Definitions and Scope Issues

In order to understand and evaluate the prospects of the “mobile” form of banking it is imperative to first comprehend the scope of “banking” as such.⁵⁰ 6.1.1 Scope of Banking Business

Banking has traditionally been defined as:

50 The term “mobile” is defined in section 2.1.2.

“[…] the accepting, for the purpose of lending or investment, of deposits of money from the public, repayable on demand or oth-erwise, and withdrawal by cheque, draft, order or otherwise”. [The Banking Regulation Act of India, 1949, I.5.b]

Banks, in the meantime, are no more institutions involved exclusively in the business of lending and investing money. They now offer a much wider range of services. This modern reality is mirrored in the following defini-tion of “banking business” provided by the Sixth Amendment of the Bank-ing Act of Germany (“Gesetz über das Kreditwesen”, known as KWG).⁵¹

According to this definition the banking business comprises of:⁵²

1. Deposit business: the acceptance of funds from others as deposits or of other repayable funds from the public unless the claim to repayment is securitised in the form of bearer or order debt certificates, irrespective of whether or not interest is paid;

2. Lending business: the granting of money loans and acceptance of cred-its;

3. Discount business: the purchase of bills and exchange of cheques;

4. Principal broking services: the purchase and sell of financial instru-ments⁵³ in the credit institution’s own name for the account of others;

5. Safe custody business: the safe custody and administration of securities⁵⁴ for the account of others;

6. Investment fund business: all activities that are permitted to investment companies;⁵⁵

7. Guarantee business: the assumption of guarantees and other warrantees on behalf of others;

51 The English language text of the Sixth Amendment of the Banking Act (“Sechste KWG-Novelle”) is provided by the Deutsche Bundesbank in an unofficial version on its website:

http://www.bundesbank.de/download/bankenaufsicht/pdf/kwg_e.pdf, 21.05.2005.

52 The points from i) to xi) are quoted directly from the English language text of KWG.

53 See section 6.2.2.1 for a definition of financial instruments.

54 See section 6.2.2.1 for a definition of securities.

55 The precise scope of investment activities in Germany is determined by the Act on In-vestment Companies (“Gesetz über Kapitalanlagegesellschaften”).

8. Giro business: the execution of cashless payment and other clearing operations;

9. Underwriting business: the purchase of financial instruments at credit institution’s own risk for placing in the market or the assumption of equivalent guarantees;

10. E-Money business: the issuance and administration of electronic money;

and

11. the incurrence of the obligation to acquire claims in respect of loans prior to their maturity.

The KWG (§1) defines the term “credit institution”,⁵⁶ in accordance with this approach, as following:

“Credit institutions are enterprises which conduct banking business commercially or on a scale which requires a commercially organ-ised business undertaking.”

Having defined banks and banking business we can turn our attention to other services that might be relevant for Mobile Banking.

6.1.2 Scope of Financial Services

In addition to banks there are some other institutions that provide a limited range of similar services. Instead of offering classic banking services such as deposit- or giro business they specialise in services relating primarily to stock markets. The scope of financial services, as defined by the KWG (§1), includes:⁵⁷

1. Investment broking: the brokering of business involving the purchase and sell of financial instruments or their documentation;

2. Contract broking: the purchase and sell of financial instruments in the name of and for the account of others;

3. Portfolio management: the administration of individual portfolios of financial instruments for others on a discretionary basis;

56 In Germany banks are often referred to as “Kreditinstitute” (credit institutions).

57 The points from i) to viii) are quoted directly from the English language text of KWG.

4. Own-account trading: the purchase and sell of financial instruments on an own-account basis for others;

5. Non-EEA deposit broking: the brokering of deposit business with enter-prises domiciled outside the European Economic Area (EEA);

6. Money transmission services: the execution of payment orders;

7. Foreign currency dealing: dealing in foreign notes and coins;

8. Credit cards business: the issuance or administration of credit cards and travellers’ cheques unless the card issuer also provides the service un-derlying the payment transaction.

The KWG (§1) defines the term “financial services institution” in accor-dance with this approach as following:

“Financial services institutions are enterprises which provide fi-nancial services to others commercially or on a scale which re-quires a commercially organised business undertaking, and which are not credit institutions.”

Having described relevant services and institutions we may now define the scope of this study:

− For the purpose of simplicity, this study refers to all providers of bank-ing business and financial services as banks and does not differentiate between credit institutions and financial services institutions any fur-ther.

− Services that do not fall under the ambit of either banking business or financial services, as defined by the KWG, are not dealt with in this work. The same holds true for business entities that are neither credit institutions nor financial services institutions as envisaged by the KWG.

6.1.3 Scope of Mobile Banking

Mobile Banking is usually defined as carrying out banking business with the help of mobile devices such as mobile phones or PDAs [Georgi/Pinkl, 2005, p. 57; Luber, 2004, p. 19]. This approach, apparently, does not dif-ferentiate between banking- and financial services. An explicit differentia-tion does not seem to be considered vital by many authors, even though they implicitly always take financial services into consideration. Since this

Which banking and financial services are suitable for Mobile Banking from a commercial perspective?

study makes use of many such sources, these two terms are sometimes used interchangeably.

The offered services may include transaction facilities as well as other related services that cater primarily to informational needs revolving around bank activities. Considering these factors and in keeping with the just defined scope of this study we can define Mobile Banking as follows:

Mobile Banking refers to provision and availment of banking- and financial services with the help of mobile telecommunication de-vices. The scope of offered services may include facilities to con-duct bank and stock market transactions, to administer accounts and to access customised information.

The earlier definition of banking and financial services, however, throws up an important question regarding desirable scope of Mobile Banking:⁵⁸

Research Issue 1: Scope of banking and financial services in Mobile Banking

As a matter of fact, a purely theoretic answer to this question would not help us much. The issue must be, therefore, clarified empirically. The opin-ion of potential customers and banks should be sought to find a useful an-swer.⁵⁹

As next we describe various services that are either currently being of-fered or are thought to be suitable for Mobile Banking.

58 The legal and technical issues have been dealt with in chapters 3 and 4 respectively.

59 This issue is dealt with in sections 9.1.4 and 9.2.3.