The cost-to-income ratio is arguably one of the most important items in any bank's annual reports. It shows how much of every rand earned is used to pay for the costs of running the business, and therefore, how efficient the bank is in the process of creating value for shareholders.
One of areas that banks are focusing on in their quest to improve the ratio is to reduce customer reliance on branches and to encourage customers to start using cheaper self-service channels. The growth of cellphone ownership and Internet access in South Africa has provided banks with a window of hope to further reduce their costs and improve their cost-to-income ratios.
The ownership of cellphones in SA has reached almost 100% of the population. The growth of cellphone ownership has, however, not yielded results in terms of higher usage of mobile banking. Mobile banking subscriptions are still low compared to cellphone ownership. On the other hand, standalone cellphone banking entities in SA, like MTN Banking and Wizzit, didn't live up to their promises.
Opportunity knocks
Mobile banking offers the banking industry an opportunity to not only reduce the cost of serving their customers, but also improve their service, as more and more customers serve themselves through mobile banking and other self-service channels. The availability of mobile phone devices among the economically active population makes mobile banking the banking industry's obvious banking channel to drive down their cost-to-income ratios and improve service on higher value transactions. Taking advantage of the growth of the mobile phone industry requires knowledge about who is likely to take up mobile banking; and equally important, what factors drive customers to adopt and use mobile banking for their day-to-day banking.
In SA, mobile banking was first introduced in August 2000, when Absa Bank launched an SMS-based mobile banking service, followed by First National Bank (FNB), Standard Bank and Nedbank soon after. The increase in mobile phones that had Internet capabilities stimulated the development and launch of Internet-based mobile banking services that are based on the Wireless Access Protocol (WAP). Absa and FNB were the first to launch WAP-based services in March 2006, ahead of other South African banks, and even American banks which launched similar services nine months later, in December 2006.
In order to understand the factors affecting mobile banking adoption in South Africa, I conducted a quantitative study. This study confirmed four factors, which international studies identified as the main determinants that drive adoption of technology in general and banking technology in particular.
Firstly, it confirmed that usefulness and ease of use are central in the adoption of mobile banking services in South Africa. Given the importance of usefulness, the first thing that banks should ask about their mobile banking services is whether their mobile banking services fulfil a useful banking or financial function to their customers. Creating a useful service is not enough if the market does not see the usefulness of the service.
The challenge lies in making sure the customers see the service as relevant in their day-to-day banking and financial lives. Without creating relevance, very useful services will remain unused and their importance ignored. While banks are clear on what customers stand to benefit from the adoption of mobile banking, their customers do not always see the benefit of the service in their daily lives. Promoting mobile banking services should go beyond listing the many features that mobile banking services now offer and offering prizes for registering or using the service, to making a compelling case that shows the relevance of the service on a selected set of features.
Painless process
Secondly, a factor that is equally important is the challenge of making sure mobile banking is as easy to use as possible. This is very important considering the literacy levels in SA remain low. The challenge with current mobile banking offerings is that they try offering a comprehensive set of banking services, some of which are not suitable for the smaller handsets that the majority of customers have access to. These high-end services are offered to the broad customer base, but appeal to only a fraction of that customer base.
Ease of use is not only about using the service to conduct banking transactions, but also about ensuring that registering for the service and login onto the service is easy. This has to be balanced against ensuring the security of the service. It has to be acknowledged that not every aspect of function of the service will be as intuitive and as easy to use as customers would like, but it is incumbent upon banks to ensure all opportunities to showcase the service and how it works are used.
There is a need to drive ease of use across all mobile banking functions without putting customers' transactions at risk.
Even though the ability to try out and observe mobile banking was not as strong as usefulness and ease of use, the extent to which it aids ease of use makes it an important factor to consider when driving take-up and use of mobile banking. It is clear that everything that needs to be done to aid service trials and observations has to involve as little extra effort from the customer's point of view as possible.
The best opportunities present themselves at bank branches where customers do not have much to do. However, a contradiction exists, since banks in SA do not allow their customers to switch on their mobile phones while inside the banking hall. With this security precaution, thousands of opportunities to show customers how to do their banking via their phones, as opposed to coming to branches, are lost.
Thirdly, it was observed that experience with mobile technology was not a strong predictor of mobile banking usage. This, however, does not mean banks do not have a part to play to increase experience of mobile technology that relates to their mobile banking offers. Keeping mobile banking services easier to use and less technically challenging needs to be a joint effort between banks, cellular network service providers and handset manufacturers. Security risks are a concern for both users and non-users. These concerns, however, need to be evaluated carefully to make sure security enhancements do not compromise the service by making it difficult to use, especially for the less technology-literate customers.
Fourthly, customer demographics were found to have an impact on the likelihood of adopting mobile banking. In particular; income, age, number of bank accounts and Internet banking subscription were found to play a significant role in the adoption of mobile banking services. With a basis of a service that is seen to be useful and easy to use, these demographic variables should be used to select a target base of customers for campaigns to acquire new mobile banking users.
Although there is a huge mismatch between cellphone ownership and the uptake of cellphone banking services in SA, cellphone banking adoption has already surpassed the uptake of Internet banking in some of the four big banks. This should be attributed to the fact that the pace of cellphone banking registrations is growing faster than that of Internet banking.
In effect, Internet banking is reaching its saturation point, but my assessment is that, for many years to come, Internet banking will remain more profitable to the banks, due to the value of its transactions. I am not suggesting that Internet banking will not grow. It will still grow, but conservatively when compared to the adoption of cellphone banking. If the South African banks want to maximise the benefits of cellphone banking, they should consider the four factors I have articulated in this Industry Insight.
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