Monday, May 16, 2011

The investment case for mobile banking:

I have always enjoyed the research reports produced by Forresters. They always seem to bring a fresh perspective on how one could look at things. In arecent report (Read here), they found that the ROI of a retail mobile banking deployment in the USA for 500 000 subscribers would come to roughly 15%. This is not particularly exciting, although one could argue that it is better than placing money on fixed deposits at this stage.

However, in reading the report, one could see many ways that the ROI could be improved (in some cases) spectacularly. It is important to consider some of the aspects below that would lead to major gains that could be achieved in rolling out mobile baning services. Some of these are:
  • The model developed by Forrestors catered for cost elements related to developing, testing and deploying these services. Obviously, if these costs could be reduced, one would increase the ROI. Two ways to reduce these costs could be to deploy low cost, configurable enterprise solutions, or to make use of commoditised outsourced services.
  • The model also talks about benefits as being predominantly related to cost savings. If the services could deliver revenue-benefits (like increased transaction revenue), or improved risk management, the proposition can be increased significantly.
In emerging markets, where many of these aspects are possible, where costs are lower and revenue higher, ROI numbers that are in a totally differentr ball-park can be achieved.


BigChief said...

I have not seen the full report but it is obvious that there are two sides to the story. By two sides I mean the buyer side and the seller side when it comes to deploying the technology. There are costs that first movers on both sides have to bear as the market grows.

MPESA has one of the wobbliest platforms I have seen around but everyone is still playing catchup because they caught the market just at the right time. The key is when you launch your offering and how well you understand the market.

The truth is that as in every game there will be winners and losers. Those with vision and foresight win while the opportunists lose. This is long game and not a short one. Those who cant stand the heat should leave the kitchen.

Outsourcing and other cost savings are short term measures. The key is stability and reliability which you get from robust platform support. Yes It costs money but you need to buy peace of mind on both sides if you are in it for the long haul. The next generation is a mobile generation and in the end the future is mobile.

BigChief said...

People also forget the word "Mobile" in "Mobile Banking" and dont remember it also means that the MNOs are still key players in this. I doubt that the report sees it from their perspective.

On a recent site visit to Orange in Kenya as they launch IKOPesa people could not understand why Orange will support Equity Bank to run the platform when there was no transaction revenue coming to Orange.

It was clear to me that Orange was playing the long game of customer retention, cost savings and revenue generation from air-time sales. Air-time remittance is also one of the MNO best kept secrets and it is as lucrative as money remittance.