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Panorama Internazionale

14 MARZO 2018

10:16 - Singapore


(ICE) - ROMA, 14 MAR -

Large financial firms can expand into emerging markets through the use of mobile banking, according to a new report being released today. The McKinsey study showed that a mobile banking business in emerging markets can hit a 35 per cent margin once it reaches optimal scale, but the sizeable upfront investment costs mean smaller firms will struggle to gain traction.


A break-even point for mobile banking in emerging markets is estimated to be about US$20 million (S$26.3 million) in revenue, with annual transaction value hitting around US$2 billion. It noted that much of its focus was on numbers from East Africa, although it had also included representatives from South-east Asia.


In cash-based economies, customers must be able to efficiently deposit cash into and withdraw from their payment accounts. Many mobile banking players rely on agency networks - either hiring third-party sales representatives, or drawing on an existing retail network - to ensure that customers can get access to cash, or deposit funds.


Here is where economies of scale power up the engine. Mobile banking providers stand to improve profitability "meaningfully" by increasing the number of digital transactions for each time cash is put into the system. Margins on transactions can exceed 75 per cent, as fees are large compared with the low costs to the provider using automated systems and digital user interfaces. As margins on cash deposits and withdrawals alone are lower - at about 20 per cent to 30 per cent - even small cost reductions can impact overall economics. Conversely, cost jumps can turn players unprofitable.


There are more conventional pieces of evidence that big is still beautiful when it comes to mobile banking in emerging markets. What is key is information technology spending, which represents about US$1.5 million in annual fixed costs for a mobile banking system. Again, that spending is significant for small providers, but is minimal for large players. There are also the costs of real estate and marketing. This means financial firms looking to expand into emerging markets via mobile banking would need financial stamina.


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