The Future of Mobile Banking In the Philippines

Statistics say that there are currently 41 million cellphone users in the country, and approximately 5.5 million of are using their phones for some sort of monetary transaction. Research firm RNCOS predicts that the rising mobile penetration in the country will expand the mobile banking use, analysts say that mobile banking user base in the country will soar to beyond 11 million users in 2011.

The following excerpt from an article gives us a glimpse into the future of this technology in the country and the rest of the region:

Research group Financial Insights sites that though "mobile banking has faced its fair share of hurdles since its inception"..."Mobile banking and payments have been flourishing in Asia Pacific for years"

The report noted that among the emerging trends in mobile banking in Asia Pacific are the fact that while in the past, mobile banking and payments were driven by telecommunication players, now, banks are taking the lead in deploying such services.

“This is not to say that telecommunication companies have been cut out of the mobile banking proposition. Rather, banks are now partnering with telecommunication companies and other information technology vendors to deploy such solutions on a more equal footing,” it said.

Currently, mobile banking deployment differs significantly between developed and developing countries in the Asia Pacific region. Financial institutions in the region’s mature markets are seeking to converge Internet and mobile banking channels, whereas those in developing markets are looking to grow customer bases by focusing on the unbanked.

It was also pointed out that newer and more innovative mobile banking solutions are being implemented. This has resulted in mobile banking services moving beyond being just an extension of current financial services delivered via a mobile device.

By fully integrating mobile solutions with the banks’ core systems, these solutions now provide more value-added services not only to the customers but also to the bank itself, the report said.

“Ultimately, with the progression of mobile technology and financial services, Financial Insights believes that majority of financial institutions in the Asia Pacific region will seek to converge the Internet and mobile channels in the hopes of truly making financial services available to customers anywhere and at any time. The customer will no longer have to go to the bank because the bank will be in their pockets,” Kumar added.

Source:
Reyes, Mary Ann Ll. (2009, April 27), Internet, mobile bank convergence to impact on consumer expectations, Philstar.com, Website: http://www.philstar.com/Article.aspx?articleid=461532

GCash at Work: GM Bank and PR Bank

The Philippine rural banking system has been instrumental in bringing banking services to the countryside, reaching out to the thousands of Filipinos commercial banks cannot reach. With 2,133 offices as of December 2008, the rural banking sector has become a key partner of countryside development and the growth of rural communities.

In 2009, BSP Governor Amando Tetangco acknowledged the rural banking sectors innovative efforts to reach out even more. He sited that rural banks are exhibiting greater innovation and dynamism be seizing opportunities presented by technology.

Leading rural banks have rolled-out the GCash applications to enhance its services and reach the unbanked countryside. Included in the list of 47 banks who have given these applications are try are GM Bank and PR Bank

PR Bank: Innovative solutions

Philippine Rural Banking Corporation (PR Bank) is the biggest rural bank in Region II and one of the largest nationwide. The bank was one of the first who tried the Mobile Phone Banking Services (MPBS) offered supported GXI.

First Step: Try the one new service on own operations
However, they did not roll-out all the offered services all at the same time. To test the viability of the service., PR Bank started with Text-a-Sweldo and disbursed the salaries of its 1.200 employees through their mobile phones. Although initially hesistant, the employees now prefer to recieve their salaries through this service, since it allows them to easily send the cash to the cellphones of their family members who are located far away.

Next: Roll out other services to customers
After the initial phase, PR Bank rolled out the other GCash mobile banking services to its customers. Soon, other services such as Text-a-Remittance, Text-a-deposit and Text-a-withdrawal services.

However, to make the initiative a success, authorized cash-in and cash-out merchants had to be in place. These merchants had to be numerous and accessible to bank clients who are based far away from the bank branches. To do this, PR Bank fielded its own people to recruit and train new merchants and establishments into the GCash Ecosystem. Close to a hundred businesses now accept electronic transactions. Employees can walk up to stores, restaurants and shops and pay for their purchases using their cellphones.

PR Bank Best Practices with GCash

• Cross-selling of products with GCash MBPS
  Most rural banks cannot offer payroll facilities because (1) they do not have ATM services through which employees can withdraw their salaries and (2) most salaried employees in the countryside cannot afford the maintaining balance required to maintain a payroll account.
  
