Is the ATM’s death due to mobile money?

The African financial system has undergone a period of substantial change, the impact of which continues to transform the way financial services are delivered. A number of alternative channels, such as mobile money and point-of-sale services, seem to threaten the popularity of the ATM.

In Kenya for example, although statistics from the country’s banking industry regulator the Central Bank of Kenya (CBK) show the value of ATM transactions rose to KSh114.61 billion between January and September 2012, from KSh102 billion over the same period in 2011, experts tend to agree that it could be just a matter of time before their usage begins to stagnate.

Direct electronic transfers gaining acceptance

Despite the stated 12.37 percent growth in ATM use, KCB Group senior manager for ATM services George Nyamao has commented that their usage will continue to rise in the short run with an expected stagnation at some stage as direct electronic transfers become more popular.

Nyamao said Kenya is still a heavy cash society and therefore ATM use will not entirely be eliminated as the infrastructure owners, mainly banks and other shared service providers, introduce more value-add services.

While the sum value of ATM withdrawals appear to be on escalating spree every six months, the pulse has lessened since the first half of 2010, with the value of electronic transactions and transactions via bank agents steadily on the rise.

ATMs waning out dramatically

According to CBK, compared to last year, the value of ATM transactions between July and December rose by 15.95 percent to KSh73.25 billion, from KSh63.18 billion in the previous year. In 2010, the value also rose by 34.52 percent from KSh46.96 billion, between July and December 2009.

As at the end of September last year, there were over 2,310 ATMs. The number of ATM cards stood at nearly 1.47 million, compared to some 2,220 ATMs and 1.35 million cards as at September 2010. In addition, in the first six months of 2010, the growth rate was 24.1 per cent from KSh54.45 billion in the first half of 2009.

This shows a dramatic decrease in growth. According to Prof. Shariq Mohammed of the International Institute for Special Education (IISE), Lucknow, India, the rising levels of automation and cost-control initiatives will cause transactions to move out of the branches.

Some analysts, however, observe that ATM use could still remain popular. Kenya Bankers Association boss Habil Olaka maintains that ATMs could always maintain eminence provided the need to conduct cash transactions exists.

He says it will take time for Kenya’s economy to move to a cash-lite one.

February statistics released by the country’s premier independent ATM deployer Spark ATM Systems show that in other African countries, such as South Africa, consumer spending and trading conditions are struggling to stabilize after a significant drop in ATM withdrawal values between December 2011 and January 2012.

Spark ATM Systems further showed that there was a small month-on-month drop of 1.31 percent in February 2012 to R412 per ATM transaction, compared to the drop of 8.81 percent recorded in January 2012.

Value of mobile money transactions high

The value of mobile money transactions are on the rise. In Kenya, the amount of mobile money transacted between January and September this year was  KSh1.117 trillion (US$13.5 billion), according to the CBK, which is nearly the country’s national budget value of KSh1.45 trillion (US$17.5 billion) in the 2012/2013 fiscal year, and also a third of Kenya’s Gross Domestic Product (GDP) of KSh3.7 trillion (US$44.6 billion).

In countries where mobile money has not been fully embraced, such as Zimbabwe, Ethiopia and Botswana, ATMs still prove popular.

In Botswana for instance, the country had about 700,000 Visa cards with transactions valued at $650 million annually, compared to Kenya’s 1.47 million cards with transactions valued at about $350 million, as of April 2011.

What banks need to do

Analysts observe that aside from the safety and convenience of the ATM cards, their adoption has been triggered by reward schemes, including discounts offered by card providers to increase their use.

Studies have showed that demand for the cards has been on the increase as users seek to avoid cash-based risks including fraud and robbery.

According to the managing director of shared payments platform provider Kenswitch, George Wainaina, the CBK is working with card providers to make ATM service more efficient and cost-effective, further clarifying that the stakeholders of the banking industry have offered their views for the need for interoperability by ensuring existing systems can communicate with one another.

Some experts point out that banks need to intensify efforts to ensure ATM use remains popular, arguing that the banks need to build their reputations for technical innovation, as banks with such reputations make customers more comfortable with their technologies.

Prof Shariq said: “The banking attributes including account type, number of services offered, convenience, and cost of banking services do not have major influence on the use of advanced IT based banking services.”

He further explained that if a large share of the bank’s profits come from older customers who have preference for personal services, it could be unwise to push too hard for ATM use.

The banks marketing managers need to consistently assess the customer’s decision-making processes in addition to the formation of attitudes, satisfaction of automated services and preferences.

“It is of little substance for the banks to attempt to front an offering by stressing a particular attribute that do not constitute significant choice criteria in target marketing,” he added.

Posted in: Telecoms

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