COUNTRY ANALYSIS UNIT FEDERAL RESERVE BANK OF SAN FRANCISCO NOVEMBER 2010
Mobile Banking in Asia
echnology has transformed the banking in- balance transfers, deposits, and withdrawals. The T dustry with the introduction of mobile bank- specific suite of mobile banking services provided ing services that offer unprecedented convenience by a bank or telecommunications company de- and accessibility to customers. Decreases in mo- pends on the target market. Additive services tar- bile phone prices and the cost of mobile phone get existing customers, while transformational network infrastructure, combined with an in- services target the unbanked. Although no legal crease in pre-paid service plans, have contributed restrictions prevent banks and telecommunica- to a near eightfold increase in mobile phone users tions companies from targeting both markets, worldwide, from 600 million in 2000 to 4.6 bil- each of the major mobile banking service provid- lion in 2009.1 Banks and telecommunications ers in Asia has concentrated on a single market. companies have responded to this growth by us- ing mobile banking to build their brands, retain Additive Approach existing customers, and acquire new customers by upgrading the quality of services and nature of Under the additive approach, mobile banking ser- customer relationship management. The number vices are targeted to existing bank customers. of mobile banking users worldwide is forecasted These customers are typically comfortable with to grow from 55 million in 2009 to 894 million in technology and want a convenient method in ad- 2015, at a compound annual growth rate of 59%.2 dition to credit cards, ATMs, and the Internet to Asia is already a leader in the adoption of mobile manage money without having to handle cash. banking services, accounting for over half of total Bill payment, account transfers, and balance in- users worldwide; the region includes several suc- quiries are common services offered to retail cus- cessful mobile banking delivery models to exist- tomers. As banks and telecommunications com- ing customers as well as to populations tradition- panies seek to differentiate themselves from com- ally without access to financial institutions. Mo- petitors, they may also offer customers more bile banking not only presents market opportuni- complex services such as financial planning tools, ties to banks and telecommunications companies, foreign currency exchange, and loans. For corpo- but also poses significant regulatory issues for rate and institutional clients, services include the central banks and regulatory agencies. This Asia ability for customers to authorize corporate finan- Focus report describes the various approaches to cial transactions with their mobile phones. A key mobile banking in Asia, and examines how par- challenge to ongoing customer use of mobile ticular countries have addressed regulatory issues. banking services under the additive approach is
the existing availability of various alternative modes of banking transactions such as Internet Mobile Banking Market Segmentation banking, ATMs, and credit cards. Given these Mobile banking refers to the delivery of banking other channels to conduct banking, banks and and financial services through mobile telecommu- telecommunications companies must develop mo- nications devices, including cell phones, smart bile-based services that offer increased value and phones, and personal digital assistants. The types convenience for customers. Unlike in the US, of services offered include informational, such as where existing bank customers have been slower balance inquiries, and transaction-based, such as to adopt mobile banking technology and only 3%
Asia Focus is a periodic newsletter issued by the Country Analysis Unit of the Federal Reserve Bank of San Francisco. The information contained in this newsletter is meant to provide useful context and insight into current economic and financial sector developments in the Asia Pacific region. The views expressed in this publication are solely that of the author and do not necessarily represent the position of the Federal Reserve System. of banks offer mobile banking services, banks and Implementation Award for “Best Core Banking telecommunication companies in Asia that target Project” for strategic use of technology.6 Jibun existing customers have an established record of Bank, formed by a joint partnership between mobile banking innovation and high customer Bank of Tokyo-Mitsubishi UFJ and the telecom- adoption.3 munications company KDDI, offers a full range of banking products and services exclusively on Among the Asian countries where most banks use mobile phone handsets (Figure 2). the additive approach, Japan and South Korea have the highest mobile banking penetration rates; in Adoption of mobile banking in South Korea has each country, nearly 100% of active banking cus- also proceeded rapidly due to the widespread use tomers have access to mobile banking services.4,5 of mobile phones to purchase goods and services Contributing to the high mobile banking penetration such as public transportation fares, event tickets, rates in these countries, well-developed mobile in- and restaurant bills. In South Korea, all retail frastructures allow for the proliferation of