Is mobile money replacing ATMs?

There is a lot of excitement around the use of mobile money these days, so much so that one is almost tempted to ignore the existence of Automatic Teller Machines (ATMs) as another favourite source for quick cash for those who have the means and the need.

And all this is for a very good reason: We live in an age of mobile computing: For sure, there are more smartphones and their cousins – tablets on earth than there are PCs. Moreover, the numbers of smartphones will only increase over the next few years.

The mobile phone in general is fast becoming a perfect magical device when it comes to financial transactions. The banks who own ATM machines are quickly learning to cope. But what is happening is that quickly East Africans are learning not to use cash in their transactions. You find that Mobile to Mobile payment are generally on the increase.

According to Sweden-based Johan Hellstrom a lead researcher in Mobile for development (M4D) in Africa, there is a great drive at the moment of digitising payments, from governments down to citizens.

“So next big thing will be less cash in the society. More and more will be digitalised and stay so (agents will soon have no role to play),” says Hellstrom who works for the Swedish International Development Agency that has funded a lot of research into M4D in Africa.

Hellstrom actually reveals that he, “Does not see the need for ATMs if mobile banking evolves as it should, that is to say, a step we can leapfrog. But of course, Visa and Mastercard see great potential in the African market and they do lobby hard, Often in a subtle way.”

There are, according to the ATM Industry Association, almost three million ATM machines installed world-wide currently. On the other hand, there are hundreds of millions if not billions of mobile phones, millions of which are being used to facilitate financial transactions.

Right now, Eastern Africans on reading this, will probably have already carried out or contemplated carrying out a mobile money transaction in past 100 hours. Yet at the same time, many reading this may have just visited an ATM a few hours ago.

In the past four months, regional news and blog outlets have raised the question of Mobile Money disrupting ATMs, especially in the developing world.

In Rwanda, the issue came up but authorities explained that both methods of accessing funds will run side-by-side. Recently, a Ugandan writer went ahead to raise an itchy question about Mobile money replacing banks.

If one is not very observant, they may end up asking the questions who cares about using the ATM machine anymore. Such a question is very relevant in a remote village – Ajeera, Asuret Soroti, Uganda where the local mobile money agent is the “King” and life saviour for many locals, actually to the people in this village, the ATM is almost a proverbial magic box, many have never seen it and may never see it in their humble lives, but they have the wonder-tool called the mobile phone which they can use to store and retrieve money and even do buying and selling.

A brief history of ATM machines: An ATM, which is an electronic telecommunications device that enables the customers of a financial institution to perform financial transactions, particularly cash withdrawal, without the need for a human cashier, clerk or bank teller. According to wikipedia, the first modern ATM was an IBM 2984 and came into use at Lloyds Bank, Brentwood High Street, Essex, England in December 1972. But it is also widely accepted that the first ATM was put into use by Barclays Bank in its Enfield Town branch in north London, United Kingdom, on 27 June 1967. In general, the history of ATMs is interesting and it revolves around human needs.

On a regional scale, statistics show an increased volume of money being exchanged through mobile phones and everyone seems to be very happy. No one has asked if the banks are excited about this incidence. Instead there seems to be a desire by banks to capture the process, they seem to be fighting back by intergrating mobile money as one of their own offerings and in many ways some of which directly bring mobile money and ATMs together – look at Cardless cash withdrawals from the ATMs, but in this case using one’s Mobile money account. Banks have awakened to provide mobile money accounts and it is proving to be an allure which some think is a subset of mobile banking.

In Uganda for example, when Mobile Money came along, it was assumed that the banks had generally ignored the innovation, possibly hoping that it was another technology that was bound to die off, so for many years, they stayed aloof until the statisitics of the fifth year were announced.

Mass market acceptance of Mobile Money played a big role. Actually in the whole of the East Africa, more mobile phones users registered for a mobile money account and more SME’s registered as agents to facilitate the mobile money transactions. In Kenya, M-Pesa went ahead even to register tills to represent points of sale, this surprised many banks who had for years looked on as the need for POS expanded, for example at Petrol Stations but had only difficult to use and yet expensive to maintain solutions. Many Banks preferred that the POS services be provided by another entity who can run and maintain the terminals. This use of mobile money at a POS has greatly eliminated to need of someone going to the ATM to withdraw cash that they will in turn take to pay for a service or product. It meant that customers might need to possess some card of sorts including debit and credit cards in order to access POS services. With a mobile phone today, there is no need for a card. For the time being older POS technologies remain quite relevant.

