What is SMS Banking?

Laura M. Sands

Short message service banking, also referred to as SMS banking, is the term used to describe banking transactions performed via SMS messaging. After establishing a unique account associated with a user’s telephone number and SIM card, customers using a short message service center can send and receive money to others while using a handheld device. Funds that are transferred in this manner are sent from or stored in a customer’s password protected account.

SMS banking establishes an account associated with a customer's telephone number and SIM card.
SMS banking establishes an account associated with a customer's telephone number and SIM card.

SMS banking is increasingly offered throughout the world. It has been particularly well-received in developing nations were traditional banking access is not always convenient to the average consumer, especially those living in rural areas. Through the electronic handling and storage of funds, customers can more easily send and receive money with friends, family members and business associates, as well as pay bills and make purchases from a mobile device. Similar to Internet banking in that all transactions are completed electronically, SMS banking is considered by many to be a safe, fast and effective way of handling simple banking transactions.

When physical money is needed, individuals who use SMS banking are able to withdraw cash from an electronic account simply by visiting a brick and mortar service provider. Such service providers increasingly include mainstream banks, but also include the simple payment systems offered through money transfer agents. In some instances, money may even be withdrawn at an automatic teller machine from a debit card issued to the user that is also attached to the user’s electronic account.

Frequently referred to as mobile banking or simply as m-banking, SMS banking is generally accompanied by very affordable transaction fees. In many instances, users are not charged a fee for receiving money. Storing money in a password protected electronic account also reduces the risk of theft. Some also find it easier to save money in an electronic account than to attempt to save paper money.

In countries were SMS banking has flourished, research indicates that it is a popular tool for individuals who previously had little or no banking access. One such example of a growing market for SMS banking is Kenya in East Africa, where nearly half of the adult population uses some form of electronic banking. Widely used in that country for person-to-person transactions, a secondary benefit of mobile banking has been a reduction in travel time previously spent personally exchanging money between friends and family members for personal loans.

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