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