CHAPTER ONE

 INTRODUCTION

1.1 Background of the study

In trying to achieve high levels of performance, Commercial Banks have undergone a number of challenges. Financial innovation in banking has been a relevant topic since mid ‘70s. Nowadays, also due to the present financial system situation, it comes to further relevance. Despite the relevance of financial innovation and ever-changing world, it’s hard to list all financial innovations specifically.

Adequate performance of financial institutions is of crucial importance to their customers. Commercial banks like many other financial service industries, facing a rapidly changing market, new technologies, economic uncertainties, competition and demanding customers have created an unprecedented set of challenges (Lovelock, 2001) Banks operate in a complex, competitive and highly regulated environment, with low margins and high customer expectations.

To manage this rapidly changing economic and regulatory system, banks need a reliable way of financial innovation with concrete actions that lead to measurable results. To increase their revenue and profits banks must improve their performance. A well-developed financial system helps in efficiency and effectiveness of commercial banks and is an important concept in operation of banks in today’s’ highly competitive environment.

The high competition has led firms to embrace the concept of Mobile money to develop a competitive edge and stay in the market. Mobile money which is a part of financial innovation has an effect on the commercial banks’ profitability and achievement of their objectives. Customer satisfaction of achieved, access to the banks, saves time and costs and enables to banks to increase competitiveness and ensure sustainable profit (NW, 2006).

Mobile financial services are among the most promising mobile applications in the developing world. Mobile money could become a general platform that transforms entire economies as it is adopted across commence health care, agriculture and other sectors.

Mobile money was first launched in Cameroon in 2011. The Cameroonian subsidiaries of telecommunication leaders MTN and Orange pioneered the concept and officially launched it in 2012. The circumstances which prompted its launching were similar to those of most developing countries, particularly concerning the small numbers of members of the population who held bank accounts. As had been the case in the other countries in which the concept had been launched, many households and Mobile money in Cameroon had been

Mobile money has attracted more interest from the developing countries than from developed countries. Mobile money adoption is currently lower in more developed countries, where most people have bank accounts. As per 2013 globally, more than 2.5 billion adults do not have a formal bank account, most of them in developing economies. Low levels of financial inclusion represent a barrier to socio economic development in developing countries. Only 41 percent of adults in developing countries have a formal bank account. In Africa, only 20 percent of families have bank accounts.

The recent growth of mobile money has allowed millions of people who are otherwise excluded from the formal financial system to perform financial transactions relatively cheaply, securely, and reliable. Mobile money has achieved the broadest success in Sub-Saharan Africa, where 16 percent of adults report having used a mobile phone in the past 12 months to pay bills or send or receive money.

The share using mobile money is less than 5 percent in all other religions. In Africa, the most visible case is Kenya, where active bank accounts increased in number from 2.5 million in 2007 to more than 15million in 2011.transactions through the mobile banking service M-PESA exceeds USD375 million each month and users save up to USD 3on each transaction.

A report on M-PESA reveals that between 2007 and 2009 the percentage of M-PESA users who were unbanked double (from 25 to 50 percent) and the number living in rural areas also increased (from 29-41percent). M-PESA users are not just using the service to send and receive money but also for savings.

The most prominent and best-known innovations adding service over the mobile phone has mobile money – which, in 2019, processed almost US$ 2 billion a day (GSMA). Mobile money enables mobile phone owners to deposit, transfer, and withdraws funds into digital account without owing a bank account.

Money transfer options means that one can send money from their mobile money account to a different subscriber anywhere anytime, which is similar to airtime transfer, where one can purchase and send airtime to another subscriber within the same network. it is therefore distinct from mobile banking which allows access to one’s existing bank account via a mobile phone. As such mobile money sits outside the formal banking system since the accounts are only linked to a phone number not to any formal bank account or credit card.

According to the GSMA’s annual report, (mobile money for unbanked 2012), there were 140 live mobile money transfer systems in place in low and middle-income countries targeting the unbanked in 2012. Remittances and remote payments are the most common uses of mobile money in developing countries.