In June 2015, Rwanda Times quoted a KCB official in Rwanda as saying, “The ideal situation is that you don’t need your debit card… Although the use of a debit card is more than withdrawing money from an ATM because with it you can make online purchases and payments on Points of Sale (POS) devices.”

Mr. Johan Helstromm says that, “Mobile banking is just one access point in a fairly complex financial system. At the moment systems may be parallel but solutions and systems will eventually merge.”

Hellstrom suggests that, “The order of play here is that digital inclusion leads to financial inclusion. This financial inclusion may only be through mobile banking as a start but will lead to a more integrated financial inclusion.”

It is common that ATMs are placed not only near or inside the premises of banks, but also in locations such as shopping centers/malls, airports, grocery stores, petrol/gas stations, restaurants, or anywhere frequented by large numbers of people.

Noticeably, there are two types of ATM installations: on- and off-premises. On-premises ATMs are typically more advanced, multi-function machines that complement a bank branch’s capabilities, and are thus more expensive. Off-premises machines are deployed by financial institutions and Independent Sales Organisations (ISOs) where there is a simple need for cash, so they are generally cheaper single function devices.

What has been happening in the market since two years ago is that it is clear that Mobile Money and ATM machines are slowly converging. For example, MTN Uganda partnered with Interswitch and Crane bank to launch a product called MTN cashouts. MTN Cashouts is what the network provider says is an ATM machine in a mobile phone.

The aim of the service is to enable mobile money subscribers withdraw cash from any interswitch or Crane Bank ATM machines dotted all over Uganda.

In order to access the ATM cash out service, the customer uses a two part process. On the phone, the customer has to dial *15#, Select ATM withdrawal under the menu, select 1 to generate a TIN code (4 digit number), the customer then enters his or her mobile money pin. A customer will then receive your TIN code, which you will use at the ATM machine to withdraw cash without a card.

When the customer goes to the ATM machine, the customer will select Mobile Money, and then select MTN Mobile Money, enter their phone number, the amount they wish to withdraw, and their TIN code to withdraw cash.

It’s that simple to prove that the payment systems convergence is live.

But now the big issue is the need for a mindshift among the people in the region. Additional education form service providers will also be needed, more people have to believe that one does not need to have ‘cash’ in the hand so as to make a purchase or payment. People have to be taught that there are now electronic means right at their fingertips.

David Mugabe, a leading business journalist in Kampala says Mobile Money and ATMs are now integrated for most banks. He observes that, disruption may have been possible in the early days of Mobile Money, that is before telecoms started working with banks.

“You can withdraw or deposit from your phone through the ATM,” says Mugabe.

Actually, before the excitement and fears that Mobile Money’s might disrupt ATMs, many Banks were actually offering services called ‘Mobile Banking’ and these included sending to account holders some SMS updates regarding financial transactions and account status or balance.

What is happening right now is, as Mr. Mugabe has concluded, Banks and telecoms have instead opted to join forces.

David Kiirya who is an Information Scientist in Uganda’s Ministry of Public Service agrees and states that Mobile Money is just supplementing ATMs.

Mr. Kiirya says, “We are moving to cash less transactions; therefore, we do not need to have cash at hand, you can use mobile or Visa card to do business now. ATMs are not everywhere but mobile money is everywhere!”

While in the western world use of the ATM is believed to have declined in recent years, likely because more people make purchases using credit and debit cards instead of cash, the ATM continues to have a place in modern culture and more so in African cities where the technology is still relatively new. Today’s ATMs sell everything from airline tickets to movie tickets to medicine.

At the end of the day, it is possible to believe that Mobile Money will actually not disrupt ATMs and what is emerging and surely very silently, is that instead both Mobile Money and ATMs seem to be disrupting cash, but this will never be something that will come to pass in an overnight gig.