Is Mobile Banking More Secure Than Computer Banking?

Introduction

The primary function of banks to the world over is to play an intermediation role i. e. , to Collect funds (through borrowing) from surplus households and invest the funds (through lending among others) to deficit units. In this way, banks are considered the harbinger or buttress of economic development of any country. ( Kibodya Felix G. 2008) The banking sector in Tanzania started to operate on a plan for financial liberalization in 1992 in order to uphold its economic growth. This has been proficient through the mobilization of financial resources as well as by ounting competition in the financial market and by pleasing to the eye the quality and efficiency of credit allocation. As a result of the liberalization, the banking sector in Tanzania has been successful, particularly over the last few years. For most of the period since the late 1960s and 1970s the Tanzanian financial sector was mainly government-owned with pervasive government interference in the financial system. Credit was directed on the basis of government priorities with little regard to credit-worthiness, and banks were convenient agents of fiscal policy. Wangwe 2004) The total assets have been greater than before by 60%, from $ 1. 7 billion at the end of 1999 to $ 2. 7 billion at the end of June 2004. Because of this, up-to-the-minute merchant banks, commercial banks, bureau de change, insurance companies, a stock exchange and related financial units have entered the market. With a total of 27 banks and a few non-banking financial institutions, which are not allowed to open current accounts, the market is characterized by a few big players and several small banks. 0% of deposits In Tanzania are in the hands of eight banking institutions, namely three local banks and five foreign banks. Local banks primarily service local customers while foreign banks tend to operate as subsidiaries of large groups, such as Citigroup and Barclays, using strategies oriented to the international market. As a result, foreign banks spotlight on international customers and national clients who prefer to keep their deposits in foreign currencies.

There are four categories of banks, oriented towards different markets and clientele operating in Tanzania: local private banks, regional banks, international banks and multinational banks. Taken as a whole, the outlook for the banking industry in Tanzania is very positive and there are appealing opportunities for new comers to the sector. At present, there is a positive trend in lending to SMEs that is producing greater confidence in their growth potential among financial institutions and, more generally, in the economy as well, which is generating a positive spiral.

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In addition, the government is also introducing new laws that are expected to enhance lending activities. (BOT) 1The Tanzania Bankers Association (TBA) is an association of banks and non-bank financial institutions registered in September 1995 under the Societies Ordinance Cap. 337 of 1954.

Objectives

To facilitate the consideration and discussion of matters of common interest to members. To develop and maintain a code of banking practice for its members and to facilitate the harmonization of operations in the banking sector.

To facilitate the promotion of on-the-job training as well as professional training leading to professional banking qualifications or other relevant qualifications in the banking industry. To work closely with the Bank of Tanzania with a view to promoting and sustaining a vibrant banking sector in Tanzania. To co-operate or affiliate with any organization or body, local or foreign, whose objectives are substantially similar to those of the Association. To take any measures deemed desirable to further the interests of the banking sector in Tanzania. .

Banking and Financial Institutions Regulations:

The Regulations apply to all banks and financial institutions Banking and Financial Institutions (Licensing) Regulations, 2008: The Regulations prescribe minimum conditions of entry or exit into banking industry in Tanzania, opening representative office, subsidiary, new branches or equity investment; appointing and change of Directors and Senior Management. Generality, the regulations deals with licensing requirements for new entrants into the banking system.

The Regulations prescribe financial requirements in order to establish a bank or financial institution, minimum capital requirements and disclosure of sources of capital, change in shareholding contributions to the country’s economy, banking licensing application process and conditions to be fulfilled after grant of the banking license. The Banking and Financial Institutions (Capital Adequacy) Regulations, 2008 The Regulations came into effect in December, 2008 and repealed the Capital Adequacy Regulations, 2001. The Regulations provide inimum capital requirements for various forms of banking institutions in Tanzania (i. e. minimum capital for banks, other financial institutions, microfinance companies and micro credit activities). Further, the Regulations detail the capital adequacy requirements including items for consideration in core and total capital adequacy ratios. The Banking and Financial Institutions (Management of Risk Assets) Regulations, 2008: The Regulations came into effect in December, 2008 and repealed the Management of Risk Assets, Regulations 2001.

The Regulations provide for the minimum conditions for credit and investment function in a bank or an institution. At a minimum putting in place risk management policies for risk assets administration (i. e. identify, measure, monitor and manage) the risk arising from their business and ensure timely and adequate action are taken on problem assets, maintain risk management standards that conform to internal norms and promote and maintain public confidence in the banking sector.

