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The mobile banking apps race is on 08 Jun 2017

At the heart of the digital disruption in the financial services industry is mobile banking. The mobile channel is the way forward in banking that the fintechs (financial technology firms) have charted. In response, banks around the world are creating banking apps to enable their customers conduct transactions via their mobile phones and tablets.
    
Mobile banking apps are software programmes that enable a body of banking functions to be carried out using mobile devices. These functions include money transfer, payment of bills, checking account balances and managing investment portfolios. Traditional non-transactional services, including customer service, are also being delivered on the mobile platform.  

One clear advantage of using a mobile banking app is that it enables access to one's account for a growing list of transactional and customer service functions to be carried out round the clock. For the banks, the mobile platform will help cut cost and improve efficiency. This is part of the value proposition of the Cashless Policy of the Central Bank of Nigeria (CBN). Mobile banking is now a frontier for the expansion of e-banking.

The 2017 report of the annual Mobile Money survey by S&P Global Market Intelligence reveals faster growth in the number of banking app users in the United States. Compared to 24 percent year-on-year growth reported in its 2016 report, the new survey report shows 34 percent user growth.

Adoption rate is expected to be growing faster in India, where the government recently started radical implementation of its demonetisation programme. In Nigeria, one of the drivers of growth in mobile banking would be the introduction of faster data networks by the MNOs (Mobile Network Operators). The tradition of fierce competition among the Nigerian tier 1 and tier 2 banks is another impetus.

United Bank for Africa launched its mobile banking app last month. But for over a year earlier, Diamond Bank has been advertising its mobile banking app, which recently added a group savings product. More banks, including Access Bank and Guaranty Trust Bank, have also deployed mobile banking apps within the last 12 months.

What does this mean for banks that are currently laggards in the mobile banking app race? Using the U.S. data, the growth in app users regardless, overwhelming majority of customers still visit their banks to conduct their transactions. 81 percent of mobile banking app users said they visited a branch of their primary bank in the previous month. This is only marginally lower than 83 percent a year earlier.

Where the laggards will likely, or are already losing out – whether they realise it or not – is with customer loyalty. 30 percent of those surveyed by S&P said they switched banks for a better mobile app experience.

In Nigeria, switching banks would not necessarily mean closing existing account with bank “A” to open a new account with bank “B.” It is usual for bank customers to hold accounts in multiple banks simultaneously. They may therefore increase the use of one account over another. A use case that may exemplify this would be when funds for personal transactions are moved from one bank to another.

As banking is evolving from facilitating business to helping customers express trendy lifestyles, and carrying out transactions more leisurely, the frontiers of mobile banking in Nigeria already include payments for satellite television subscription, air tickets and mobile shopping. Banks with mobile apps with these features will attract and retain the urbane customers.

The projection is that mobile banking usage will intensify. The subsisting Nigerian economic slump may have suppressed potential growth, given that the best user-experience would be with smart phones. Such phones have become more expensive with the sharp depreciation in the value of the naira since a year ago. However, the ingredient for a surge in mobile banking in the country would be the demographics of a young population, the pre-recession growth in the middle class, and the improvement in the performance of the data networks.

53 percent of respondents to the survey by S&P said they would consider opening a bank account with a branchless bank. I was intrigued last month when I received a notice of commencement of operation from a bank that says it is pioneering wholly mobile banking in Nigeria.

Among users surveyed by S&P, the most used bank app features include checking account balance (83%); review of transactions (66%); and transfer of money between accounts (52%). (The respondents could choose more than one response.)

But conventional, brick and mortal banking is not going away any time soon. 38 percent of app users said they will not consider opening a bank account with a branchless bank.

Most of the activities at bank branches relate to fairly vanilla deposit transactions. 68 percent of those who recently went to a bank branch for transactions told S&P that they did so in order to make a deposit. 54 percent said they went to withdraw money.

I found noteworthy the demographics of the mobile app users in the United States. Women constitute a slim majority of the users (50.6 percent), compared with men (49.4 percent). Making sense of this statistics is important, given the scope for improvement in, and addition to the features of, mobile banking apps. One possible explanation of the slight edge by female users is that women are largely responsible for family retail purchases. Another is that women are more scrupulous with scrutinising family accounts. The findings that two of the top-three uses mobile apps are put to are checking account balances and review of transactions support these assumptions.

Among the users surveyed, those in the 18-35 years age bracket (31.7 percent) rank second behind ages 48-66 (34 percent). However, the former group has higher user frequency – 46.3 percent daily users – compared to the latter – 23.3 percent.

These demographic patterns are unlikely to be significantly dissimilar in southern Nigeria, where the young and urbane will drive further mobile banking adoption. Gender gaps in education and economic empowerment in the northern parts of the country will see considerably fewer women users of mobile banking apps.

But in general, user growth may be limited by the cost of usage. S&P found that although everyone is reticent about the cost of banking transaction, 22 percent of its respondents said they are willing to pay $3 per month to continue using a banking app. The number of those who would continue usage increased significantly to 40 percent, if the cost were to be $1 per month. However, some banking customers said they are willing to pay a sign-up fee to use a mobile app.

Nigerian banks generally refrain from frontloading the fees for using their apps. They offer their apps for free download and setup. However, they rake in substantial revenue from use charges. A flat rate of average N50.00 applies to instant transfer, while N150.00 is charged as commission fees for payment of subscription to DSTV.

Whether these fees are too high is a moot point. The banks can justify whatever fee by the high cost of doing business in Nigeria, including powering their computer servers. In any case, the current regulatory regime in banking is quite tolerant of charges. After the abolition of Cost of Transaction (COT) last year, new fees have been introduced, including stamp duties amongst other assorted charges.

Fees charged for the use of mobile apps and other e-banking facilities are incentives for the banks to invest in the channels. But whether or not they make the investment (yet), they are already reaping revenue windfalls through the stipulation of penalties for cash withdrawal above daily limits of N150,000.00 for personal accounts and N3 million for corporate accounts.

Customers who are cost-averse or less fortunate will likely pull back in using the banking apps. The flat rate on transactions actually means the fees are disproportionately higher for poor customers and low value transactions. This is socially unsustainable. That the fees are low does not mean they are always lower than the cost of transportation to the bank for customers whose time is far from fully engaged.

There are other factors that militate against the use of mobile banking apps. According to S&P, the top three features most frequently reported as missing from banking apps include credit score tracking (37 percent), fingerprint login (33 percent) and the ability to turn a debit or credit card on or off (29 percent). Concerns over security may account for users wanting biometric login credentials and the feature to turn their cards on or off at will.

The mobile banking apps race is on. The undisputed winners would not be bank customers in general; they would be the banks with functional and user-friendly apps. For poor customers, the gains of using the apps may be a luxury, the transaction fees considered. But for the young and urbane who can afford the fees, the apps are another trendy features on their smart phones that express their affordability, stylishly.

Jide Akintunde is Managing Editor, Financial Nigeria. He is also Director, Nigeria Development and Finance Forum

Note
This article is published under the series Finance and Technology, a new platform of Financial Nigeria magazine, promoted by Simplex Business Solutions Limited. Knowledge leaders in the interception of finance and technology are welcome to contribute to the industry platform. Editorial contributions should be submitted to editor@financialnigeria.com.