the 3G banks offer mobile banking to customers, and in system, an advanced mobile telecommunications 2004, they began to issue integrated circuit chips standard for high-speed data services in conjunction that customers could insert into their mobile with voice services. Japan was first in the world in phones to allow them to work like debit or credit 3G mobile device proliferation and has about 90% cards. Customers with the memory chip place of its mobile devices on the 3G platform. In Japan, their mobile phones on a specialized reader at mobile phone handsets have supported electronic banks and retailers that updates customer ac- payments since 2004. Reflecting the ubiquity of counts with purchase amounts. Mobile phone mobile phones and mobile payments in Japan, Jibun operators began incorporating the memory chips Bank launched in 2008 as the world’s first com- into all 3G mobile phones in late 2009 within a pletely virtual bank and won The Asian Banker IT Universal Subscriber Identity Module (USIM)
Figure 1 – Access to Mobile Services and Banking by Country
Source: AnalysysMason, World Bank, 2009 Note: Mobile penetration statistics based on total number of mobile phone subscriptions per country. Penetration rates greater than 100% indicate ownership of more than one mobile phone per person. Figure 2 – Top Mobile Banking Service Providers in Selected Countries
Country Name of Service Bank Telecommunications Company Launch Year
Japan Jibun Bank Bank of Tokyo-Mitsubishi UFJ KDDI 2008 Mobile remittance Mizuho Bank NTT DoCoMo 2009 service Kookmin, Korea Exchange, Korea South Korea BankOn LG Telecom 2003 First, Industrial Bank of Korea M-Bank Woori, Shinhan, Chohung, Hana, SK Telecom 2004
K-Bank Kookmin, Koram, Pusan KTF 2004 Vodafone, Airtel, Aircel, Tata India SBI Freedom State Bank of India 2008 Docomo and Idea iMobile ICICI Reliance Infocomm 2004
ngpay HDFC Bharti Airtel 2008
Philippines GCash Globe Telecom 2004
Smart Money / Smart Banco de Oro Smart Communications 2001 Source: Various bank websites, 2010 that can contain data for approximately 100 debit far from home sends money back to the family. and credit cards in a single chip. Without mobile banking, the worker would have paid fees ranging from 3% to 10% of the transac- Transformational Approach tion to a money transfer operator such as Western Union or Moneygram to send the money, or Under the transformational approach, mobile bank- would have used informal channels such as ing services are targeted to the unbanked: poor or friends and relatives to physically deliver the remote populations living in informal or cash money.8 Mobile banking minimizes costs and economies and without access to formal banking increases reliability for remittances, permitting institutions. Barriers to formal banks in these customers to make secure and timely deposits into economies include remoteness, high banking costs, their families’ accounts. Challenges to the adop- and lack of customer education about financial ser- tion of mobile banking services under the trans- vices. Transformational banking concentrates on formational approach include inadequate infra- areas of moderate to high mobile phone penetration structure in poor, rural areas that hinders the crea- and low bank penetration. Not only can banks and tion of extensive networks of cash-in/cash-out telecommunications companies expand their cus- points, as well as high illiteracy and lack of finan- tomer base by providing mobile banking services to cial services knowledge among target customers. the unbanked, but their customers’ greater access to low-cost, reliable financial services promotes greater savings, entrepreneurship, and economic Although most developing countries in Asia, in- development. A mobile banking transaction costs cluding Cambodia, Vietnam, and Indonesia, use on average 19% less than that made by a traditional the additive approach, India and the Philippines 7 visit to a bank branch. Given the inaccessibility of have successfully implemented the transforma- traditional brick and mortar banks, customers use tional approach. India, the country with the high- their mobile devices to convert cash in and out of est volume of foreign remittances in the world, stored value accounts at cash points such as grocery received 12% of the US$413 billion world market outlets or mobile phone airtime sales agents. Cus- for remittances in 2009.9 In the first pilot pro- tomers also use mobile banking to transfer money gram of mobile-based remittances in India, HSBC between accounts and pay bills. India partnered with the telecommunications companies Idea Cellular, Tata Communications, The transformational approach notably includes and Etisalat to launch a remittance service in mobile remittance services where, in a typical sce- 2008 that enables Indian expatriates working in nario for an unbanked customer, a person working the UAE to transfer money to recipients in India. Accounting for 5% of global remittances in 2009, tions as a bank branch, storing a database of per- the Philippines ranks fourth in countries receiving sonal customer information and details of cus- migrant remittances.10 Both of the Philippines’ top tomer accounts. Such an arrangement is common two mobile service operators, SMART and Globe in India. The