Innovation at the Frontier

One of the newest banking opportunities sweeping through the region has a potential market of more than 100 million people in Indonesia, if only the traditional institutions of financial services are willing to take their call.
M-banking, the mobile phone-based system of accessing banking services, has been around for several years in Indonesia, primarily in the form of additive services for existing bank customers. The real potential, industry pioneers say, lies in opening up banking services to the millions of people living beyond easy reach of banks, ATMs, and Internet.
“All it would take is a progressive forward-thinking bank to grab the opportunity,” says Brian Richardson, managing director of Wizzit Bank in South Africa. The company is a celebrated innovator in M-banking, delivering financial services to the rural and lower economic strata populations that have gone unnoticed by the traditional banking institutions.
In its simplest form, M-banking allows a customer to use a mobile phone to make basic bank transactions such as balance inquiries. More complex systems allow transfers of payment, stock trade and direct purchasing using virtual money stored on the phone. With a simple SMS or, increasingly, software that allows for data encryption, an M-banking customer carries both
a wallet and a bank in his phone, accessible anywhere within a company’s cellular coverage, reducing the need to carry cash, operate within banking hours, or travel to banks and ATMs.
In countries where widespread access to banks, ATMs, and Internet are taken for granted, customers see M-banking as a convenience and banks see it as a service for existing customers – a good thing, but not exactly earth-shattering. In Indonesia, where only a sixth of the population holds a bank account but nearly half will own mobile phones by the year 2010, the ramifications
are potentially far greater.
The International Finance Corporation, a private sector arm of the World Bank, in March 2008 held an M-banking seminar in Jakarta to discuss precisely these ramifications. At the very least, speakers said, M-banking has the potential to increase productivity in terms of time management, especially in the rural areas where traditional banking demands an investment in time and travel expenses that makes it unworkable. Beyond this, a new population is given access to all the benefits of savings: security, loans, and wealth generation, plus the psychological benefits of membership in a nation’s financial community.
Add to this the technology’s potential to bypass wire service fees in transferring some of the approximately $5 billion in remittances annually sent home by overseas Indonesians, and M-banking looks all the more attractive here. The Philippines – the regional leader in M-banking
and a country whose remittances last year hit a record $14.4 billion – has already seen this, with more than 4 million of its overseas workers sending money home by mobile phones. One of the country’s most successful M-banking companies estimates its customers alone send home
$50 million every year. The added revenue can be a significant driver for economic growth.
Where does Indonesia fit in all this? Behind, but not woefully.
Most large banks in Indonesia offer some form of M-banking, be it an SMS based service to make account inquiries, or a downloaded (and increasingly preloaded) program to allow activities of the kinds you’d expect with Internet banking. The problem is that most of these services are
aiming at the wrong target.
“One would have to call what they are doing (with their M-banking services) ‘additive’ rather than transformational,” Richardson says, adding that part of the reason Indonesia hasn’t yet seen a revolution in Mbanking is that traditional banks have never believed it could be designed with revenue in mind.
Wizzit is trying to prove that wrong. Now in its third year of operation in Johannesburg, it looks on schedule to meet its goal of breaking even within four years of opening its doors, and it’s considering expanding to other countries through local partnerships. Of the Indonesian market,
Richardson says a Wizzit model would likely achieve operational breakeven within two years.
“You have the typical urban/rural dynamic spread over thousands of islands together with an existing banking industry that is focused on the upper and middle income groups as well as the corporates – not the SMSEs or the ‘unbanked’ population. The cost of banking [the latter] using traditional bank thinking makes it prohibitive, so our view is that our solution is ideal for
Indonesia.”
“The potential is enormous, and the need is definitely there.”

Ben Otto
Contributor
(Source: Innovation at the Frontier - SENADA bulletin)