Mobile Banking in Developing Countries: Kenya Essay Example

countries. Financial institutions can tap into these markets by offering value-added services through mobile technology such as fund transfers while traveling, real-time stock price updates, and even stock trading during traffic congestion periods.
According to German mobile operator Mobile, mobile banking will be the leading application for the next generation of mobile technology. The increasing popularity of smartphones presents a significant opportunity for reaching a large audience and building customer loyalty. Garner predicts that smart phone shipments are rapidly rising and are expected to reach over 20 million units sold in 2006 alone out of a total worldwide sales volume exceeding 800 million.
In recent years, banks globally have made substantial investments in developing advanced internet banking capabilities. However, Close and Cots face a challenge in determining how to implement their investment in internet banking for mobile services due to the growing popularity of mobile banking.From 2007 to 2011, as third-generation wireless technology becomes more prevalent, we can expect to see an increase in advanced mobile banking services. These services will include multimedia features and links to m-commerce. This trend has resulted in the emergence of various models for mobile and branch banking.

Regardless of the specific model adopted, attracting low-income populations in rural areas will heavily rely on agents like retail or postal outlets. These agents can handle financial transactions on behalf of telecoms or banks. They play a crucial role in customer care, service quality, and cash management.

Telecoms often use local airtime resellers as agents, while banks in countries like Colombia, Brazil, Peru, and others rely on establishments such as pharmacies and bakeries for their services.

The main differences between these models lie in who establishes the

relationship with customers (account opening and deposit taking). It can be either the bank or non-bank telecommunications company (Tells). Another distinction is found in the nature of the agency agreement between banks and non-banks.

In general, there are three categories for classifying different models of branch banking: bank-focused, bank-led, and embank-led. The bank-focused model involves a traditional bank using non-traditional delivery channels like ATMs, internet banking, or mobile phone banking to provide limited services to its existing customers.
This text describes two models for conducting banking and financial transactions. The first model, known as the bank-led model, offers customers an alternative to traditional branch-based banking. Customers can conduct transactions at retail agents or through their mobile phones without visiting a bank branch or interacting with bank employees. This model uses different delivery channels such as retailers and mobile phones, which allows for greater outreach of financial services and may be more cost-effective than traditional bank-based options. Implementation of this model can be done through correspondent arrangements or joint ventures between banks and other entities while maintaining customer account relationships.

The second model is the non-bank-led model, where banking and financial services are offered solely through mobile electrification devices without involvement from banks. However, banks may still act as safe-keepers for surplus funds. These services include various types of transactions related to banks and stock markets, managing accounts, and accessing personalized information.

Small businesses can be categorized based on their nature (sole proprietorship or partnership) and size (two to twenty individuals).A small business is generally considered to have fewer than 100 employees in terms of size. A payment refers to the transfer of ownership of assets, including money but not

limited to it, and is recognized as settlement for a claim. Money serves as a stable store of value and widely accepted unit of account for settling claims, with government authorities like central banks issuing money in most economies. Although it has no intrinsic value, money is acknowledged by law as a valid asset for settling claims. Other instruments such as stocks, bonds, gift certificates, and air-miles from private institutions are also accepted for payment in specific contexts.

Currency exists in the form of physical notes and coins but is increasingly held as a claim on a commercial bank or script that enables clients to make payments. These claims on banks are supported by deposit insurance and currency reserves held by the central bank. The solvency of these banks plays an essential role in maintaining the value of deposits and ensuring their ability to be exchanged for other assets.

Ownership of currency requires clear attribution. Banknotes and coins act as bearer instruments where ownership typically depends on possession. However, banks establish ownership through a complex set of rules, contracts, conventions, and mechanisms to ensure compliance.

Without the ability to exchange assets or claims for other goods or services, owning them becomes pointless.In order to facilitate the exchange of funds, institutions have developed various methods, such as bank-to-bank transfers using payment instruments like debit or credit cards issued by the depositor's bank. Some institutions have even experimented with digital encrypted cash stored on smart cards, which can be transferred using specialized card readers. During the transfer process, factors such as fund availability, counter-party identities, transfer dates, units of account used, and potential currency conversion are taken into consideration.