The objectives of these Regulations are generally to provide prudential guidance on management of risk assets and bases for providing for losses on loans and other risk assets. The Banking and Financial Institutions (Liquidity Management) Regulations, 2008: The Regulations came into effect in December, 2008 and repealed the Liquid Assets Ration Regulations, 2000. The main objectives of the Regulations are to provide guidance on measuring and monitoring liquidity of banks and financial institutions. i. e. o ensure that banks and financial institutions have in place liquidity management policies adequate to enable them meet all known obligations and commitments and plan for unforeseen development, to ensure that banks and financial institutions implement liquidity management standards that conform to international norms and maintain public by ensuring that banks and financial institutions have sufficient liquidity all the times. The Banking and Financial Institutions (Publication of Financial Statements) Regulations, 2008: The Regulations came into effect in December, 008 and repealed The Publication of Financial Statements Regulations, 2000. The main objectives of the Regulations are to ensure that every bank or financial maintains a level transparency adequacy to enable depositors and creditors and the public at large to make informed decisions, promote and maintain public confidence in the Tanzanian banking sector and enhance market discipline by providing financial information to various stake holders. The regulations focus on keep the general public informed on the condition and performance of banks and financial institutions.

Publications will be on Quarterly for un-audited balance sheet, income statement and cash flow statement while audited financial statements are to be published once annually. The publications should be in the paper of general circulation in Tanzania and in conspicuous position in the public part of its principal place of business and its branches and agencies. The Banking and Financial Institutions (Independent Auditors) Regulations, 2008: These Regulations became effective in December, 2008 and repealed the Independent Auditors Regulations, 2000.

The main objectives of these Regulations are establish criteria for approving independent auditors of banks and financial institutions, and duties of the bank, financial and approved independent auditor. The Regulations guide banks and financial institutions to appoint independent auditors that are recognized and registered by the National Board of Accountants and Auditors and also by the Bank of Tanzania. Bank auditing requires more than commercial enterprise auditing and as such only audit firms that meet registration requirements by the Bank of Tanzania may be appointed to audit banks and financial institutions. The Banking and Financial Institutions (Credit Concentration and Other Exposure Limits) Regulations, 2008: These Regulations became effective in December, 2008 and repealed the Credit Concentration and Other Exposure Limits Regulations, 2001. The main objectives of these Regulations are to encourage risk diversification and limit excessive concentration of risk by any bank or financial institution, promote arm’s length relationship in dealing between a bank and its insiders, and prescribe limits for investment in equity and fixed assets.

The Regulations provide for risk diversification and curtail excessive concentration of risk exposure of any bank or financial institution to one customer or group of customers, industry economic sector or activity, thereby stability of the financial system. The Banking and Financial Institutions (Foreign Exchange Exposure Limits) Regulations, 2008: These Regulations became effective in December, 2008 and repealed Circular Number 5 the Foreign Exposure and placement Purchases, Sales and Balances, 2000.

The main objectives of these Regulations are to ensure that banks and financial institutions have in place adequate policies and procedures to identify, monitor and manage foreign exchange risk and maintain risk management standards that conform to established international norms. The Regulations • The Banking and Financial Institutions (Physical Security Measures) Regulations, 2008: These Regulations became effective in December, 2008.

The principal objective of these Regulations is to prescribe minimum security measures to be instituted by all banks and financial institutions for the purpose of: - preventing acts of robbery and burglary, assisting in identifying and apprehending persons who commit acts of robbery or burglary, preventing injury and loss of life to staff and customers, preventing damage or loss of assets, which could result into major losses to individual institutions, the banking sector and the national income, and creating security awareness among management and staff in all banks and financial institutions thereby promoting a security conscious working environment. The Banking and Financial Institutions (Prompt Corrective Action) Regulations, 2008: These Regulations became effective in December, 2008.

The main objectives of these Regulations are to ensure timely and effective actions to deal with a weakening bank or financial institution, enhance transparency by establishing the minimum actions the Bank shall take in addressing identified weaknesses in banks and financial institutions, and maintain confidence in the Tanzanian banking sector. The Banking and Financial Institutions (Internal Control and Internal Audit) Regulations, 2005: The Regulations came into effect on 25th March 2005. They provide for internal controls and internal audit functions for banking institutions. The Regulations also prescribe roles of various stakeholders in as far as internal control and internal audit functions are concerned. The Banking and Financial Institutions (Microfinance Companies and Micro-credit Activities) Regulations, 2005: The Regulations came into effect on 25th March 2005. It provides for microfinance and micro-credit activities in Tanzania. The Foreign Exchange (Bureaux de Change) Regulations, 1999: The Regulations govern bureaux de change operations in Tanzania.