  With GCash's Text-A-Sweldo service, rural banks can support local companies' payroll services without requiring employees to open ATM payroll accounts, because the salaries can be credited directly to employees' mobile phones. Employees can immediately send e-cash to loved ones or to pay bills without having to make another trip. E-cash can again be withdrawn through nearby authorized merchants.
  
  With this new service in place, PR Bank found that it could now improve repayment rates for SALARY LOANS local companies. Since the payroll now goes through the bank, they can now deduct the payment the salaries before they disburse via Text-a-Sweldo. They can now easily market the Payroll Service and Salary Loan together. Better repayment means better revenue, possible higher loan approval rates and lower loan interest rates for the customers in the future.
  

• Reduced payroll disbursement period
  Through the Text-a-Sweldo service, PR Bank was able to reduce a large client's payroll disbursement period from 5 days to 1. We can infer that this client may have been using tedious traditional methods of sending remittances through various remittance facilities, or sending checks to their employees every payroll period. However the procedure, their old system may not have been centralized. With the Text a Sweldo service, the company can just send the list of all the employees with corresponding mobile numbers and amount to be credited, and PR Bank can send the funds instantaneously.
  
  
• Retailers just deposit their earnings through Text-a-Deposit
  Remember the merchants PR Bank recruited to ensure their new MPBS would work? All these merchants now send their earnings to their accounts in PR Bank through the Text-a-Deposit facility. No more traveling to bank branch and lining up needed

GM Bank - Secure and efficient microfinancing with GCash
GM Bank is a merger of four banks, making it one among the leading rural banks in Central Luzon. With 31 branches, GM Bank has one of the largest branch networks in the region.

GM Bank was recognized this year by the Microenterprise Access to Banking Services (MABS) program not only for outstanding performance in microfinance, but for other special points that made their banks stand above the rest. Among those strong points was the bank's focust on customer services, having product reviews and modiying products based on product research, and its commendable use of technology to improve its operations.

The use of GXI's MPBS plays a key role in GM Bank's accomplishments. The bank is currently offering all the available mobile phone services from GXI to its customers.

GM Bank Best Practices with GCash

• Reaching out to depositors from far away
  An example of successful application of MPBS is GM Bank's Laur Satellite Office (or Other Banking Office, or OBO). With 5,500 households and 30,900 residents, Laur serves as an ideal place to accommodate both existing and potential bank clients.
  
  The Laur OBO, with the help of the MPBS gave the residents easier access to banking services. Before the OBO, the people of Laur had to travel 15 kilometers and spend anywhere from P45 to P150 just to make a deposit, withdrawal, or any other bank transaction.
  
  The Laur OBO acts as the nearest cash-in and cash-out merchant in the area. As with PR Bank, GM Bank's Laur OBO uses the Text-a-Deposit and Text-a-withdrawal services to eliminate the hassle and expense of traveling all the way to Palayan to make these basic transactions.
  
  The OBO started with just two registered Text-a-Deposit users in 2008. To date, the satellite office already serves both regular an microfinance clients. Such improvements have also been felt at the GM Palayan Branch. To date, 70% of the banks' depositors are Text-a-Deposit and Text-a-Withdrawal users.
  
  
• Safer cash collection operations
  The area's Microfinance Account Officer (AO) uses the GCash services to "cash-in" all his collections for the day, and sends it electronically to the Laur OBO e-wallet. He need not physically travel with the cash to Palayan just to remit. This procedure is preferred as the AO need not worry about safekeeping the cash collections throughout the 20 minute trip to Palayan.
  
  
• Making salaries easier to access
  The Laur OBO's security guard, Catalino Vargas, has also benefitted from the Text-A-Sweldo service. Vargas' agency, D'Priest Security Services, is Cabanatuan-based, which then requires Vargas to travel there from Nueva Ecija just to claim his salary. Making these trips costs Vargas P120 every payday. With the Text-a-Sweldo service D'Priest has availed of, Vargas no receives his salary through his mobile phone. He conveniently cashes-out the money at the Laur OBO where he is based.
  
  This is just one of the countless examples of how GM Bank is using the Text-A-Sweldo service to help local businesses manage their payroll.

