Evolution of Mobile Banking Regulations: A Case Study on Legislator's Behavior

• Author: Arvind Ashta
• Date: 01 January 2017
• Published date: 01 January 2017
• DOI: http://doi.org/10.1002/jsc.2105

RESEARCH ARTICLE

Strategic Change 26: 3–20 (2017)

Published online in Wiley Online Library

(wileyonlinelibrary.com) DOI: 10.1002/jsc.2105

Copyright © 2017 John Wiley & Sons, Ltd.

Strategic Change: Briengs in Entrepreneurial Finance

Strategic Change

DOI: 10.1002/jsc.2105

Evolution of Mobile Banking Regulations:

A Case Study on Legislator’s Behavior1

Arvind Ashta

Univ. Bourgogne Franche-Comté, Burgundy School of Business – CEREN, France

Legislators in developed countries are loss‐averse and hesitant to make regulatory

changes to accommodate new technologies, fearing destruction of a system

thatworks.

Evolution takes place slowly and incrementally. Ideas in one eld are transferred

to others. Unmet needs lead to new inventions and innovations, and these create

new economic relationships. New mutations and new fusions take place with

apparently dissimilar partners, creating a need for other institutional adaptations.

Such a fusion is now occurring between the banking industry and the telecom-

munication industry, and has created a concept called mobile banking. is sector

is being constrained by the slower development of the legislative and regulatory

framework, owing to conservatism and loss aversion.

One such unmet need was the availability of banking services to poor people,

which led rst to the development of micronance (Armendariz and Morduch,

2005; Yunus, 2003). Micronance is the provision of nancial services (savings,

credit, payment mechanisms) to poor people. is micronance sector has been

growing at 30% per annum over the last few decades and has become a possible

source of hope to drive out poverty, combined with many other governmental and

non‐governmental actions. However, the sector has touched only 200 million

families (at best 1 billion people, considering a family size of ve). ere were

probably 4 billion unbanked2 people in the world in 2007, and the others were

still waiting for micronance to arrive at their doors. A second area of concern

was that the small transaction size entails high proportional costs to the poor

(Ashta, 2009b; Shankar, 2007). For example, worldwide microcredit rates were as

high as 28% in 2006 (Rosenberg et al., 2009). It is hoped that technology will

help to increase outreach as well as reduce operating costs (Ashta, 2011, 2012).

1 JEL classication codes: D72, E4, E5, G21, G29, K00, K2.

2 e unbanked are people without formal bank accounts who operate in a cash

economy; they are limited in their ability to take out loans, maintain savings, or make

remote payments, and these constraints can inhibit their economic opportunities

(Mas,2008).

Regulations in underdeveloped

countries spread by imitation to

nurture an enabling environment

to permit innovation to succeed.

Mobile banking enables the

reduction of transaction costs and

increases the outreach while

helping poor unbanked people in

their access to micronancial

services.

Strategic alliances and

acquisitions between telecom

operators and banks are being

used to conform to regulations.

4Arvind Ashta

Copyright © 2017 John Wiley & Sons, Ltd. Strategic Change

DOI: 10.1002/jsc

One such technology is mobile banking (Bhavnani et al.,

2008; Morawczynski, 2011).

Two‐thirds of the world is now equipped with mobile

telephones. Today, there are almost 5 billion users of

mobile telephones. e penetration rates are over 100%

in developed countries and estimated at 57% in develop-

ing countries. While people in developed countries pay

about 1.5% of the per capita gross national income (GNI)

for information and communication technologies, people

in developing countries pay about 17.5% of the per capita

GNI. Within this, prices for mobile cellular telephones

have dropped below those of xed lines, but prices for

xed broadband remain high, especially in developing

countries, as a percentage of the per capita GNI (ITU,

2010). Although high‐speed Internet is unlikely to be

available to the poor, mobile telephones are far more

aordable. Mobile broadband is perhaps going to be more

aordable and will permit even more poor people to surf

the Internet and avail themselves of many applications

which are today targeted only at the rich. Mobile tele-

phones have become a tool of social mobilization, eco-

nomic liberalization, and awareness, particularly in social

issues aecting the local community (D’Souza et al.,

2012). Many customer‐centric rms are therefore availing

themselves of this opportunity to provide services

(Bonacchi and Perego, 2011). Banking, or at least its

payment‐processing aspect, is becoming a multi‐channel

distribution, with direct banking, online payments, mobile

payments, and payment through cards. Mobile money

services are now available to 1.9 billion people (GSMA,

2016). edotted lines in Figure 1 indicate that cards as

well as mobiles may be on prepaid mode, and so the

relationship with a bank may be optional.

ere were an estimated 4.7 billion people with

mobile telephones at the end of 2015 (GSMA, 2016;

ITU, 2010). anks to mobile banking, the number of

unbanked has gone down from 2.7 billion adults in 2010

to 2 billion adults in 2014 (Demirgüç‐Kunt et al., 2015).

is is because mobile banking could drive down the cost

of delivering nancial services to these people. It is often

stated that the poor actually pay huge transaction costs

in terms of time spent traveling and making payments in

cash and that with mobile payments, their notional savings

would be huge in terms of time. Of course, if they have

no jobs, then the opportunity cost is zero and so the

savings are zero. However, the working poor and

the entrepreneurial poor, waiting for their customers, may

get economic benets from the time saved. In all cases,

the cost of the bus ticket (if they do not walk) could be

used as a comparison for banking.

For the poor, savings have a huge impact because they

provide interest income, consumption smoothening, and

also constitute a less risky alternative than borrowing to

nance asset‐building activities (Dowla and Alamgir,

2003). Some research has found that the previously

unbanked group have the highest expectation of mobile

banking and also found the idea most attractive (Shrivas-

tava, 2011). e intention to use mobile banking is based

Direct

Cus

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o

mer

Bank

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Figure 1. Multi‐channel banking. (Color gure can be viewed at

wileyonlinelibrary.com.)