Low financial services penetration and exponential growth of mobile phone use, particularly in Sub-Saharan Africa, are creating a unique niche for mobile phone banking to develop on the continent, according to a report in GhanaBusinessNews.

Kenya and South Africa are at the forefront of mobile banking.

Just 20 percent of African families have bank accounts and sub-Saharan Africa has the lowest deposit institution penetration in the world, with an average of 16.6 percent compared with 63.5 percent in developing countries, the report says.

In some African countries, the minimum deposit in a traditional bank account can be as high as 50 percent of per capita income, and transaction costs are usually high.

For commercial banks, the main advantages of the mobile phone technology lie in its ability to reach everywhere and be reached from everywhere. Mobile banking can deliver services to people who have cell phones but no bank account. It has a number of advantages over traditional banking methods because it breaks down geographical constraints such as poor infrastructure and remote locations.

The mobile phone can serve as a virtual bank card where customer and institution information can be stored, avoiding the cost of distributing cards to customers. The subscriber identity module card (SIM card) inside most, if not all cell phones, is in itself a smartcard similar to the virtual bank card. The bank customer’s PIN and account number can be stored on the SIM card to perform the same functions as the bank virtual card.

The mobile phone can be used as an ATM or Internet banking terminal.

In 2007, Safaricom, a national mobile telephony operator, at the time a subsidiary of Vodafone, introduced M-Pesa, enabling money transfers between mobile phones via SMS, from the most rudimentary mobile phone.

The M-Kesho account has been developed in Kenya through the partnership between Equity Bank and Safaricom. It is a bank account linked to the M-Pesa account that enables money transfers from one M-account to another and encourages savings. M-Kesho accounts, like the M-Pesa, have no sign-up fees, minimum balances or monthly charges.

In 2010, the Central Bank of Kenya issued new agent banking regulations, paving the way for banks to use the M-Pesa platform and associated network of M-Pesa outlets as a channel. It prompted a growing number of banks into mobile banking partnerships with local mobile operators. In October 2010, Safaricom and Barclays Bank of Kenya signed a partnership that allows Barclays account holders to deposit and withdraw to and from their M-Pesa accounts.

South Africa is by far the country where mobile banking is most widely used on the continent and the most important emerging market in terms of mobile banking potential.

South Africa’s MTN and its mobile money account provide access to a client account from anywhere in the world at any time, through a secure connection using an MTN cell phone. South Africa’s MTN in 2010 announced plans for a fully-fledged bank account on mobile phones, with an optional credit card. The service will be extended to the 20 countries where MTN operates, including Uganda, Nigeria, Cameroon and Ivory Coast, which combined have over 90 million mobile phone users.