Mobile and online banking improve financial inclusion in Colombia

As in many emerging markets, deepening the banking system and boosting financial inclusion have presented challenges for the Colombian banking sector. Rapid improvements in – and the dissemination of – internet and mobile phone technology in recent years have led to increased take-up of mobile banking services. Policymakers see this channel as an important mechanism to increase the share of the population with access to financial services.

At the same time, the banks themselves see the mobile segment presenting opportunities to both increase market share and, importantly, to grow the size of the overall market. This opportunity is particularly appealing given that the mobile phone penetration rate in Colombia is far ahead of the country’s rate of bancarisation.

Rapid Growth

According to a report published in July 2016 by BBVA Research, the adoption of modern technologies in Colombian households has picked up steam in recent years. The emerging middle class is now demonstrating an increased willingness and capacity to spend disposable income on durable and high-tech goods (see Economy chapter).

By 2015 the overall penetration rate of internet users had reached 53 per 100, while the number of mobile phone penetration was rapidly approaching 120 per 100 inhabitants. This profusion of new technologies has allowed for a rapid increase in internet and mobile banking, with the number of transactions in each channel increasing by 48% and 548%, respectively, between 2012 and 2015 alone. By 2015, mobile banking had become the second most popular channel for clients to carry out monetary transactions, up from the fifth most popular in 2012.

By The Numbers

The number of mobile banking monetary transactions surpassed 400m in 2015. Internet transactions accounted for a further 314m, still lagging behind transactions at bank branches and cash machines, which each accounted for more than 600m. The growth rate of transactions at ATMs has seen slow growth, according to the BBVA report, while the number taking place in bank branches actually dipped in 2015.

Users demonstrate a trend of using mobile phones for small financial transactions — in spite of frequent use, mobile transactions accounted for only COP83bn ($24.9bn) in 2015, up relatively moderately from COP63trn ($18.9bn) in 2012. Transactions online, however, had grown from COP1.5trn ($450m) in 2012 to reach COP2.25trn ($675m) by 2015, rapidly closing on bank branch transactions, which are still the most important channel in terms of volume, accounting for COP3.18trn ($954m) in 2015.

Mobile Population

There is still significant room for growth in the mobile segment. While the number of mobile banking users increased by an impressive 28.7% between 2013 and 2015 to reach 1.9m, by comparison it still lags the 16.6m Colombians that are active on social media networks.

Furthermore, according to the National Quality of Life survey 2015 by the National Administrative Department of Statistics, there is also a gender gap in internet usage in Colombia. Men are more likely than women to use internet and mobile banking, or to use electronic interfaces with government, for example. Perhaps unsurprisingly, the use of electronic banking is found to be most prevalent among those aged 20-30 years (32%) and 30-40 (28%) than those aged under 20 (6%) or over 40 (17%).

Likewise, education levels tend to play a big part in the up-take of electronic banking. While 48% of those with a university degree use the service, this falls to 19% for those with a technical qualification, 16% for those with secondary education, and only 1% among those with only primary education.

BBVA also found that inhabitants of urban areas are four times more likely to use internet banking and twice as likely to use mobile banking than their counterparts living in rural areas. This is consistent with the sharp income inequalities that exist in evidence between urban and rural areas.

In the future, however, mobile banking has the potential to greatly improve the rate of bancarisation in rural areas. Speaking at an event hosted by the Grameen Foundation in Bogotá in June 2016, for example, Marcela Carrasco, the president of MasterCard for Colombia and Ecuador, said, ”Financial exclusion limits growth and development in rural areas of Colombia. The problem lies in that a large part of this population does not rely on banking services. However, many of these people have a mobile phone, which has the potential to deliver financial services to reach this sector.”

Leading Players

The market leader in mobile banking, Banco de Bogotá, moved to further strengthen its position in February 2017 with the update of its Banca Móvil app. “The number of users of our mobile banking service has been growing exponentially in recent years,” Juliana Adib, the director of Mobile Banking at Banco de Bogotá, told OBG.”With the launch of our next generation mobile app, we are offering clients a more agile, dynamic and personalised service with greater functionality, but which uses less memory on your phone. Transfers are free between all accounts within [parent company] Grupo Aval, and information is available on products from across the group directly through the app too.”

Bancolombia swiftly followed suit in March 2017 with an upgrade to its mobile banking functionality by enabling clients to carry out transactions from their smart watches. In total, 30.2% of all transactions at Bancolombia in 2016 were carried out using its mobile app, which has been available since 2012.

Regulatory Initiatives

The authorities have progressively built up a policy and regulatory framework governing internet and mobile banking in recent years. In 2011 deposits were brought within the national guarantee scheme, known as FOGAFIN, while efforts were also made to strengthen security conditions the following year and to simplify the required paperwork in 2013.

In 2014 Colombia introduced a new financial inclusion law that allowed for the creation of specialised financial entities that offer deposit and payment services, known as SEDPEs, however, none have been officially introduced. Internet, mobile phone and debit card transactions were also made exempt from the country’s financial transaction tax. The SFC continues to strengthen regulation in this area, with a focus on consumer protection and rooting out abusive practices. In their report, BBVA Research also highlights recently implemented government initiatives. These include the elimination of value-added tax on internet services for low-income households, capacity-building activities in businesses to improve online services, and the alignment of relevant regulations with international best practices in the context of Colombia’s expected accession to the OECD.

Challenges Ahead

While many more people have now taken the necessary steps to be able to use electronic banking services, this is not necessarily equate with them being regular users. “All the main banks have been going mobile, which is contributing to increases in the banked population,” Juana Téllez, chief economist at BBVA Research, told OBG. “But there is a difference between opening a mobile bank account and using it regularly. A big challenge is to get people to use the services more often.”

Another issue, highlighted by Rafael González, President of BRC Standard & Poor’s, is that Colombians are particularly reluctant to move away from using cash for the majority of transactions. “The banks have been investing heavily in mobile technology, but penetration is still weak,” he said. “In Colombia, cash is still king, even when compared to other Latin American countries.” According to BBVA, the number of mobile banking users in Colombia is expected to increase by 721%, to 15.6m, in the decade to 2025, up from 1.9m in 2015. This would equate to 13.5% of the population, compared to 3.9% penetration in 2015. This is based on an expectation that internet and mobile phone penetration will continue to increase rapidly, with internet subscribers expected to grow from 23.2m in 2015 to 34.5m by 2025. Increased penetration of electronic banking is also expected to be underpinned by favourable demographics in terms of Colombia’s relatively young population, rising education levels and increasing urbanisation. Nonetheless, rapid growth in digital banking cannot be taken for granted. It will be incumbent on new and existing players in the banking sector to keep investing and innovating while tailoring their products to the needs of the bulk of the population across diverse demographic segments. In addition, it will be important for the authorities to keep pace in terms of updating the regulatory framework and implementing other ancillary measures to ensure the segment can fulfil its significant promise.