Mobile Phone Banking in the South African Economy

The mobile telephone has opened the way for South Africans in the lower income bracket to participate in the global economy.

The mobile telephone has opened the way for South Africans in the lower income bracket to participate in the global economy. With it came ‘cellphone’ banking, which has been described as revolutionary - in that it allows quick, safe transfers of money without bank charges.


The website contends that bank accounts are either unaffordable or unattainable. As a result a large percentage of South African adults are unbanked. The penetration of banks into the greater economy is limited, as banks are largely absent from rural areas. Where they are present, the conditions stipulated for opening accounts are often prohibitive. Banks require proof of residence, which residents of rural areas and informal settlements cannot provide.


At the same time, the new fad is not without its critics. This is perhaps the right time to consider some of the advantages and disadvantages of mobile banking in South Africa.


According to Jonathan Donner and Camilo Tellez the spread of mobile phones across the developing world is one of the most remarkable technology stories of the past decade. Across the developing world there are probably more people with mobile handsets than with bank accounts.


Initiatives to provide financial services, such as remittances and micro-payments via mobile phones to those without bank accounts, have occurred in the last few years. Initially intended to create convenience and complement other banking services in developed economies, in the developing world it has become an answer to challenges of accessibility and affordability.


In South Africa, more than 11 million people survive on cash transactions, and a large percentage of the economically active population does not have access to basic financial services. Companies such as Wizzit and other cellular networks have made it possible for those who are ‘unbanked’ to become part of the banking world.


Brian Richardson, chief executive officer of Wizzit, a South African mobile banking service, claims several advantages for banking with Wizzit and mobile phones in general. They include:


  • the safety of not having to carry cash around

  • the absence of risk of account closure for inactivity, which enables people that do not have a regular income to do banking

  • lower costs, partly because there are no transaction-by-transaction fees

  • saving of time by avoiding long distance travel for banking

  • flexibility, in that users can change markets by making small business-to-business transactions immediately and reliably, and

  • facilitating popular participation in the economy, which ultimately is positive for the national Gross Domestic Product (GDP)


One of the problematic issues with mobile banking is its permissiveness of anonymous banking, which opens it up to abuse. Mainstream financial institutions are required by law and prudent banking practice to know their clients/customers. As some of the customers that mobile banking companies and telecommunications companies cater for cannot present identity documents, proof of residence and related documents to open an account, they may not always be able to comply with the know-your-customer policy. Regulators are concerned that the resulting permissive practice could present a security threat by facilitating the financing of terrorist acts and money laundering. Regulating mobile banking has become complex and sensitive.


In place of the know-your-customer policy, one of the alternative approaches that could be used by mobile banking organisations is to restrict the transactions that individuals make, by limiting the amount per day or month a person can withdraw, as well as allowing only those within a certain income bracket to use this banking system.


Other disadvantages of mobile banking are that this form of banking is still only found among the elite due to its novelty and size of the technological device used leaving out those who need it. Donner and Tellez state that mobile banking is also quite technical, in that even the simplest handsets are quite complex, and if navigating m-banking is difficult for experienced mobile users with bank accounts, it is even more difficult for first time users. People who are introduced to banking for the first time via the mobile handset have to understand abstract concepts about invisible and virtual money.


One can conclude then, that even though mobile banking may compromise security in terms of contributing to money laundering and possible terrorist financing, it can support the formal economies and shrink the informal cash economies that currently exist in developing states such as South Africa. Not only is this form of banking cheap and accessible, it is also safe and allows for small amounts money to be transferred at a distance without much cost to poor households.


Mobile banking could increase national rates of saving, increase incomes and boost the resilience of the economy. At a broader level, it could improve taxation, and encourage reinvestment of money that is currently not in effective circulation. On balance, the advantages of mobile banking seem to far outweigh the disadvantages.


Hopolang Selebalo, Intern, Organised Crime and Money Laundering Programme, ISS Cape Town

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