As per a latest report by Nepal Telecom Authority—the apex body for governing and regulating the telecommunication sector—one out of every two people in Nepal uses a mobile phone. It is largely thanks to the intense competition between the two largest telecom operators—Nepal Telecom (NT) and NCell—that mobile phone subscription has now touched 15 million.
NT, which offers GSM and CDMA technology based mobile phone services, among others, currently has 7.4 million subscribers and NCell, a private sector player perceived to render quality service, is rapidly narrowing the gap and has nearly 7 million subscribers.
On the other hand, the penetration of banking services in the country remains highly limited. There has already been enough discussion on the country’s inability to enhance access to financial services, notwithstanding a surge in the number of banks and financial institutions. With only around five to six million Nepalis of a total population of 27 million estimated to have access to basic banking services and an even lesser number with bank accounts (heavily skewed towards urban areas), the telecom network has tremendous potential to extend financial services to the unbanked masses. This is particularly relevant in the context of the widening gap between bank account holders and mobile subscribers given that the latter continue to grow at a pace much faster than the former.
While discussing the convergence of telecommunications and banking services, the first question that crops up is: which of the two should ideally lead this arrangement? Should the telecom companies, with their deep reach and penetration, provide banking services as yet another value added service? Or it is the banks, with their vast experience and variety of financial products, which should take the initiative and develop a synergy with telecom operators?
If we look at similar synergies elsewhere, there are success stories of a telecom-led model in some parts of the world and a bank-led model in others.
However, if we want to develop mobile banking as a tool for tackling financial exclusion, the bank-led model seems more appropriate in our context. One, because the absence of banks in large parts of the country cannot be solved by non-bank players alone and two, this model expectedly has the capability to deliver at least four basic financial products and services—an account with overdraft facility, a remittance product, a pure savings product and an entrepreneurial credit product—which are minimum qualifying products that any financial inclusion model should contain (Chakraborty, 2011). Moreover, this model will provide regulatory comfort since banks, under direct supervision and regulation of Nepal Rastra Bank, have stringent rules that require adherence to KYC/AML norms. Moreover, the brand value of mobile operators may not be enough to convince customers to bank with them since the ‘trust factor’ comes into play.
We have witnessed several initiatives in the branchless banking system over the past couple of years, especially in mobile banking services, taken by Nepali banks after realizing the potential benefits of alternative delivery channels for payments and increased revenue flows. Many commercial banks offer basic mobile banking services like enquiries, alerts and basic transactions, including limited fund transfer and payment. However, most of them lack basic banking components like making deposits and withdrawals.
Unfortunately, brave investments in mobile banking by banks have historically had little success in generating significant profits or creating a long-term competitive advantage. Banks see mobile banking as only an additional channel for banking services for their existing customer base and aim to expand the range of services to their account holders instead of expanding the client base itself. Banks have to move beyond the urban clientele to the financially excluded rural interiors.
Further, mobile banking has not been widely adopted by the target customer, evident from the fact that number of subscribers for the service is far lower than the number of account holders. The main reason for not opting for mobile services is a lack of necessity since these urban customers already has abundant alternative channels like ATMs. This approach, thus, has not succeeded in taking financial series to those at the bottom of the pyramid and harnessing the immense business opportunities ranging from government-to-person (G2P) payments to international remittances, microfinance and micro insurance. However, it requires a strategic tie-up between telecom companies as carriers and banks as providers to make this collaboration truly effective and penetrative.
Banks’ expertise combined with penetration of telecom companies can enable greater financial inclusion, particularly in remote areas.
Telecom companies in Nepal, who have not shown any overt signs of getting involved in the business of virtual banking yet, have a very important role to play here. They can leverage their vast agent network, currently involved in selling SIM cards and recharge cards across the country touching even the remotest areas where banks do not have a physical presence, as business correspondents for the service. Apart from this, they can allow banks to use their communication network—perhaps, allowing separate and premium transmission gateway—as financial information carriers for efficient and quality service delivery. Additionally, they can look at innovations like ‘product-in-a-box’ approach, wherein they are able to sign up customers who are buying new connections for mobile banking as a package.
Mobile banking and similar services can certainly help increase customer traffic for both the parties, but it requires extensive customer education and marketing efforts to make these services acceptable to a wide range of people, particularly in rural areas. If the right strategy is adopted, mobile banking provides both the bank and telecom companies with new revenue-generating possibilities in an environment of intense competition. The expertise of banks and the reach and penetration of telecom companies can lead to a symbiotic relationship that could set the stage for a more financially inclusive nation.
The author is with the Business Development Department of Nepal SBI Bank Limited
bishalkchalise@nsbl.com.np
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