More On Mobile Phone Banking for Development

In much of the developing world, the technology that matters is the cell phone and not the personal computer, One Laptop per Child initiative and its sundry issues notwithstanding. What is notable is that the diffusion of this innovation has been largely self-funded by folks of modest means. Worldwide, it took 20 years for the first billion persons to use cell phones, yet it only took four years for the second billion to adopt this technology and just two years for the third billion. In achieving these adoption rates, there was no Millennium Development Goal, Gleneagles Summit, Live Aid, Bono, Angelina Jolie, Jeffrey Sachs, or any sort of high-profile appeal for more aid. Simply put, those in LDCs found worthwhile benefits in using cell phones through reducing transaction costs and broadening their networks. They paid for the devices, putting their money literally where their mouth is.

The New York Times recently featured an article on how the cell phone can help end poverty. With cell phones, text messages are the equivalent of e-mails. Until the last few years, however, there have been limited opportunities for transacting through cell phones. On the Internet, you can buy and sell things on eBay, check your bank account, and so forth. Cell phones being the technology that matter in LDCs, it was only a matter of time before financial services became available via cell phone. This is the part of the NYT article dealing with the advent of mobile phone banking and its prospects for supercharging the microfinance area:

It’s also the precursor to a potentially widespread formalized system of mobile banking. Already companies like Wizzit, in South Africa, and GCash, in the Philippines, have started programs that allow customers to use their phones to store cash credits transferred from another phone or purchased through a post office, phone-kiosk operator or other licensed operator. With their phones, they can then make purchases and payments or withdraw cash as needed. Hammond of the World Resources Institute predicts that mobile banking will bring huge numbers of previously excluded people into the formal economy quickly, simply because the latent demand for such services is so great, especially among the rural poor. This bodes well for cellphone companies, he says, since owning a phone will suddenly have more value than sharing a village phone. “If you’re in Hanoi after midnight,” Hammond says, “the streets are absolutely clogged with motorbikes piled with produce. They give their produce to the guy who runs a vegetable stall, and they go home. How do they get paid? They get paid the next time they come to town, which could be a month or two later. You have to hope you can find the stall guy again and that he remembers what he sold. But what if you could get paid the next day on your mobile phone? Would you care what that mobile costs? I don’t think so.”

In February of last year, when Vodafone rolled out its M-Pesa mobile-banking program in Kenya, it aimed to add 200,000 new customers in the first year but got them within a month. One year later, M-Pesa has 1.6 million subscribers, and Vodafone is now set to open mobile-banking enterprises in a number of other countries, including Tanzania and India. “Look, microfinance is great; Yunus deserves his sainthood,” Hammond says. “But after 30 years, there are only 90 million microfinance customers. I’m predicting that mobile-phone banking will add a billion banking customers to the system in five years. That’s how big it is.”

I have previously posted about the G-Cash initiative and will have more to say about it and other m-commerce initiatives shortly. The Consultative Group to Assist the Poor (CGAP) also has a write-up about South Africa's WIZZIT mobile phone banking service. For even more information, the world's largest cell phone manufacturer, Nokia, has an overview of the various initiatives around the world which aim to broaden financial access among those at the bottom of the economic pyramid. It makes for a good introduction and certainly suggests worthwhile future directions for poverty reduction. If those of modest means have been willing to purchase cell phones to gain benefits without the Bono-ite fanfare, then the vertiginous rise of cell phone use will continue. Here is part of the Nokia magazine's feature:

Mobile phones provide a means of extending financial services to the unbanked – people without bank accounts. Emerging markets, which have the greatest need for enhanced access to financial services, are currently leading the innovation in the field of mobile banking (m-banking). One key factor in the increasing success of m-banking is the spread of mobile phones across all socioeconomic groups and geographical areas.

A number of promising projects are under way, but for m-banking to gain truly significant impact globally, more cooperation and policy coordination would be necessary between financial and telecommunications regulatory environments. The Philippine Central Bank is showing the way with its active approach including new technology platforms that help making m-banking easier. It is also cooperating closely with the country’s mobile operators and financial institutions on m-banking. Working together, the key stakeholders (telecom and financial regulators, operators, financial institutions, solution providers and mobile handset manufacturers) can help make m-banking a reality and extend access to financial services to those who need it most.

We also focus on the total cost of ownership (TCO) of mobile communications from the perspective of a lower-income consumer, in an article that reviews the affordability situation across 80 countries. For the majority of lower-income consumers in emerging markets, the monthly total cost of ownership is still far beyond their reach. As mobile devices are expected to become the primary means for accessing data and internet services in most emerging markets, their affordability is key. Governments and the mobile industry need to continue their efforts to reduce the TCO in order to provide lower-income citizens with affordable access to information and communications technologies.