The Mobile Banking Gold Rush

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LIMPOPO, South Africa —Because of the apartheid system, innovation and technology use in rural South Africa are generally seen as inferior to that in the urban areas. Yet post-1994 South Africa has enacted legislation and made significant investment in infrastructure to improve communication in rural areas.

On Device Research notes that mobile phone technology has greatly assisted South Africa in overcoming its infrastructure barriers. Research shows that about 91 percent of South Africans own a mobile phone. The successful use of mobile phones for economic purposes in rural areas has been seen in Internet access, social networks, education, health care and agriculture.

The country has a population of about 52 million people, and it is estimated that over 40 million own a mobile phone. Of those who do, 72 percent are between 15 and 24. South Africa has world-class telecommunications connectivity, with satisfactory network coverage in rural areas. This explains the new “gold rush” by financial institutions, such as banks, seeking a huge mobile banking market in the form of mostly young rural people with mobile phones.

Business Day live quotes PricewaterhouseCoopers’ 2013 South African banking survey, which says some of South Africa’s big banks —Absa, First National Bank, Nedbank and Standard Bank— have medium-term plans to spend 3 billion to 5 billion rand (about $300 million to $500 million U.S.) on technology that seeks to focus and expand mainly on mobile banking. The survey further notes that Absa is spending 1.2 billion rand on upgrading its network and investing in innovation and digital banking. Standard Bank spent 2.2 billion rand in 2013, with similar levels forecast for 2014 and 2015. Last year, Nedbank commissioned plans to invest 2.1 billion rand over the next five years.

Regardless of such huge investments, Silas Sefate, a senior banker at Standard Bank in Limpopo, points to rural clients’ general reluctance toward mobile banking. “Statistics have shown that most of our rural clients are not consistently banking using their mobile phones, even though they have signed up for it,” he said. “Most of them seem to distrust the service and rather prefer the traditional walk into a bank even if they travel long distances, but could have carried out the same service at home via their phones.”

Skepticism toward not just mobile applications but also e-commerce innovations has been revealed in various studies on South African consumers. The uncertainty is present in urban areas but more pronounced in rural areas. Sarah Rice, head of marketing at the Interactive Advertising Bureau South Africa (IAB), told Moneyweb in South Africa that e-commerce remains a small part the country’s buying behavior, as consumer behavior still relies on a simultaneous use of both online applications and businesses’ physical locations. This is not perculiar to South Africa’s rural folk only; it is seen in urban dwellers as well.

Despite South African youth’s tentative feelings about mobile banking, it does have perks. “There is no cost incurred by the clients when using mobile banking. In fact, the banks charge their clients when they get into the banking malls. So I think that the mistrust will soon go away from the minds of clients once they realize such benefits,” Sefate says.

Rice argues that while online shopping is not a new concept and is familiar to young people, even those in rural areas, the problem lies in educating consumers about the platform.

The youth in rural Limpopo, as in the whole of rural South Africa, are “the mainstay of the proliferation of mobile banking and the prime market,” as Sefate puts it. New technology is part of young people’s daily lives, including rural youth in Limpopo. If banks can tap into this market and incline rural youths toward mobile banking, as they did in urban areas, an economic revolution will occur.

Amid all the euphoria, there are other issues that undermine the proliferation of mobile banking in areas such as rural Limpopo. For starters, although reception for phones in rural areas is satisfactory, 3G and LTE connections for Internet use, even in urban areas, is still a huge problem. Widespread telecommunications reception in all parts of South Africa, especially the most rural and remote sections, has not yet been realized. As Tshethse Manyane, a 32-year-old resident of My Darling village in Limpopo, puts it, “Even if we had smartphones, we cannot get Internet here. We have to walk up to areas with a bit of connection and sometimes don’t even get connection.” Although impressive strides have been made to develop the infrastructure in rural areas, this may still not be enough to facilitate modern economic development, including mobile banking, in these regions.

Also, on a global scale South Africa’s data costs are particularly high. A young person in an impoverished small village in a developing country who is unemployed and cannot afford a day’s decent meals — and does not have access to clean water, proper sanitation and decent housing — cannot conceivably afford Internet access to do mobile banking. That is, if there actually is Internet access in that village, and if the youth has a smartphone for reception. Such a grim reality, given the levels of poverty and high prices for technology in parts of South Africa, extinguishes the possibility of day-to-day mobile banking any time soon.

“With very little income and spare change, it is seldom we make a sacrifice to purchase Internet data for our mobile phones,” laments Malebetha Motsoka, 25, from My Darling village.

Unreliable Internet connections and high costs are valid concerns. Nonetheless, it is encouraging that these problems have been considerably curbed over the years, and the trend is set to continue. Several fiber-optic technology projects in South Africa have received investment and will ensure that Internet connectivity is everywhere, even in the remote rural areas, in the near future. One such project is a national fiber-optic broadband network, which will cost 5 billion rand (about $500 million U.S.). As for expenses, mobile termination costs have been halved as of this past April, and costs are expected to go even lower.

Regardless of the shortcomings, mobile phone usage in South Africa has been one of the shining stars in the state. Information is critical for development purposes, and the phone has provided new communicative and economic ecologies. Its benefits have largely been utilized by the young, including rural youth. Such inclusion has provided innovative financial services, such as mobile banking.

During the apartheid era, e-commerce luxuries were kept away from the majority black population. Mobile phone usage among the rural youth of South Africa, despite some hindrances, has been an economic phenomenon. The massive increase in South African smartphone purchases indicates the increased use of e-commerce initiatives such as mobile banking and a growing influence on the lives of the country’s youth.

Featured image source: flickr / under Creative Commons

8 thoughts on “The Mobile Banking Gold Rush

  1. indeed technology made our lives easier, we now do not have to go to queue anymore at banks to withdraw and deposit money. we also have access to social networks whereby we are connected to our loved ones and friends. with technology we can also register online for academic reasons, we no longer have to travel long hours.

  2. A big thank u to the mobile phone banking we are no longer walking with fear of been hijacked or been robbed because I no longer walk around with money in my hand bag instead I do almost everything using my cell phone. In this regard the high rate crime will decreases since robbers will no longer have the opportunity to rob us..huuuuuurraaaay to mobile banking.

  3. Mobile banking help us especially those people who live in rural areas and who are far away from towns. Those people can be able to buy electricity, pay bills and buy airtime especially when they need it in immediate situation.

  4. I used to travel long distances to withdraw some cash and even stand long queues, now I thank mobile banking because I don’t have to do that anymore

  5. Well, mobile banking has indeed cut queues and the rush rush at the banks. With this buzz, new things came to light, such as electronic wallets and money transfers.

    However, a challenge emerges. As much as we throne this technology for revolutionizing our banking struggles, a challenge is when you have to use mobile banking to transaction funds to a person who is incapable of using mobile banking. It then becomes better to stay in the 19th century of same old banking queues, trustworthy and secure!

  6. Mobile phones plays an important roles in our lives,especially for those living in rural areas even though some people are not yet exposed to this mobile gold rush.We are able to buy electricity via our cell phones,airtime etc.

  7. this is really interesting, mobile banking has reduced the queus we stand outside the banks, wish this can grow and develop to the deep rural villges

  8. internet banking and mobile banking has made our lives easy xam. i am currently able to send my parents more without going to the bank, that’s so great.

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