AN INEVITABLE war is simmering between Econet Wireless and some banks regarding Ecocash’s domination of the financial payment system. The revolutionary mobile phone wallet launched in 2011 is changing the way customers view banking.
Ecocash has dispensed the need for a physical interaction with a bank for basic services, threatening the survival of the entire sector. With more than 1.7 million users, moving approximately $100 million monthly through its accredited agents, Ecocash, already the largest payment platform, is predicted to become the country’s biggest bank.
Some banks have been unhappy with the Mobile Network Operator’s (MNO) unregulated dominance. In turn, Econet accuses some of these banks, of which CABS is named as a ringleader, of instigating against its product and lobbying the RBZ to regulate mobile money transfer services as banking services.
In its recent Monetary Policy Statement, the central bank chose the path of least resistance. The regulator’s ‘folded arm’ approach has set the ground for a gladiatorial corporate hegemony of epic proportions.
The Mobile Wallet Revolution
In developing countries with a low banking and high mobile phone penetration, mobile wallets have clear benefits. They can bring basic payment services to the unbanked increasing bank deepening and economic activity particularly in the rural areas. Ecocash is believed to have invested $50 million into its product, employing 5,000 people and transforming the lives of ordinary people and small businesses.
In Kenya, M-Pesa – launched by Safaricom in 2007 – has over 30,000 agents, 14 million users moving an estimated US$1 billion transfers monthly or 70% of all transfers in the Kenyan market.
Another successful example is SMART Money in the Philippines, launched by SMART in 2000. It has over 9 million wallets, connected to 9,000 ATMs, over 4, 000 cash-in/cash-out centres, 15 partner banks and 95,000 agents.
Can people survive without bank accounts?
The unfolding reality worldwide, particularly in developing countries, is that mobile phones and the internet are causing a significant shift in bank practices and their distribution models. Banks have to wake up to the fact that the phone will become the day-to-day bank account of the near future.
The average banker may dismiss this as immaterial, but the bank account worldwide is slowly unhinging from the traditional ‘brick and mortar’ banking model which spells a massive ‘disruption’ of the Zimbabwean financial sector. ‘Banking is no longer somewhere you go, it’s something you do’.
The success of mobile wallets such as Ecocash and M-Pesa is an inevitable shift which seems to prove or at the very least suggest that people need banking but they don’t necessarily need banks. The best way to deliver banking products may not necessarily be in the branch but wherever and whenever a customer needs to pay for a kombi, pay their ZESA bill or send money to their parents in Mutorashanga. Customers can do this without opening a bank account or suffer extortionate bank charges.
The reliance by banks on a branch as distributional mechanisms to deliver utility values means retail banking is slowly becoming inadequate to deliver products to the customer. Fighting against Ecocash is like a producer of vinyl records fighting the CD or the VCRs demanding relevance from the invasion of DVDs. The choice of the banking sector is to resist the change or adapt to the inevitability of momentum and benefit from it.
Is it possible for banks to compete?
Before we hurl more stones at the bankers, it may be necessary to assess whether banks have proved slightly less efficient at ensuring their own survival with no other objective than to hunt customers with one feverous aim: to maximise profits for shareholders.
Customers prefer Ecocash because it’s cheaper, faster and has no long term commitment. It is entirely incredulous to suggest that banks, already suffering the burden of $100 million capital requirements, can spare some cash to compete with the country’s largest MNO throwing its money into the e-payment platform.
Without a doubt, charges levied by Zimbabwean banks are exorbitant as to induce a sense of shock and profit motivations cannot be discounted, they may however reflect inefficiencies in the entire economy and in turn a fatally unprofitable banking sector.
The supposition that banks charge exorbitant fees to shore up their capital could be less cogent and perhaps dishonest. The market has largely remained illiquid, regulation has been inconsistent and the bulk of the deposits are transitory rather than long term. Out of the total bank deposits of US$3.59 billion in June 2012, only US$0.39 million is long term deposits whilst US$1.95 billion is demand deposits. Under these circumstances, how else can banks make money whilst investing in newer technologies?
Whilst the bank charges may be entirely necessary to ensure the survival of the sector, they often disproportionately impact the prudent poor. The argument, however, loses economic rationality when it fails to account for the regulatory challenges most banks have been operating under in the last couple of years and the changes in the cost of money.
At the core, the problem with banks is not entirely with Ecocash; it’s that they are not being profitable and under threat of closure, they have to constantly beg for capital injection whilst an unregulated competitor makes all the profit.
To regulate or not to regulate
Whilst the attempt by banks to fight competition and innovation is inevitably folly, whether or not the mobile money platform should be regulated and if so how, will remain a very relevant and legitimate question. The contestations between Econet and the banking sector will need to be addressed and the regulatory environment may need further clarity not least to protect the consumer.
Different countries have adopted different approaches. In the Philippines, MNOs can perform banking functions whilst in South Africa the process is entirely bank-led except for agents. In the US, MNOs are required to register as money service businesses whilst in countries such as Japan, MNOs are required to deposit money in a bank account.
Whatever the outcome, the appropriate approach will need to balance advancing financial inclusion for the unbanked with ensuring stability and soundness of the country’s financial system. On their part, banks will need to innovate and establish a more open and honest relationship with their customers.
Banks that rely on the branch to interface with their customer may be losing the battle for the customer of today. When you don’t innovate, your business model will get ‘disrupted’.
Dr Lance Mambondiani is a Development Economist and a Zimbabwean Banking Expert. He is a Guest Lecturer in International Finance & Development at a UK University. Contact email firstname.lastname@example.org. Twitter @DrMambondiani