Mobile money bites into street banking

KAMPALA, Uganda - Mobile banking is already peeling away some of the services banks provide, notably payment, the Governor, Bank of Uganda Prof. Emmanuel Tumusiime-Mutebile said while speaking at a workshop on the Economics of Mobile Money writes BAZ WAISWA.

Mutebile confirmed that the emergence of mobile banking has had a major impact on broadening access to basic financial services in East Africa.

He said the benefits in terms of financial inclusion will themselves have important economic consequences, for business and household welfare. He however acknowledged that the transformation which mobile banking will create in our economy and society is only at the beginning.

“Mobile banking is already peeling away some of these services from banks, notably payment services. How many more types of financial service will migrate from traditional banks to mobile banking, or to some form of internet banking, in the future? And as commercial banks lose their traditional dominance in the markets for these services, will traditional banking remain commercially viable? For example, will people eventually hold the money they require for transactions purposes entirely in the form of electronic money, rendering cash and non-interest bearing demand deposits in banks largely redundant? Will banks, as a consequence, be forced to adopt radically different business models focusing only on financial services which cannot easily be delivered electronically?” Mutebile said questioningly.

The Governor said the current business model of mobile banking in East Africa implies a substitution of cash for bank deposits, and hence a larger money multiplier, because all virtual money sold to customers has to be backed up by deposits in the partner bank of the mobile money provider. “Mobile money may also affect the velocity of circulation of money: in principle one might expect velocity to rise if mobile money makes retail payments transactions easier for customers,” he said.

He said financial regulation has focused on commercial banks largely because they are the financial institutions that hold a bulk of the financial savings of ordinary people and they play a central role in the economy’s payments system.

“For both these reasons, commercial banks are much more important to the stability of the financial system and the delivery of essential financial services to the economy than any other type of financial institution,” he said.

SOURCE:EAST AFRICAN BUSINESS WEEK.