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- 3 adoption. 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