Sources:
Tetangco, Amando Jr., (2009), Banking on Governance for Growth and Stability, Speeches, Website: http://www.bsp.gov.ph/publications/speeches.asp?id=357&yr

GCash Paves the Way for PR Bank's Micro-financing Success, retrieved from Globe GCash website, Website: http://gcash.globe.com.ph/contentgrouppagearticle.aspx?secid=26&cgid=7&id=103

GM Bank, http://www.gmbank.com.ph

Banking (2009), GM Bank eyes fourth consolidation in Region 3. Website: http://www.philstar.com/Article.aspx?articleid=43314

Mobile Phone Banking for Clients of Rural Banks, Website: www.mobilephonebanking.rbap.org

Mobile Banking in the Philippines

In the Philippines, where there are 35 million mobile phone users an estimated 200.000 SMS messages sent per day (Añes, Aquino, et al, 2009), it is no surprise that mobile banking use is quickly growing as well. While there are bank-initiated mobile applications such as those by Chinabank , Allied Bank and the Bancnet network,the most notable mobile banking application is that of Globe Telecom's GCash.

This section will briefly discuss GCash and its counterpart from competitor telecom SMART, SMART Money.

G-Cash

In 1998, with support from the United States Agency for International Development (USAID) the Rural Bankers Association of the Philippines launched the Microenterprise Access to Banking Services (MABS) program with technical assistance and implementation provided by Chemonics International. This initiative is designed to accelerate national economic transformation in partnership with the Philippine rural banking industry to significantly expand access to financial services for microentrepreneurs and other lower income groups.

Since 2004, the MABS Program has partnered with G-XChange, Inc (GXI), a wholly owned subsidiary of Globe Telecom, in the development and implementation of mobile phone banking applications and mobile commerce services for rural banks and their clients. Approved by the Bangko Sentral ng Pilipinas (BSP), rural banks can now offer electronically-driven financial services in the comfort of their homes, business, or offices
- Background on Mobile Phone Banking and Mobile Commerce Initiative

With the GCash concept, ones SIM Card becomes an "electronic wallet" which can store, receive, and send "electronic cash" through text messages from a mobile phone. Real cash must first be converted into cash (cashing-in or cash-in). Electronic cash can also be converted back into real cash (cash-out). Authorized e-cash merchants are allowed to do this conversion. Selected banks also allow that the electronic cash be transferred to ones bank account, and can thereby be withdrawn in cash through an ATM machine.

Real cash must first be received by an authorized "e-cash merchant" who then converts this into e-cash (also through text), and sends this to the e-cash customer (the one having his cash converted). This process is similar to purchasing "e-load" from an authorized merchant. The e-cash can then be sent to another person's e-wallet, or used to pay bills and other applications.

To get real cash from the e-wallet, the e-wallet owner simply proceeds to an authorized merchant and accomplishes a required set of instructions (including typing in the PIN number which was required upon registration into the GCash system). If everything is in order, the merchant will release the cash.

Mobile Banking Services for Rural Banks
The GXI and RBAP partnership has developed BSP-approved mobile banking services such as Text-a-deposit, Text-a-withdrawal and Text-a-remittance.

Latest information online supports that there are about 500,000 GCash users in the country today. Four years since GCash was launched, 43 rural banks with 453 branches have become GCash partners all across the country have been accredited as GCash partners and now offer cash-in and cash-out services with the majority of these banks also offering the MABS-developed mobile phone banking services that utilize the GCash platform.

SMART Money
Competitor SMART offers a slightly different money transfer system, used by about 5 million Filipinos, that links cash or a debit card to a cellphone.

Users load up on their phones with money via text messages, similar to the cash-in procedure described above. The card, which does not require a bank account, can then be used to purchase goods in establishments that accept MasterCard or to withdraw cash from an ATM machine.

Like Globe's GCash, SMART Money allows fund transfers from one SMART Money user to another, bills payment, cash conversion (however, through ATM only), and purchase (for establishments who accept MasterCard).

Unlike Globe's GCash, however, applying for a SMART Money service requires submission of an application and a confirmation call from a SMART representative, while GCash only requires texting. SMART Money is tied up with most major commercial banks, and offers mobile banking services such as account balance inquiries, fund transfers (from one account to another), and airtime reloading. Selected banks offer remittance services via SMART Money.

