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To continue with our subject of financial innovation, the start has to be made from mobile banking. The eco-system is huge. There has been a lot of innovation and I would be hard put to mention just one firm that I found interesting. Yet this one mentioned on Tech Crunch recently did catch my attention and got me thinking about the difference in m-banking business models which work across emerging and developed markets.

Emerging market model

Eko is a mobile banking company targeted at the bottom of the pyramid of the Indian banking market, for products and services offered by the vast numbers of mom and pop stores at every street corner of the country. The scale of the opportunity may actually be a little hard to visualise for someone who has never been to a Tier-II city in India.

The firm is using State Bank of India at the backend for their account management services. At the front end, users have their mobile phones, a booklet with a number of 11 digit codes and these codes have 4 blank spaces at various positions to enter the users 4 digit pin code. When users need to make payments or transfer funds, they send an SMS to the central Eko server with the transaction details (bank code, the amount to be transferred, the mobile number of the receiver) and this 11 digit code securitising the transaction. Very innovative three level security, I think – the mobile phone, the booklet and the 4 digit pin code – all three need to work in tandem.

I would imagine if a service like this were to piggy-back on the huge micro-finance boom that we are seeing in India, they might actually be able to catalyse their growth further. The groups within various MFIs could serve as the nucleus driving adoption of Eko - be it for commercial transactions, repayment of loans, fees etc. Microfinance loans in India have been growing at a rate of 75% in the recent past with bad loans as a percentage of the total loan book at an amazingly low 0.4-0.5%. That translates to a captured audience with a good payment record.

Developed market model

Option 1: At the other end of the geographical canvas, we have MoBank in the UK. They provide a downloadable application which can be used to register any debit or credit card. The app can then be used for various transactions such as buying goods or payment for services, securitised with a 4 digit pin – with all the information being stored on a central server, not the mobile handset. They have NTT Europe Online providing the entire platform which must be a ‘not-to-be-neglected’ cost. In addition, from what I understand, they have to reach out to individual retailers to aggregate them on the platform – once again a time consuming task.

MoBank is similar to the Eko model but western markets have been struggling with this structure for quite a while now. The beauty of Eko as compared to MoBank, Firethorn, Blaze mobile or any of the others is that they are addressing a financially under-served market. There are no banks or operators competing for the same merchant largely because of the low penetration rate of credit and debit cards and because the average revenues per merchant are below the radar of banks.

Option 2: Of course, there is also the darling of the day, Monetise. They are the providers of the platform for Natwest’s iphone application, among other recent achievements. Comfortable approach – they aren’t competing with the banks, just enabling their mobile platforms.

However, a final thought, the same market looked at from the perspective of Mastercard and Visa would be a widely different view - which is what makes the m-banking business model such an amoeba - constantly changing form.