banking. Apparently, number migration is coming, so I can transfer my 082 phone number to MTN in a year’s time. Of course, this is clever thinking by MTN, because you have to be an MTN subscriber to have a bank account.
-- Maya Fisher-French

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