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Mobile answers the call of the unbanked
March 2004

Cellular technology provides an answer to the banking sector's bid to provide banking services for the 13,7 million adults in South Africa currently without a bank account - around one third of the country's population, says Hannes van Rensburg, CEO of South African banking and m-commerce software company Fundamo.

Cellphone penetration is increasing - in 2002 the number of cellphones in South Africa exceeded that of fixed-line users, and research shows around 23% of the unbanked rely on cellphones as their primary tool for distance communication.

Finscope 2003, a comprehensive national household survey focusing on financial service needs and usage across South Africa, shows the potential for mobile banking in southern Africa to be considerable.

"Mobile banking has an important and innovative role to play in the solution to the problem of unlocking access to banking," says David Porteous, former CEO of FinMark Trust, initiator of the survey, which was co-funded by Absa, African Bank, First National Bank, Metropolitan Life, Standard Bank, Teba Bank and the Micro Finance Regulatory Council.

The survey confirmed that South Africa is still predominantly a cash economy, with only the formally employed having their money paid into a bank account. Unemployment, banking costs and accessibility were cited by respondents as the three main reasons for not having a bank account, with access defined as being within 20km of a banking service point.

Ironically, the cost of a banking transaction was found to be substantially lower than the average transactional cost involved in sending money home to family.

"A large percentage of South Africa's workforce is dislocated from family and relies on informal means of sending money home each month," says Charles Rowlinson, CEO of RQubed Consultants, a corporate financial advisory company that plans to launch a transactional bank aimed at assisting the unbanked using mobile technology and debit card initiatives. "The average cost of a basic transaction to send money to family by the poor is R60. This would cover the cost of a taxi to the nearest post office, the cost of sending a postal order and the cost incurred by the family collecting it at the receiving end. Costs can be as high as R250 per transaction, where taxi drivers literally become couriers of cash across the country."

Rowlinson says that with the poor having no access to Internet facilities, and prohibitively expensive access to banking, there is a great need for a transactional bank that uses mobile technology to fulfil basic transactions, thereby minimising costs.

The growing popularity of pre-paid options shows people in urban and rural areas are growing increasingly comfortable with exploring the functionality of cellular technology. Convenience and accessibility are sizeable draw cards for the advent of an alternative to cash. Paying monthly bills with cash usually involves queuing during working hours at a specific place by a certain date. Queuing costs time and money, and is restrictive. Account payments made via mobile phone, however, can be done at any time, from anywhere providing there is cellular coverage.

"The one technology that has a broad footprint and an infrastructure already in place is the mobile phone. By making use of cellphones and GSM technology, we drop the barriers to banking, improving accessibility, convenience and security and decreasing costs," says Van Rensburg.

Mobile transactions have a host of advantages over cash: immediacy - transfers can be made in realtime; security - cash can be stolen or lost; convenience - geographic locality is irrelevant; efficiency - no more queuing to pay bills; cost - transactions are communicated via the cellular networks; and mobility - transactions can be conducted on the street, where people meet.

Porteous points out that while the barriers to adoption of cellular technology have been minimal, a more significant barrier to the advancement of transactional banking is financial literacy.

"One of the benefits we hope will come out of the Financial Services Charter is the commitment that all financial institutions have made to fund consumer financial literacy. An important aspect of this will be familiarising consumers with technology options so they can become more discerning," says Porteous.

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