Mobile Banking in the Third World

How do these folks bank?

• 
• Mobile banking?
• Internet banking?
• ATM/point of purchase banking
• Branch banking?

OK…ha ha.  But there is a point…as our banking system is duplicated in other countries, what assumptions about US banking are relevant, and what notions should be dropped?

I believe that mobile banking is the way of the future.  Already, mobile banking is the preferred mode of banking for new customers in India and China.

The Indian experiment

India is a developing country, but it is one that is rapidly adding to its currency reserves.  India remains a country with too much of its population living in villages.  The village in India is a bit like the family farm in America: it holds a special place in national identity.  Of India’s 1.1 billion people, more than 770 million live in rural areas. The vision of the village as central to Indian life goes back to Gandhi.  While pastoralism may have its place, it also means that land is divided up to the detriment of productivity.  It means that people own property in places other than where they work.  Men often work away from their family.

Cell phones are a valuabe resource in the mobile society that develops from this social context.  Gartner suggests that sixty percent of Indian consumers will have a cell phone by 2012.  Since 2001, India has been adding 2.5 million new cell phone accounts per month.  Since 2006, cell phone use has been increasing 28 per cent, per year.  It is an unprecedented shift in the use of technology, in a country with one foot in the past and one foot well into the future.

That technology is influencing how people are banking.  The new bank customer in India is a young professional (17-35) working in India’s information technology, computer engineering, and telephone call center fields. These consumers are not just depositors, though. They are also gaining familiarity with consumer debt. It is common to pay for all kinds of purchases with installment debt (“EMI“), including things like vacations, refrigerators, or air-conditioning units.

Rural mobile banking works through “banking agents.”  Banking agents are small stores that offer banking within a small retail setting.  It is bit like the small red shops in Chicago, where vendors sell subway tokens, cash checks, and offer a few basic business services (copies, notary, post).

The mobile nature of society means that banking is different in India. HSBC has millions of customers in India.  They offer all kinds of services, ranging from basic access to the payments system all the way to private banking and wealth management. They do that with just 178 ATMs.

Implication for US Banking

This is a new mode of banking. Right now, banks with a “Know Your Customer” standard.  It is incumbent upon banks that they verify the authenticity of their accounts, the legal status of their customers, and the origin of payments coursing through their institutions.  Mobile banking, where the customer may never meet with a staff member of a bank, upends that system.

I have suggested that mobile banking could have a disruptive force on the regulatory scheme for US banking. In a system where deposits are held in remote and centralized locations, the basic grist of the Community Reinvestment Act is left without relevance.  Banks are obligated to follow the CRA when they have deposits in a local community. With remote deposit, our savings and checking accounts may migrate to the most regulation friendly cities – Wilmington, Sioux Falls, or Salt Lake City. The CRA would become an exotic relic.