Catching the Technology Wave: Mobile Phone Banking and Text-a-Payment in the Philippines

This short paper argues that mobile phone banking has the potential to extend financial services, through virtual accounts, to millions of poor people globally. Utilising mobile phone technology for microfinance significantly lowers transaction costs, while expanding outreach to rural areas. Change is being driven by falling costs of mobile phones including airtime, by competition and by the ability of electronic banking solutions to offer customers an enhanced range of services at a very low cost. Text-a-payment (TAP) builds upon the familiarity and comfort that people around the world have with sending text messages (or SMS) via their mobile phone. Instead of travelling to the bank to make their loan payment, clients can now text their loan payment directly to the bank; saving them both travel time and money. This is also beneficial for the bank, since it can increase its outreach to rural areas while reducing its costs.

The paper begins by providing a brief overview of the Rural Bankers Association of the Philippines Microenterprise Access to Banking Services (RBAP-MABS) program, which has recently launched new products and services including micro-agricultural loans and mobile phone banking services for microenterprises and low income clients. By way of useful background, it also discusses the advent of mobile commerce in the Philippines, which has often been referred to as the texting capital of the world. A brief outline of the two major m-commerce service providers is also given – Globe Telecom and SMART Communications – who provide mobile banking services through their products G-Cash and SMART Money.

Text-A-Payment is an innovative mobile technology product that uses the SMS technology of Globe Telecom to pay for microfinance loan payments of borrowers. TAP seeks to bring in new and low cost technology tools to improve efficiency and outreach. Small borrowers can utilize the service for payments of their microfinance loans. A pilot test was launched on February 2005 with four RBAP-MABS participating banks. As well as providing an illustration of the actual transaction messages received, the paper also sets out how the system works and looks at the key partners’ roles and responsibilities.

Before concluding, the paper highlights a number of challenges and recommendations for TAP and mobile phone banking applications using G-Cash. It also considers whether this technology can be replicated in other countries by noting the presence of certain success factors in the Philippines example – a large number of cell phone users including low income households who are familiar with text messaging, a strong relationship between “champions” at Globe and RBAP-MABS, the willingness of Globe and the rural banks to try something new and innovate, the existence of the “ecosystem” of merchants, clients and outlets, and most importantly, the willingness of the Central Bank to support innovation in the banking industry.

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