Will mobile banking work for microfinance?

Will mobile banking work for microfinance?

Mohamad Nazirwan, Jakarta

Mobile banking (M-Banking) is popular among bank customers as
it provides huge advantages, one of which is flexibility in
banking with no place and time constraints.

Through M-banking, a customer is able to conduct banking
transactions and make inquiries any time and anywhere. In this
context, M-Banking is a part of the efforts being made by banks
to offer multiple channels in order to satisfy their customers.

Although M-banking technology is relatively new, M-banking is
a common phenomenon across the globe.

In general, M-banking offers the following benefits:
* Convenience. M-banking provides "freedom" to customers who are
mobile and need different types of transaction channels;
Customers can keep in touch with their bank at any time and from
any place.
* Simplicity. To gain access to M-banking services, a client
needs the right tools, i.e. a mobile phone and SIM card with an
M-banking menu. He then registers her account to activate the
system
* Ease of use. Most M-banking systems are user friendly and thus
easy to use
* Security. M-banking has various security features, including a
personal identification number (PIN) or password requirement.
* From the bank's perspective, M-banking can reduce operating
costs after it achieves an economic level, as well as fee-based
income

In the broader sense, M-banking constitutes a part of
electronic banking, which can be defined as a method of
delivering financial services using mobile communications
technology, i.e., GSM/GPRS, including mobile devices such as
cellular phones and personal digital assistants (PDA).

With M-banking, a customer can make basic financial inquiries,
i.e., finding out his balance, or conduct more complicated
transactions, such as makings instant payments, remittances and
so forth. Presently, there are four types of M-banking model:
WAP-banking, SMS-banking, M-banking with PDA and M-banking with
SIM-toolkit.

WAP-banking uses micro-websites following the WAP standard
(wireless application protocol). In many ways, this model is
quite similar to internet banking. SMS-banking is based on GSM
standard service to exchange text messages, with the customer
sending an SMS with a request to the bank and getting the desired
information in response, such as information on his balance,
interest rate information, etc.

M-banking with PDA is designed for mobile phone accessories
that have more capacity to store and execute individual software,
therefore it can process more complex calculations, i.e.,
processing loan applications.

The last type is M-banking with SIM-toolkit which also
operates using the GSM standard. On the SIM card, information is
stored such as a personal data base, authorization of customers
and additional individual applications.

In the last decade, microfinance has developed rapidly in
terms of the services provided (financial deepening) and numbers
of networks and clients (outreach), as well as in adopting
technology such as ATM, biometrics security, PDA, etc.

At the moment, there are intensive studies underway on
bringing M-banking into microfinance practices since the
technology allows microfinance institutions and microbanks to
expand their outreach, improve service quality and reduce
operating costs.

Since 1999, PDAs -- a small, handheld digital computer that
can run specific programs to manage client databases and perform
financial calculations -- have been used in microfinance
institutions pioneered by Compartamos and Fincomun in Mexico.

In principle, the use of PDAs can be developed for M-banking
purposes for a number of reasons. First, the investment cost is
relatively less than establishing a physical network. Second, the
extensive of mobile services allows the system to be connected.
To use this M-banking model, the operation must be in those areas
where mobile networks are available.

As mobile phones have become ubiquitous and are getting
cheaper, microfinance institutions and microbanks can develop
SMS-mobile banking and M-banking with SIM-toolkit by teaming up
with mobile phone operators. These models will allow customers to
access financial services such as payments, fund transfers and
account enquiries in ways other than the conventional channels.
Indeed, with innovation and creativity, we could end up seeing
the world in a different way.

The writer is a microbanking practitioner and observer