This is an excerpt from a recent CGAP paper, Banking on Mobiles: Why, How, for Whom? In it, Kabir Kumar and Ignacio Mas examine the business case and deployment options around mobile banking for smaller banks and microfinance institutions. With effective partnerships and technical choices (which affect customer uptake), we believe there is a strong market opportunity to reach poor people with a broad range of financial services.

Earlier we have highlighted the key potential benefits of using mobile phones to deliver banking services: lower cost of deployment for the bank, and choice and control by the user. The potential benefits of mobile banking need to be related to banks’ own strategic drivers. There are some basic core strategies banks may follow to promote and protect growth. We illustrate how mobile phones may support each strategy, with reference to the potential benefits of mobile phones discussed above. Table 1 provides a summary of the arguments. These are reinforcing, but banks may need to prioritize among these to be able to develop a coherent, focused strategy.

Increase market penetration. Go for underserved population segments, and grow the total revenue pie. Mobile banking can serve primarily to reduce the cost of deploying customer touch points into lower income or more remotely located population segments (the “deployed base” view). Mobile-as-ATMs can enable merchants to become cash-in/cash-out points; mobile-as-POS can serve to substitute cash and electronically capture transactions at the store. Mobile-as-Internet-machine can allow customers to transact remotely (sending remittances, paying bills) without having to physically access a service point.

Sell more services to existing customers. Develop new products that target unmet needs of existing customers. These new services could exploit the new functionality available through a mobile phone (e.g., location awareness, under the “new functionality” view) or its value as a personal technology (the “new way to interact” view). In the latter case, the mobile phone would act as a service “presentation” and delivery channel, its main utility no different than an Internet machine.

Retention of most valuable customers. Protect the roughly 20 percent of customers who bring roughly 80 percent of the value, offering them a quality and breadth of service that will make them less vulnerable to churn. Individual services are rarely unique to a bank, because they are easily replicable. Rather, the important thing is to embed the nonunique services within a unique customer experience. Having an informational and transactional capability in customers’ pockets (the mobile-as-Internet-machine), banks may be able to propose new services to their customers in a much more targeted way. Banks also can fully exploit the immediacy of the mobile environment to extend the benefits of control and choice, and hence convenience, across their entire product range (the “new way to interact” view).

Reduce cost of service provision. Put primary emphasis on bottom-line over top-line growth. Cutting costs is not only about margin: seeking low(est) cost position in the market also should deter competitors from engaging in value-destroying price wars, thereby protecting the revenue base. This is fundamentally about replacing more expensive channels and devices with the cheaper mobile solution (the “deployed base” view).