The SMART Money platform is not yet used as extensively for Mobile Banking the way the GCash platform is being used, and has not yet reached the rural bank sector. SMART Money still does not have services similar to GCash's Text-a-deposit (transfer of e-cash to bank account) service and Text-a-withdrawal (from bank account to e-cash).

Sources:
Background on Mobile Phone Banking and Mobile Commerce Initiative, Website:http://www.mobilephonebanking.rbap.org/page/about us)

SMART Money, Website: http://www.smart.com.ph/money/

Teves, Oliver, Cell phones double as electronic wallets in the Philippines,
Website: http://mobilephonebanking.rbap.org/article/articleview/62/1/19/

Viloria, Manuel, Mobile Banking in the Philippines,
Website: http://www.viloria.com/secondthoughts/archives/00001400.html

Chinabank Online Mobile Banking, Website: http://www.chinabank.ph/personal/pagedetail.aspx?id=5C6F4973-F1DA-48E5-A6BD-67409CB6520E&link=20f445a8-3971-4b81-b42f-8c4a5aba7792

Allied Bank Online Banking, Website: http://www.alliedbank.com.ph/insidesection.php?level=2&secid=415&secpid=3

Bancnet Mobile Service (MBS), Website: http://www.bancnetonline.com/aboutmobile.html

Mobile Banking as an Information System

Mobile banking is an INFORMATION SYSTEM that is made of the following components:

• People - users who conduct bank transactions, the technical team behind the software
  
• Hardware - mobile devices (such as cellphones) used to send and receive mobile banking transactions
• Software - the mobile banking platform that processes the instructions given by the user
• Communication networks - instructions are transmitted through the CELLULAR PHONE NETWORK, which is a network of radio frequencies that allows the transmission of information.
• Data Resources - the mobile banking requires users to use a prescribed way (or protocol) of sending instructions to the system. This protocol is "remembered" by the system's memory/data storage. The information or transaction requested by the user is sent or performed by the system by using data stored in its memory. The system is also capable of storing all the transactions that go through the mobile banking platform. The "electronic wallet" concept stores the "electronic cash" amount in a data storage system. It is retrieved with the use of correct instruction from the users.
• Policies and procedures - specific procedures have been defined for every transaction.

Sources:
O'Brien, J.A. & Marakas, M.M. (2008), Management Information Systems, Chapter 1 [Powerpoint Slides], Slides 48-50, McGraw-Hill

Expanding Horizons (2008, January-March), At a Glance: Mobile Transactions, Nokia Corporation and Nokia Seimens Networks

Mobile Banking Services

Mobile banking through a mobile phone is possible for the following technologies: first is the interactive voice response (IVR). This uses software which requires the user to enter data on a mobile keypad. This is usually through voice recording to be followed with a concern. Second, sending text messages is the most used technology since it does not depend on the model of the phone. The user can request services through a set of codes for every transaction to be made (Añes, Aquino, Carpio,et al, 2009).

Push and Pull Services
Mobile banking services can be classified into two categories - push and pull services. Push services are wherein the bank sends out information based on a set of rules. An example of this are the alert messages that the bank sends of one's account balance is low or falling below minimum. Pull services on the other hand, require the users to request for information from the bank, or request the bank to perform certain transactions. Account balance inquiries, fund transfers and bill payments are examples of these services.

Transactions and Inquiries
Mobile banking services can be further categorized into two more - transactions and inquiries. The former includes fund transfers, bills payment and withdrawals; while the latter includes, account balance inquiries, transaction histories and minimum balance alerts. The table below classifies mobile banking services:
Source:
Añes, Aquino, Carpio, Lim, Tanjutco (2009), Mobile Banking in the Philippines, retrieved from Scribd.com. Website: http://www.scribd.com/doc/13522207/MOBILE-BANKING-IN-THE-PHILIPPINES

First image: http://www.telecomcircle.com/2009/05/mobile-money-transfer-mmt/

History of Mobile Banking

Like most innovations, mobile banking came to be after several fits and starts by different telcos and technology companies, mostly from Europe. Here is an excerpt from another blog on m-banking:

• The first mobile banking and payment initiatives was announced during 1999 (the same year that Fundamo deployed their first prototype). The first major deployment was made by a company called Paybox (largely supported financially by Deutsche Bank). The company was founded by two young German’s (Mathias Entemann and Eckart Ortwein) and successfully deployed the solution in Germany, Austria, Sweden, Spain and the UK. At about 2003 more than a million people were registered on Paybox and the company were rated by Gartner as the leader in the field. Unfortunately Deutsche Bank withdraw their financial support and the company had to reorganise quickly. All but the operations in Austria closed down.

