The environment that surrounds us creates the change: a South East Europe perspective

This post is written by Paul Wild, the owner of Mobile Money Sh.p.k, a consultancy company focused on e-commerce, financial services, SME and management consultancy. Paul has worked in the banking and commercial sector for over 20 years and is based in Tirana, Albania.

Albania remains a mixed market with 50% of the population outside the capital Tirana, located in secondary cities, towns and rural areas, the majority of which remain unbanked. Even the banked population can be described as under banked, meaning that they use very few banking products and prefer to withdraw their entire balance on pay day and deal in cash!   This is something the banks are failing to address.

There are numerous reasons for this behavioral trait, which stem from poor civil infrastructure, little town planning, chaotic construction resulting in an unclear property system, and thus a poorly functioning postal service.

State utility companies and private utility companies struggle to deliver utility bills, resulting in poor collection and lack of revenue, which in turn results in little investment into systems and services that could improve the situation, creating an ever decreasing circle.

Typically, state utility companies do not accept bank transfers to pay utility bills, even now that the state electricity company is privatized and are encouraging direct debit payments, people remain nervous about paying through this channel as they do not trust the electricity company to recognize the payment. Consumers prefer to have an official receipt of payment from the electricity company which they can show if required.  Consumers also do not trust the banks to make the payment correctly and often when problems are encountered both parties point the finger of blame at each other, resulting in the consumer having to solve the issue themselves.  So what better than having that official receipt of payment stamped and signed by the utility company!  The result is that cash is king.

Due to this environment the mobile communication market is predominately a pre-paid market, post paid is available but of course when it comes to issuing monthly bills they too encounter all the problems mentioned above. Thus cash remains king to consumers.

Payment card acceptance has also been slow to grow in the country, as retailers who are often small SMEs and not large international retailers refuse to accept cards and actually offer a discount to buyers that pay in cash. Interestingly, the discount is often deeper than the 2 to 3% that the bank would charge the retailer for such a transaction. The reason for this is poor tax reporting and collection. However, since the government introduced a mandatory requirement for a tax receipt to be issued to consumers, this practice has declined and rather than offer a discount, retailers simply refuse to accept cards. That said, the retail environment is changing in Albania with several large malls opening which contain international brand names who do accept cards. Consumers are quickly catching on to the convenience attached to using a card and are beginning to shun retailers that do not accept cards.  This change in consumer behavior will help encourage the use of e-banking products.

Source: The Central Bank of Kosovo

Card acceptance trends, as seen in the table above, are generally low across the Balkans.

Interbank transfer pricing also has encouraged the use of cash. Banks have to offer a full suite of services and also agree together to reduce the expensive interbank transfer fee.  Banks have taken the stance that by having a higher fee it will encourage customers to bank with them.  It does encourage people to bank with a certain bank, but the motivation is wrong and once the account is opened and used for a certain transaction, it lies dormant.  Albania has over 10 banks operating in the market and while there should be many choices, the reality is that choice remains limited.

Mobile telephone penetration in Albania is over 100%, and the population is mobile mad and the advent of 3G and low-cost smart phones are driving internet penetration higher.  Consumers with no internet access via a computer revert to their phones and will even use slower 2G to access the web.  When you have been starved of internet access, connection times are not so important.

Source: "The Environment" Mobile Money Sh.p.k/ Paul Wild

The Albanian Perspective

Research shows that consumers are more likely to return home if they forget their mobile phone, but are less likely to return if they forget their purse or wallet… there is always a friend that can lend them some money for coffee or lunch.  But without the mobile phone and access to their social feeds, people feel lost.  Thus the mobile phone is becoming an important and indispensable tool in our lives.

Due to the above, Albania should be ripe for a full scale mobile financial services deployment.  However, a major barrier to entry into this field from a non-bank is that legislation makes this impossible.  To operate a successful mobile payment or banking service, value, or the client’s money, needs to be held by one of the parties to the service.  This value is either a regulated deposit or stored value.  Albanian regulations on the creation of stored value limit its issue to the banking sector. This is somewhat of a paradox as a bank can naturally hold a deposit and has little interest in creating stored value.  This in short means that only banks can enter the mobile payments or banking arena.  The government and the Central Bank take the view that there is a wide range of banks operating in Albania and they should be able to serve the population’s needs.

Recently I completed a mobile banking feasibility study for a bank in Albania.  The study demonstrated the possible reach of the service to the bank’s existing clients and how this could also be used to attract non clients and clients in rural areas that were possibly outside the reach of a branch network.  The bank has recently launched the service offering a full range of services through the platform, but at this time the service does not include value added services like airtime top up, etc.  The system works on Java phones and also through phones with a web browser.

Mobile payments and mobile banking can be an excellent tool for banks to downscale to less wealthy segments or underserved segments of the market which if managed correctly can be extremely profitable. I compare such downscaling to that witnessed in banks downscaling to offer SME and micro loans – the attributes, issues and motivations are the same.  To date, the bank in Albania is using their mobile banking service as an additional channel for clients and is not using it as a downscaling tool; maybe this will follow later.  Until that time, the unbanked Albanian has little choice but to use cash.  This is a trend that I suggest is most probably repeated in other such emerging or young democratic countries.

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