Challenges Facing by Banking Industry:

The banking industry in Tanzania is undergoing a major transformation due to changes in economic condition and continuous deregulation. These multiple changes happening one after other has a ripple effect on a bank trying to graduate from completely regulated sellers market to completed deregulated customers market. All the large investment banks have now either been absorbed by bank holding companies, filed for liquidation, and have restructured into bank holding companies.

The principal problem in the past has been over leveraging investments, and running the risk of becoming illiquid and this still is a concern for current "clean" investment banks. High frequency trading. It may significantly enrich one investment bank and literally destroy the other; it is very sensitive to the processing speed of markets and of their own access to the market. Also an investment position is held only for very brief periods of time-even just seconds-and rapidly trades into and out of those positions, sometimes thousands or tens of thousands of times a day. Deregulation: This continuous deregulation has made the banking market extremely competitive with greater autonomy, operational flexibility, and decontrolled interest rate and liberalized norms for foreign exchange.

The deregulation of the industry coupled with decontrol in interest rates has led to entry of a number of players in the banking industry. At the same time reduced corporate credit off thanks to sluggish economy has resulted in large number of competitors battling for the same pie. Low investment With the sole purpose refers to the amount of money placed in a bank by consumers. In developing nations, a distrust of commercial banks is common. Some believe that this can be traced back to some of the very first banks in the world, which were often corrupt. People learned quickly that their money was safer at home. Despite vastly improved banking practices, these beliefs persist, and people still feel safer with their money in a home safe.

Until a well-known shift occurs in the way banks are seen, this problem is unlikely to resolve itself anytime soon. Economic turbulence Economic turbulence is another reason for banking troubles in Tanzania. Like much of the world, the country is experiencing a downward trend in the economy. This makes people even more likely to distrust a banking institution. If the bank "goes under," people worry, what will happen to my money? For many, it's much more comfortable to keep money at home. But keeping money at home is not the best practice. It can be stolen much more easily than it could be in a bank. Money kept at home does not earn interest, as money in a savings account can.

However, for many people, these reasons are not enough to entrust their hard-earned money to a banking institution. New rules: As a result, the market place has been redefined with new rules of the game. Banks are transforming to universal banking, adding new channels with lucrative pricing and freebees to offer. Natural fall out of this new players, new channels squeezed spreads, demanding customers better service, marketing skills heightened competition, new rules of the game pressure on efficiency missed opportunities. Need for new orientation diffused customer loyalty. Bank has led to a series of innovative product offerings catering to various customer segments, specifically retail credit. Efficiency:

This in turn has made it necessary to look for efficiencies in the business. Bank need to access low cost funds and simultaneously improve the efficiency. The banks are facing pricing pressure, squeeze on spread and have to give thrust on retail assets. Diffused customer loyalty: This will definitely impact customer preferences, as they are bound to react to the value added offerings. Customers have become demanding and the loyalties are diffused. These are multiple choices; the wallet share is reduced per bank with demand on flexibility and customization. Given the relatively low switching costs; customer retention calls for customized service and hassle free, flawless service delivery. Misaligned mindset:

These changes are creating challenges, as employees are made to adapt to changing conditions. There is resistance to change from employees and the seller market mindset is yet to be changed coupled with fear of uncertainty and control orientation. Acceptance of technology in but the utilization is not maximized. Competency gap: Placing the right skill at the right place will determine success. The competency gap needs to be addressed simultaneously otherwise there will be missed opportunities. The focus of people will be doing work but not providing solutions, on escalating problems rather than solving them and on disposing customers instead of using the opportunity to cross sell.

Global financial crisis experienced, is expected to affect the banking industry in Tanzania especially in regard to deposits mobilization, reduction in trade volumes and the performance of assets. Increasing interest rates In an environment of escalating interest rates, banks are placed in an unfavorable situation as the value of their bond holdings is reduced. Undercapitalization This is that situation where a business cannot acquire the funds they need. An under-capitalized business may be one that cannot afford current operational expenses due to a lack of capital, which can set off bankrupt, may be one that is over-exposed to risk, or may be one that is financially sound but does not have the funds required to expand to meet market demand.

