Mobile cash transfers to unbanked customers lift banks’ reach

Mobile phone banking and payment transactions have brought more people within reach of the banking system, as licensed operators deposit funds in trust accounts held by commercial banks. Senior managers at the Bank of Tanzania made these observations in reaction to widely discussed apprehension as to where the country’s commercial banks along with non-bank financial institutions stand in regard to rising mobile phone cash transfers. On the basis of various credible sources, inception of mobile phone banking in the country has sent jitters among various bank and non-bank institutions over the possibility of the market being hijacked by mobile phone operators. Lucy Kinunda, the BoT Director of National Payment Systems, says that BoT mobile phone banking services do not affect transactions on conventional commercial banks. Instead, mobile payment services had enhanced operations of conventional banks by improving liquidity in the banking system, since they draw hitherto unbanked transactions into formal circulation as people rely more and more on cash transfers rather than commuting to obtain payments. According to her, money circulating in electronic form through mobile phones is backed by funds deposited in trust accounts held by commercial banks. This blog had sought response from the central bank following media reports that the current popular mobile money transfer technology, which dominates various categories of payments such as water and electricity bills, school fees and others, could conceivably paralyze commercial banking transactions. According to the director, close monitoring and observation conducted by BoT has established that the meteoric rise in mobile payment services has enabled some banks to partner with mobile payment service providers where the mobile phone cash units act as bank outlets, conducting similar services as would be carried out in bank branches. “This enables bank account holders and non-bank account holders to withdraw cash through bank ATMs and depositing in mobile phones, thus making bank business quicker,” the director noted. The BoT director explained that the mobile payment platform has also enhanced efficiency in banking operations as the system also enables linkage between customer bank accounts and mobile phones. The facility enables bank customers to conveniently transfer money from their bank accounts to their mobile payment services accounts or make payment to other entities including those which do not have bank accounts.  “In general, the growing partnership between banks and the mobile payment service providers has increased the quality and timeliness of services to bank customers as well as efficiency and profitability of commercial bank services,” she stated. The fast growth of mobile banking has brought some apprehension to a section of social commentary with an impression that mobile phone services constitute stiff competition for bank gains tied to small and often large payments conducted by such transfers. Certain other commentators expressed the belief that business ventures would now be conducted through Sim banking, which field observation shows the idea has shown little progress. M-Pesa which is said to be the first banking service through mobile phones started in Kenya in 2007 and later the service was introduced in Tanzania. This service alone transacts money that is deemed to be equivalent to the total amount of deposits in over 20 banks operating in the country. M-Pesa technology transfers Sh. 1 trillion per month, and this is equivalent to Sh. 12 trillions if multiplied per year nearing the national budget, which enables customers to facilitate money transfer for settlement of numerous bills. Head of Brand and Communication for Vodacom Tanzania, Kelvin Twissa said in an interview early this week in Dar es Salaam that the company has subscribed about 10 million customers and out of these, M-Pesa has 4.5 million customers. However, he said that, mobile money transfer has nothing to do with banking transactions noting that in reality this has little in contention with banking operations as each mode of financial operation has its customers. Some services which are offered by mobile phone companies are not applicable in banks, and likewise there are those which are offered by banks are not applicable for mobile phone companies, he pointed out. Loans are not offered by mobile phone companies and are issued by banks, while personalized money transfer to relatives or marginal service providers like payments of rents or bills cannot usually be conducted through banks. Elaborating on thefts that may occur in mobile phone cash transfers, he said that this happens when a customer discloses his pin number to a friend or a relative and mistakenly forgets his or her mobile phone and is then operated by the unauthorized individual. In recent years, ATM banking services have become increasingly a worry for some bank customers infiltrated by dishonest bank officials, who acquire their pin numbers by following administrator accounts in bank information technology systems. Certain sections of the public believe that some information technology experts design smart cards and operate another person’s ATM account. A BoT report said that for last year, nearly Tsh. 1.3 billions was stolen through ATMs. Dr. Honest Ngowi, a researcher and commentator on economic issues, was recently quoted affirming that the banks were being forced to operate in mobile phone cash transfers territory in order to survive, as otherwise transactions would be dominated by mobile phone companies. As for possible economic implications as much money is circulating through private mobile phone companies instead of banks, Dr. Ngowi noted that there are no effects whatsoever as these mobile companies place deposits for security of transactions and also pay taxes like banks. Tanzania is the eighth country in Africa for the size of mobile phone users and second in East Africa for the service. The BoT Directorate of Supervision said in a 2006 report and then in a 2010 report, that total deposits in banks had increased from Sh. 4.4 trillions in 2006 to Sh. 12.4 trillion in 2010