Innovations in mobile financial services

Posted on March 12, 2014 by Sumita Kale

The RBI has been pushing banks and non-banks to tap technology for increasing access of financial services to the excluded (See Rajan, Padmanabhan)One of the modes that has gained traction globally is mobile money and it is worthwhile to go over a recent paper by Ignacio Mas and Mireya Almazán that reviews the state of product development and innovations in mobile money as it is todayThough the authors do not claim it to be a comprehensive study across all schemes, the paper is a very useful guide to the world of mobile moneyIn particular the framework used clearly separates monetary transactions into real-time transactions (payments) and inter-temporal financial obligations (savings, credit, insurance) and can serve as an excellent guide to banks and non-banks to push mobile financial services.

In an evolving space of technology and money, innovation is key to raising usage of these new modes of transactions and the paper concludes, We feel that innovation and experimentation around the manageability of saved balances and payments ought to be the core focus in the future, especially as we start to prepare for the inevitable transition to smartphonesThe greater computing abilities and richer, more tactile user interfaces of these devices should be leveraged to make customers feel more in touch with their money, their business concerns and their goals

In a blog post, this point on fostering innovation is taken further by Mas, who gives some reasons behind the slow change: One is that many mobile money providers have inflexible platforms run by small teams on tiny budgets- here, innovation is not a solution, but is seen as a distraction to day to day business problemsAgain, almost all mobile money providers run closed systems without adequate application programming interfaces, they are either unwilling or unable to take help from others to experimentAnother possibility is that there could be several regulatory barriers to entry that could prevent smaller, nimbler, more innovation-minded players from mounting credible competing propositions(I'm thinking here about the unjustified regulatory insistence that cash in/out presents agency problems, hence requiring a strong contractual binding of cash merchants to individual banks or mobile money providers, which precludes the spontaneous development of cash in/out networks serving all providersOr the unjustified regulatory insistence that non-bank players shouldn't promote savings services or pay out interest, even if they are 100% backed-up into fully regulated bank accounts.)

Of course, whether a regulatory barrier is unneccessary or vital can be a matter of debate and definitely will vary depending on the landscape in each countryWhen it comes to India, an open dialogue between the banks, non-banks and the RBI should be encouraged, to look at such regulatory issuesThe RBI has to balance between opening up the space to new players, without raising the risks in the system; for this both banks and non-banks have to cooperate with each other and the regulator and put in adequate processes and mechanisms that will foster the confidence and trust of the regulator.

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