Payment providers

serve as intermediaries for certain financial transactions and offer a range of services that vary in terms of supported transactions, ease of use of payment instruments, costs, risks, and speed associated with settlement arrangements. The effectiveness of a payment service depends on how these features are combined by the provider (World Bank 2005).

However, there are barriers preventing many people in developing countries from accessing banking services. This is due to a cycle driven by low demand perception, high fees/low bank income, unsuitable products offered by banks with limited geographical reach. Traditional banking models heavily rely on service fees and interest income from deposits and loans. The high costs associated with maintaining and expanding branch infrastructure hinder the profitability and competitiveness of traditional banks. This challenge is particularly prominent in urban areas where establishment costs are high but customer deposits tend to be small while population densities are low and credit histories may be lacking (World Bank 2005).UNCUT acknowledges the high costs faced by banks when creating secure banking networks for under-banked populations that handle small amounts of money. Additionally, establishing branches in remote areas poses safety concerns and electronic banking is not feasible without proper telecommunication infrastructure or user devices. To address these challenges, alternative access channels are being considered. However, these alternatives require reliable telecommunications networks and regular cash replenishment for fully automatic Tams installations. The success of e-banking promotion depends on internet availability and advanced telecommunications infrastructure. In countries with inadequate fixed telecommunications infrastructure, mobile options are being explored as substitutes for traditional banking channels. The concept of the banking ladder illustrates how individuals and households progress in their use of financial services,

showing a link between income level and adoption of mobile phones. Recognizing this correlation is crucial in defining the market for mobile transaction platforms that aim to revolutionize financial service provision. Banking significantly impacts low-income households by enhancing their quality of life through time savings, reduced crime risk, and easier transactions like domestic remittances. Furthermore, advancing up the ladder of financial inclusion brings additional benefits such as establishing a solid financial track record.The higher steps in the ladder allow individuals to acquire property rights, manage fluctuating income against unexpected expenses, and support family-owned entrepreneurial endeavors. By climbing this ladder, individuals can fully enjoy the benefits of economic development processes.

Mobile technology serves as both an access channel for financial services and the front office where these services are provided, while traditional banks serve as back-office providers. However, there is also an alternative perspective that examines the competitive advantages offered by banking and mobile finance business models. This perspective emphasizes how these advantages can lead to new market structures.

In both developed and developing countries, there are various initiatives for mobile transactions. Many banks offer mobile banking services in addition to traditional options like branches, telephone banking, and online services. These services offer customers additional information and guidance.

Apart from bank-provided services, there are innovative mobile transaction schemes targeting individuals without bank accounts. These schemes have the potential to transform the financial market landscape. Examples of such schemes include Wiz in South Africa, Globe in the Philippines, and M-PEAS in Kenya.

It's important to note that these groundbreaking mobile banking models focus on meeting the needs of developing markets that historically faced challenges in providing financial access.They utilize the expanding

infrastructure of mobile communications and related support services, such as air time agents, to extend outreach beyond traditional banking networks at lower costs. The following text describes three examples of mobile financial transaction systems that allow customers to deposit money, withdraw cash, and make money transfers while keeping all intact with their contents. However, there are significant practical differences and variations in user experience among the three systems as they are optimized for specific purposes. Despite these differences, all three systems offer four basic services: information retrieval (such as checking account balances and transaction history), transactions (including fund transfers), cash-in and cash-out services (such as making deposits and withdrawals), and various mobile payment applications (like topping up airtime or electricity meters). However, the provision of these services to customers and associated charges may vary. The schemes also differ in terms of technical platforms, management of money float and talented mechanisms, customer interaction management, and branding strategies. Mobile banking schemes can be categorized based on whether they are open or closed systems, their interoperability, the identity of the deposit holder, tariff structures for customers, regulatory compliance measures,and mechanisms for making deposits ,transfers ,and cash withdrawals .An open system permits transactions and payments across diverse networks, while a closed system has restrictions on access. For a mobile banking scheme to effectively connect with existing bank clearing systems and money transfer networks such as Visa, it is crucial to establish specific terms and conditions that govern this interconnection.