In my last blog, looking at the rise of the challengers to the traditional banking industry, I stated “these ‘lightweight’ contestants in the banking market have harnessed new technologies and processes to deliver a better customer experience.” The blog elicited a comment from Kevin Gillespie when posted on LinkedIn – “You missed the entrance of mobile phone companies in payments ... mPesa in Kenya is 45% owned by Vodafone and operates payments in Romania on the same platform ... the new competitors may not even bother to get in the ring and still win the fight as they invent new ways of exchanging value”.
Certainly, mobile payments (mPOS) are a huge growth area, and in the Worldpay 2018 report, it is predicted that mobile payments would become the second most common payment method after debit cards by 2022. Where reliable statistics are available, we can see that mPOS use is dominated by China with Denmark, India, South Korea and Sweden also showing high adoption rates (35% plus) compared to the over 80% in China as measured by % of smartphone users. This data contrasts with Germany, where the adoption is low at just over 12%.
The experience in Kenya is illuminating when looking at mPOS. M-PESA is supported by Safaricom, the largest mobile network operator. It has been an outstanding mPOS success, with over 40% of Kenyans using it. It’s success is attributed to the ease of use and the number of other apps it supports as well as it’s variety of users from SME’s to banks. It also was freely available to the financially excluded. Based on its early success it has expanded coverage to Tanzania, Mozambique, DRC, Lesotho, Ghana, Egypt, Afghanistan, South Africa, India, Romania and Albania. It is a unique proposition but is it a challenger?
In the case of M-PESA the answer is yes; it benefitted early on from a relaxed regulatory regime that enabled it to compete and achieve near-monopoly status. Safaricom is unique in as much it is regulated by the Central Bank of Kenya as a “mobile money transfer service” that has allowed it to undertake many of the functions of a traditional bank. It will be interesting to see how if fares outside of Kenya and if it can fully replicate the model in other regulatory jurisdictions.
For other mPOS propositions, I do not see them as true Challengers. They are “last mile” applications that mainly substitute for or are used as an extension of contactless debit/credit cards. They are of course, hugely popular in regions were using your bank account is more challenging such as parts of South East Asia. In that region only some 45% or so of the adult population have a bank account. For those unbanked people, mPOS is not a solution as you need an underlying bank account to utilise the applications.
In conclusion, we could see a rise of new incumbents from the mobile sector, but they have some core choices to make before they can throw down the gauntlet as Challenger Banks and go toe-to-toe with the traditional banks. For those that go down the challenger bank route will be put into the ring!