Mobile money growth threatens traditional banking, says Invictus Securities

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HARARE: One of Zimbabwe’s leading advisory firms says robust growth in technology based payment platforms poses a serious threat to the earnings of already frail traditional banks.
In the Banking Industry 2015 Review and Outlook released Thursday, Invictus Securities Zimbabwe said mobile money subscribers had doubled since March 2013, translating into a surge in the volumes of technology based payments, but posing “a threat to traditional banking”.
Fees and charges have become a major revenue earner for banks, as they grow increasingly cautious on lending, their traditional source of income.
Invictus however says income from transaction fees is coming under pressure as customers move to more efficient payment systems.
At the end of last year, mobile money subscribers rose to 7,3 million, from 5,3 million at the end of 2014. This number had been estimated at 2,2 million in March 2013.
“We foresee continued growth in mobile banking as it provides easy access to banking services and facilitates the ease of transferring money and making payments among other benefits, the same benefits that targets the financially excluded,” Invictus said.
“This poses a threat to traditional banking, through reduced transactional volumes and as a result decreased retail service fees. Mobile network operators were quick to respond to financial inclusion than banks. Transferring money and mobile payments constitute the biggest component at 72 percent for mobile money user services, the same core issues targeted by retail banking,” the report added.
It said retail banking would face even more problems as mobile money is projected to record “phenomenal growth” in Zimbabwe, under pinned by a financial inclusion strategy announced by the Reserve Bank of Zimbabwe in March.
“Coupled with pressure from central bank to lower bank charges, we forecast retail services revenue for banks to remain suppressed, hence forcing banks to rely more on interest income, which forms part of core banking.This on its own is a flag to transactional retail services fee income to banks going forward,” added Invictus.
It said the real time gross settlement system still dominated in terms of transactional values, but mobile payments accounted for 87,9 percent of transactional volumes.
Growth in mobile transactions translated to $427 million, equivalent to 7,5 percent of total monetary transactions.Advertisement

It said going forward, and with the multicurrency regimein force, banks’ earnings would be driven by cost containment to enhance efficiency, as well as loan portfolio management.
“Embracing technology and participation in financial inclusion will also boost income and make banks competitive in the face of accelerated informalisation of the economy, increased mobile penetration rates and popularity of mobile money services,” said the report.
“In the short term, Treasury Bills Trading income and ZAMCO (Zimbabwe Asset Management Corporation) operations will likely drive income but we remain skeptical about the sustainability of these, and hence put doubt on banks that have income components largely driven by these components,” the report added.