• Another early starter and also identified as a leader in the field was a Spanish initiative (backed by BBVA and Telephonica), called Mobi Pago. The name was later changed to Mobi Pay and all banks and mobile operators in Spain were invited to join. The product was launched in 2003 and many retailers were acquired to accept the special USSD payment confirmation. Because of the complex shareholding and the constant political challenges of the different owners, the product never fulfilled the promise that it had. With no marketing support and no compelling reason for adoption, this initiative is floundering at the moment.

• Many other large players announced initiatives and ran pilots with big fanfare, but never showed traction and all initiatives were ultimately discontinued. Some of the early examples are the famous vending machines at the Helsinki airport supported by a system from Nokia.
  

• Siemens made announcements in conjunction with listed and high-flying German e-commerce company, Brokat. Brokat also won the lucrative Vodafone contract in 2002, but crashed soon afterwards when it run out of funds.

• Israel (as can be expected) produced a large number of mobile payment start-ups. Of the many, only one survived – Trivnet. Others like Adamtech (with a technically sound solution called Cellpay) and Paytt disappeared after a number of pilots but without any successful production deployments.

• Initiatives in Norway, Sweden and France never got traction. France Telecom launched an ambitious product based on a special mobile phone with an integrated card reader. The solution worked well, but never became popular because of the unattractive, special phone that participants needed in order to perform these payments.

It is not clear when the first successful attempt was made, but it can be inferred that when it was, things moved very quickly. With many banks already getting into internet banking by the time mobile banking was developed, "many analysts expected mobile banking to end up as another type of Internet banking deployment. Many bankers expected mobile phones to provide (just) another "channel" to customers to access the Internet Banking portal" (http://mbanking.blogspot.com). Mobile banking initially required that the device be capable of accessing the internet, the banks internet portal, and make transactions from there -- the way one would if he were online.

Today, mobile banking has totally separated itself from internet banking. It has its own set of protocols, and does not require the user to go online and access his bank's internet portal. The device to be used need not have internet-browsing capability. Mobile banking has become simpler to use and more easily accessible.

It is these qualities that have made mobile banking described by analysts as the next "killer app" (http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=98930). With billions of mobile users worldwide, more developments are expected to arise. Particularly in third world countries where wireless communication has more penetration than wired (source needed), mobile banking may grow to be one of the most significant tools that can be used for financial services to reach unserved and unbanked individuals.

This blog will focus on one of the latest mobile banking applications in the Philippines - GCASH and SMART Money. To go directly to these topics, click here.

Van Rensburg, Hannes (2006), Why Mobile Banking is not Internet Banking, retrieved from Mobile Banking, Website: http://mbanking.blogspot.com/2006/12/why-mobile-banking-is-not-internet.html

Van Rensburg, Hannes (2007), A Perspective on the History, retrieved from Mobile Banking,
Website: http://mbanking.blogspot.com/2007/11/perspective-on-history.html

Baar, Aaron (2009), Report: Mobile Apps Key for Financial Institutions, MediaPost Publications,
Website: http://www.mediapost.com/publications/?fa=Articles.showArticle&art_aid=98930

What is Mobile Banking?

Let's first start with the Wikipedia definition:
Mobile banking (also known as M-Banking, mbanking, SMS Banking etc.) is a term used for performing balance checks, account transactions, payments etc. via a mobile device such as a mobile phone. Mobile banking today (2007) is most often performed via SMS or the Mobile Internet but can also use special programs called clients downloaded to the mobile device.

Source:
Mobile Banking, retrieved June 19, 2009, from Wikepedia: http://en.wikipedia.org/wiki/Mobile_banking