So, often undercapitalization is a result of improper financial planning, failing to secure an adequate bank loan at a critical time. Also failing to obtain insurance against predictable business risks and adverse macroeconomic conditions. However, a viable business may have difficulty raising sufficient capital during an economic downturn or in a country that imposes artificial constraints on capital investment. Corporate Governance Problems Corporate governance problems in the banking sector are evidenced by the prominence of a few bank auditors, absence of domestic credit rating agencies, and lack of proper disclosure and reporting of information, and compliance with international accounting standards.

The presence of family and conglomerate ownership coupled with the lack of stringent regulations poses risks of distorting bank decisions to favor certain vested interests.

Strategic Options With Banks to Cope With the Challenges:

Most important group of actors in the industry has embarked on a series of strategic and tactical initiatives to keep going leadership. The major initiatives include: 1. Implementing organization wide initiatives involving people, process and technology to reduce the fixed costs and the cost per transaction 2. The marketing research simplifies the task of studying the magnitude of competition by opinion surveys an the feed back customers, the ulti-dimensional changes in the services mix can be made productive if it is based on marketing research. 3. Investing in state of the start of the art technology as the back bone of to ensure reliable service delivery, this is due to the fact that, the kind of services provided depend much on the technological advancement, so they have to make sure that they improve their system so as to offer maximum satisfaction to their consumers. 4. Innovating products to capture customer ‘mind share’ to begin with and later the wallet share. 5. In the bank services, the formulation of overall marketing strategies is considered significant with the view point of tapping the potentials, expanding the business and increasing the marketing share.

The increasing domination and gaining popularity banks, the popularity banks, the profitable schemes of the non-banking organization mounting craze among the customers for private banks have made the task of influencing the impulse of customers a bit difficult. 6. Leveraging the branch network and sales structure to mobilize low cost current and savings deposits. 7. Making aggressive forays in the retail advances segments of home and personal loans. 8. Focusing on fee based income to compensate foe squeezed spread. 9. The marketing research considered being a systematic gathering, recording and analysis of data makes ways for making and innovation the marketing decisions. The information collected from the external sources by conducting surveys helps bank professional in different wants.

Challenges to Opportunity

The endurance of expectations of macroeconomic instability means that current savings and investment habits will persist for a while. When expectations of macroeconomic stability take hold financial services providers can start to provide services that were unattractive in an unstable macroeconomic environment. Because savers would be more willing to hold long term assets, banks can issue longer-term deposit liabilities to fund term loans at fixed interest rates; corporate borrowers and government can issue long-term debt instruments. We will then enter a virtuous cycle of low inflation, low interest rates, high investment and high economic growth. (Sam Mensah, 2005)

Financial institutions must also take into consideration a multitude of forces that are interacting with the macroeconomic environment to change the financial services industry. These include the following: Advances in information and computer technologies have made it possible for market participants and regulators to collect and process they need to measure, monitor and manage financial risk; to price and trade complex new financial instruments and manage large books of transactions. Due to technological advancements, our local financial sector has undergone substantial changes becoming more dynamic and innovative. The number of new financial products and services has expanded dramatically.

Globalization of national economies has led many countries including Tanzania to lower barriers to international trade and cross border flows of goods and services have increased significantly, stimulating demand for cross-border finance and in tandem with financial liberalization fostered the creation of an internationally mobile pool of capital. 3. The liberalization of national financial markets coupled with improvements in information technologies and globalization has catalyzed financial innovation and spurred the growth of cross-border capital movements. 4. Competition among the providers of financial services has increased because of technological advances and financial liberalization.

Regulators have shown an increasing tendency to allow a broader range of institutions to offer financial services and new classes of financial institutions have emerged. Securities firms, asset managers, mutual funds, insurance companies, finance houses are increasingly providing services similar to those traditionally provided by banks.

Conclusion:

The banking environment of today is rapidly changing and the rules of yesterday no longer apply. The corporate and the legal barriers that separate the various banking, investment and insurance sectors are less well defined and the cross-over are increasing. As a consequence the marketing function is also changing to better support the bank in this dynamic market environment.

The key marketing challenge today is to support and advice on the focus positioning and marketing resources needed to deliver performance on the bank’s products and services. Marketing, as an investment advisor, is about redefining the delivery needs within not only key strategic Markey segments, but increasingly redefined to relevant micro-segments.

Refferences

International Monetary Fund. Global Financial Stability Report. “Market Developments and Issues”, April 2005.

World Bank and IMF (2003): Financial Sector Assessment Tanzania. Prof. Suleman A. Chambo (2004):

The Role of SACCOS in Rural Tanzania International Monetary Fund. Global Financial Stability Report. “Market Developments and Issues”, April 2005.

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