Convergence and the future of banking

By Segun Oruame 08/03/2012 00:00:00

MTN and Western Union not too long ago, formed an alliance bound to, and perhaps, ignite the biggest international mobile remittance services or mobile money transfer on the continent. The alliance is as significant for the financial/banking industry as it is for the telecoms sector in what would strengthen the argument for convergence and the erasing of traditional technology with regulatory boundaries.
The alliance also widens the vista for knowledge on the implication of the rise and rise of mega-Telcos. MTN with its home office or headquarters in South Africa is a Middle East and African operator making it a mega Telco with subscribers in about 21 countries. This is significant if you begin to see subscribers of mega-Telcos as citizens of the new universal or globalised countries.  Virtually all the networks in the big league of Nigeria’s mobile phone market including Airtel, Etisalat, Globacom and MTN have a combined subscribers’ base in excess of 90 million. Apart from Globacom which presence is still chiefly African; all the other three have operations within and outside the continent.

But it is the convergence part of the MTN/Western Union alliance and its exciting possibilities that is important here from a technology perspective. What MTN and Western Union have demonstrated is that banking or money transfer no longer needs be within the confines of banking halls or within the exclusive ambit of what are traditionally financial/banking houses. That same gambit is already playing out itself in the new competitive frontier of mobile money where banks, technology solutions companies and Telcos, fully armed with mobile money licences from the Central Bank of Nigeria (CBN), the country’s financial regulator, are inking partnerships to take services to millions of peoples via their mobile phones.
Convergence is making Telcos to be financial houses and with the number of subscribers pulsating on their networks, they may become the new hub of financial activities.
That has dire implications. When Telcos become financial hubs, banks will have to reinvent themselves. Regulation will do little to stop the trend. It may slow down deployment and uptake. But because it is a technology thing, ultimately regulation will collapse in the face of technology reality and people will go for services that serve them best. As for network operators, they will, of necessity, build and mobile money subscribers will come.
That scenario is already afield. MTN, Airtel and Globacom have inked partnerships with banks to deliver mobile money services in a way that should see more banking transactions originating and terminating within the window of mobile phones. The trend should bring in outstanding rewards for the CBN’s goals of a ‘cash-lite Nigeria’ with little cash in circulation for transactions and the extension of more greater level of banking services to more Nigerians – the un-banked population.
Nigeria’s untapped mobile money market is valued at some $25billion and should become the continent’s biggest mobile money market in its full steam. The factors expected to push growth include the wide unmet gaps for banking and the convenience that mobile money transfer technology brings to users in a form of branchless banking. They are the same reasons why the innovative M-Pesa became so popular in Kenya and recorded outstanding success beyond the expectation of Safaricom and regulatory authorities who didn’t see it coming. M-Pesa was first introduced in March 2007. By mid quarter of 2010, the application had over ‘2.3 million registered users with over 18billion (about $230million) Kenyan Shilling (Ksh) moved through the system, via person-to-person transfers.’
By World Bank’s estimate, Nigeria receives over $10billion in remittances every year while Uganda receives nearly $500million, making up three per cent of the country's GDP. Both markets are key to MTN operations. In Nigeria alone, MTN has nearly 30million subscribers meaning that a launch of its MTN MobileMoney service in Nigeria would definitely impact massively on Nigeria’s financial scene. For regulators, there is still no clear-cut approach to addressing the challenge and there is still no defined predictability as to what level of changes could occur with adoption of MobileMoney in a big mobile market such as Nigeria where $10billion enters the system yearly from overseas.

Regulators and mobile money
In itself, the MTN alliance with Western Union poses a new level of challenge to regulators here. The service allows users to “receive Western Union Money Transfer transactions in their mobile accounts while, MobileMoney users in certain countries will be able to send Western Union Money Transfer transactions directly from their mobile phones for payout at one of Western Union’s 386,000 agent locations in 200 countries and territories around the world.”
“An MTN subscriber who receives a Western Union Money Transfer transaction in his MobileMoney account will be able to use the funds to pay bills, top-up airtime, send money domestically and internationally, or withdraw cash at MobileMoney agents or any participating ATM.”  

Banks and the convergence trail in mobile money
In several jurisdictions, phone operators are legally bound to operate mobile money services in partnership with banks. But as convergence evolves, market dynamics is likely to make dependence on banks less strategic. This is where regulators can get involve. They must begin to peep into the future and see the likely consequences of convergence and growth on mobile money transfer. Technology cannot be stopped. Regulation will definitely not stop mobile money banking. It can only provide barriers which will steadily be erased as the market gets more sophisticated. 
What is critical is that banks must wake up to the reality of convergence. Like regulators they must be prepared for change. They must be willing to reinvent themselves outside of the conservative mien of 19th and 20th century banking. Banks must see convergence coming and strive to grab the opportunities. If telcos are foraging into banking, it is because they have seen the future and the future is convergence. And banks must not wait. They have to forage outside their traditional territories and get cracking with the drivers of the new age: the age of information technology and the eternal season of convergence. The good news is that several banks are already licensed to deliver mobile money and in addition, they are inking partnerships with telcos to deliver mobile money services in a way that points to the future of banking in the age of convergence.