Reserve Bank of India issued Telecom, offer text message-based remittances guidelines in 2008 that permit only licensed banks along with other mobile banking services (Figure with a physical bank presence in India to provide 2). SMART’s “SMART Padala” service allows mobile banking services, disqualifying mobile expatriates to make deposits at partner banks world- network providers from providing mobile banking wide and direct the funds to a particular SMART services independently.12 Banks utilizing the ad- subscriber in the Philippines. The recipient is noti- ditive approach, such as many of those in Japan fied of the transfer by text message and uses the and South Korea, follow the bank-based business mobile banking account to request a withdrawal model because customers must already have an from a partner bank. Similarly, through Globe existing account with the bank before enrolling in Telecom’s “GCash” service, the recipient uses the mobile banking services. mobile banking account to request a withdrawal from any Globe Telecom store. Approximately Non-Bank Based Business Model 50% of SMART and GCash customers were previ- ously unbanked.11 Established in 2001 and 2004, In a nonbank-based business model, the customer respectively, SMART and Globe Telecom’s mobile has no direct contractual relationship with a finan- banking services are among the longest running in cial institution, but rather has an account with a the world and have pioneered similar platforms in nonbank entity such as a telecommunications developing African and East Asian countries. company or a prepaid card issuer. The non-bank
business model is common in the Philippines, where the Bangko Sentral ng Pilipinas (BSP) per- Mobile Banking Business Models mits nonbank companies to offer mobile banking Classification of business models considers which services. Institutions planning to offer mobile entity establishes the customer relationship and banking services must seek prior approval from maintains the customer account. Mobile banking the BSP. Globe Telecom’s “G Cash” service in services in Asia can be delivered entirely through a the Philippines operates under a nonbank-based bank or through a joint partnership between a bank business model, providing a cashless and cardless and telecommunications company, classified as a method of transforming a mobile phone into a bank-based business model, or entirely through a virtual wallet to make payments, transfer funds, nonbank institution, classified as a nonbank-based and convert virtual money into cash at the tele- business model. Regulatory factors play a strong communications company’s select retail agents. role in determining which business models are pre- Retail agents, typically grocery stores, gas sta- sent within a country. For example, India restricts tions, and prepaid mobile phone airtime vendors, the delivery of mobile banking services only to the are third parties that partner with telecommunica- bank-based business model while the Philippines tions companies to conduct cash-in/cash-out allows both models. transactions for customers. These retail agents receive a commission for each mobile banking Bank-Based Business Model transaction.
In a bank-based business model, the customer has a The BSP requires that retail agents conducting direct, contractual relationship with a licensed, su- cash-in and cash-out functions register with the pervised financial institution. The bank may man- central bank, send their personnel to training on age both customer account management and the anti-money laundering, verify customers’ identi- underlying technology supporting the mobile bank- ties, maintain records of all transactions for five ing functions. Or, the bank may work under a joint years, and report suspicious activity.13 While the venture with a telecommunications company to Core Information and Technology Supervisory launch and support the technology; however, the Group (CITG) within the BSP handles all mobile bank handles account openings and account man- banking issues and supervises telecommunica- agement. The mobile phone performs similar func- tions companies, supervision of retail agents is left tions, convenience stores, Internet cafes, food es- to the telecommunications companies which retain tablishments, and other stores nationwide, per- all responsibility and liability for their agents. In form account management services.14 India im- 2010, Japan’s Funds Transfer Act lifted the ban on poses a mobile banking transaction limit of INR nonbanks to conduct mobile fund transfers, allow- 5,000 (US$113) on each fund transfer and INR ing registered nonbanks to provide mobile fund 10,000 (US$226) on each purchase, with an over- transfers for small value payments. Nonbank enti- all cap of INR 50,000 (US$1,130)15 per day, per ties entering the mobile funds transfer market are customer.16 expected to trigger greater competition and innova- tion in the provision of mobile banking services. Technological advances in mobile banking neces- sitate regulations that are flexible enough to ac- Regulatory Issues commodate innovation and customer demand yet stringent enough to protect customer privacy. The growth in mobile banking in Asia requires Recent developments in South Korea provide a regulations that adequately protect consumers, good example of policy and industry responses in guarantee secured transactions, promote economic this regard. In January 2010, the Financial Super- stability, and allow for the innovation of new ser- visory Commission (FSC) required that all finan- vices. A country’s regulatory provisions for mobile cial transactions on Internet-accessible smart banking typically seek to perform the following phones include electronic signatures based on functions: public key certificates, a mechanism that validates