However, in recent years mobile money services have been extended to offer financial services for formal financial products (saving, credit, insurance), informal service providers (moneylenders), personal networks (on demand, scheduled payments, sending and receiving money), in store merchant payments (goods and services) and salaries, pensions, loan disbursements, bill payments (online/e-commerce). Governments have also started using mobile money transfer services for making payments to citizens (e.g. salaries and pension) and to collect revenues such as taxes.

It is fair to say mobile money technology has disrupted the financial sector in sub-saharan African countries and fueled the social-economic transformation in many of these countries, notably Cameroon. As evidence, in 2021 the number of registered mobile money users in sub-Saharan rose to 548 million users at 12% year on year increase with a transaction value of US$490bn and the volume of transaction for that year sitting at 27.4 billion transactions.

In Cameroon a significant positive impact has been observed with small and medium-sized enterprises (SMEs) where mobile money payment and receipt services contributed to the order of 73% of the total variance in the turnover of the SMEs in Douala after they had begun to use the technology).

96% of Cameroon population is covered by mobile GSM network (2G and above) – GSMA Mobile connectivity index 2019-. Thus, making Cameroon a high candidate to use mobile money in order to accelerate financial inclusion.

In Cameroon, holding mobile money account significantly influences the facilitation of access to financial services for households. Cameroon accounts for 64.8% (19.5 million) of the overall accounts active during 2020, thus the leader in that market. Cameroon accounts for almost three times the number mobile money accounts held by Congolese (7.1 million) and almost ten times the number of mobile money accounts held by the Gabonese (2.7 million). Cameroon confirms its leadership over the CEMAC electronic payment market by recording the highest number of transactions.

Ecobank announced on march 17, 2014 a new mobile phone and banking product in 12 African countries. The countries are Cameroon, Benin, cote-D’lvoire, Ghana, Guinea Bissau, Guinea Conakry, Congo Brazzaville, Ruanda, South Sudan, Uganda and Zambia. On December 31, 2013, MTN international already had 14.8 million mobile money users, up by 57% in a year. Ecobank is present in 35 African countries including Cameroon and has a network of 1250 agencies.

1.2 Statement of problem

Mobile money operator faces unique challenges due to the nature of their operations. Their need for payment and transactional services are not always served by banks. This is due to lack of capacity to qualify them to access financial services from financial institutions since they   low capital base and lack of collateral property to secure loans.

They also do not find it very cost effective to embrace banking services because their target customers are mostly the unbanked. Additionally, they lack proper mode of receipts and payments, debt collection procedures and access to finance and this makes them to be faced with problems associated with liquidity and working capital management (Higgin at el, 2012).

This scenario is likely to have an effect on the growth and performance of the Mobile money. The inception of the mobile phone financial transactions has changed how business is being done. It has made financial transactions to be easy and faster

Different scholars have done studies on electronic and mobile banking in Kenya. Kigen (2010) studied the impact of mobile banking on transaction costs of microfinance institutions where he found out that by then, mobile banking had reduced transaction costs considerably though they were not directly felt by the banks because of the then small mobile banking customer base.

The current study differs from Kigen (2010) because the rate of mobile banking and the number of banks which have adopted mobile banking have increased. In addition, this study will consider overall financial performance and not just transactional costs.

Kingoo (2011) did a study on the relationship between electronic banking and financial performance of commercial banks in Kenya where he paid keen attention on the microfinance Institutions in Nairobi. However, the current study is focusing on commercial banks and not microfinance institutions. Kingoo (2011) also looked at the wider electronic banking whereas this study will only concentrate on mobile banking and at the same time provided a saving avenue for those without bank accounts.

However, Kanyi and Maharaj (2011) observe that despite the exponential growth in the use of mobile money in East Africa, only few studies have focused on its impact on the financial performance of Mobile money. This means that the effect of using mobile money on the performance of commercial banks has not been effectively assessed. Consequently, there was need to study how this financial innovation has affected the performance of Mobile money.

1.3 Research Questions

The research question will be divided into main and specific questions

1.3.1 Main Question

What is the effect of mobile money transactions on the performance of commercial banks in Cameroon?

1.3.2 Specific Questions

1. What are the effects of Cash deposits on the financial performance of Ecobank?
2. What are the effects of Cash transfers on the financial performance of Ecobank.?
3. What are the effects of Cash withdrawal on the financial performance of Ecobank.?

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