the authenticity of the bank’s website and secures Clearly define mobile banking activities and the data being transferred. However, the only ap- institutional arrangements that are subject to plication able to download public key certificates licensing, regulation, and supervision by the is Microsoft’s ActiveX for Internet Explorer financial authority; browsers. Consequently, mobile phones with Require that mobile banking providers offer non-Microsoft browsers unable to support clear disclosures of prices and service offer- ActiveX such as the iPhone, Blackberry, and An- ings, as well as ensure fair treatment and droid, could not be used for mobile banking. In data privacy for all customers; and July 2010, in response to calls from banks and the Korean Communications Commission for greater Require that mobile banking providers man- flexibility in security technology, the FSC ex- age risks of fraud and other criminal activity panded its regulation to allow other verification under Know Your Customer (KYC) rules, methods equivalent to ActiveX during mobile Anti-Money Laundering (AML) provisions, banking transactions.17 Banks including Woori, and other security safeguards. Industrial Bank of Korea, and Kookmin have re- sponded to regulatory change by introducing mo- For banks and telecommunications companies of- bile banking services compatible with phones fering virtual banking services without brick-and- equipped with non-Microsoft browsers. mortar facilities, KYC rules can impose a high hur- dle for customer enrollment because these institu- Regulatory clarity on issues helps banks and tele- tions lack the physical infrastructure and personnel communications companies better assess the risks to conduct customer interviews and identity checks, involved in providing mobile banking services, particularly in rural areas. Regulations have ad- assuring that the infrastructure and services they dressed this hurdle by allowing banks and telecom- put in place will not need to be continually read- munications companies to outsource the customer justed. verification function to third party agents who per- form cash-in/cash-out services for mobile banking customers, as in the Philippines, or by capping ac- Conclusion count size and transaction volumes, as in India. In The mobile banking landscape in Asia continues 2010, the BSP in the Philippines permitted Globe to evolve, as banks and telecommunications com- Telecom to have sub-distributors, such as gas sta- panies develop new services and regulatory agen- cies refine their rules. As an early adopter of mo- 7. McKay, Claudia and Mark Pickens. “Branchless Banking bile banking, Asia can set global standards in busi- 2010: Who’s Served? At What Price? What’s Next?” Wash- ington DC: Consultative Group to Assist the Poor (CGAP), ness models and in supervision and regulation. One September 2010. notable development that is almost exclusive to Asia is the increasing number of telecommunica- 8. Ratha, Dilip, Sanket Mohapatra, and Ani Silwal. “Migration and Development Brief: Outlook for Remittance tions companies buying stakes in banks and finan- Flows 2010-2011.” Washington DC: Migration and Remit- cial services companies. In 2010, China Mobile, tances Team, World Bank, April 2010. the world’s largest mobile carrier with over 500 9. Ibid. million subscribers, acquired a 20% stake in Shang- hai Pudong Development Bank in an explicit strat- 10. Ibid. egy to enter the mobile banking market.18 Simi- 11. McKay, Claudia. and Mark Pickens. “Branchless Bank- larly, South Korea’s SK Telecom bought 49% of ing 2010: Who’s Served? At What Price? What’s Next?” Hana Financial Corporation’s credit card unit and Washington DC: Consultative Group to Assist the Poor (CGAP), September 2010. Japan’s NTT DoCoMo purchased stakes in Sumi- tomo Mitsui Card Corporation and UC Card Corpo- 12. “Mobile Banking transactions in India - Operative 19 Guidelines for Banks.” Reserve Bank of India. 11 October ration. Looking ahead, greater integration be- 2010. tween banks and telecommunications companies
in the Philippines.” The Manila Times 18 March 2010. 11 October 2010 1.“ITU sees 5 billion mobile subscriptions globally in 2010.”
Contacts: Walter Yao ([email protected]) and Nkechi Carroll ([email protected]) Written by: Anne Ho
Asia Focus Series
CAU's Asia Focus series provides periodic analyses of current economic and financial sector developments in the Asia-Pacific region. Previous reports issued in 2010 include:
Global Recovery: Asia and the New Financial Landscape Financial System Reform in Thailand Regulatory Frameworks for Financial Services in Asia Rural Banking in China Microfinance in the Philippines
Asia Focus is available online at www.frbsf.org/banking/asiasource/archive.html