Mobile Money for the Developing World
September 21, 2011
A rapidly increasing number of people across the globe are now staying connected to one another via a mobile phone device – whether it’s an iPhone, Nokia, or Samsung. In fact, the United Nations reported earlier this year that the worldwide figure for cell phone subscriptions had topped five billion at the end of 2010. According to the International Telecommunication Union, approximately 3.8 billion of these mobile subscriptions were from developing countries – with India and China fueling this upsurge.
As this trend continues, the mobile financial services market is also booming, and is increasingly dominated by Asia, driven by mobile, operator-led initiatives in these developing nations to “bank the unbanked.” Developing countries such as Pakistan are among those that have made remarkable progress in global mobile phone adoption; in 2007, while just one million Pakistanis owned bank accounts, 70 million were mobile subscribers. In April 2011, this total subscriber figure stood at 108 million. This rapid mobile subscription rise has the potential for even greater expansion among those living in the developing world with the enablement of these four mobile banking functions: government cash transfers, international remittances, bill payments, and savings.
Government-run welfare transfers
State-run welfare programs such as conditional cash transfer programs, or CCTs, provide cash transfers to poor mothers in rural areas based on the condition that they send their children to primary and secondary schools and to health clinics. Typically, monthly transfers are given to the head of the household, specifically used for food consumption, vaccinations, and school attendance. However, they require a well-developed infrastructure where money can be transferred. In countries such as Brazil, a well-developed banking sector helps in CCT implementation. Other developing countries like India may lack a mature enough banking system for a CCT program to launch. In these scenarios, alternatives to banks must be considered.
Mobile phones present a viable means for such cash transfers. Their widespread usage and low start-up costs are compelling reasons for CCTs to conduct transfers via mobile phones. In the Philippines, the Department of Social Welfare and Development’s Pantawid Pamilyang Pilipino Program (4Ps) provides cash transfers to the country’s poorest families. Along with rural banks, mobile phones have become one of the most integral tools to facilitating cash transfers to these poor. Using the rural Green Bank’s “GCash” platform, bank personnel verify beneficiary data, including CCT ID, GCash transfer numbers, and cash amount, submits the ID to a specific text code, and within a minute, receives the amount that is approved for physical payout to the recipient. Such programs – and those specifically with mobile phone integration – hold a potential for providing the poor with easier and wider access to financial services.
Similar to these government-run welfare cash transfer programs are the mobile cash transactions that take place for international remittances in developing countries. The World Bank estimated that the global formal remittance market at the end of 2010 was valued at approximately $440 billion, of which nearly 74 percent flowed into developing countries. In addition to the likes of Western Union and MoneyGram, mobile to mobile, mobile to cash, and cash to mobile mechanisms are increasingly helping to transfer cash across borders. In roughly five years’ time, the Global System for Mobile Communications Association (GSMA) forecasts that with the help of mobile services, this global remittance market could value over $1 trillion and reach two billion consumers. Mobile services also have the potential to offer deeper penetration among the rural and hard-to-reach communities where bank branches and ATM presence is low.
One popular example is that of Kenya’s Safaricom mobile-banking service, or M-PESA. Over SMS, Kenyans – many of whom don’t have their own bank accounts – are able to transfer money to another person’s mobile phone. The mobile cash recipient can then redeem the electric cash in conventional cash form from an M-PESA agent, of which includes retail outlets or mobile airtime resellers. In other words, the bank’s role is minimal.
Like its predecessor, M-PESA, Thailand’s True Money plays a similar mobile banking role, but with a bill payment model instead. True Money requires mobile users to enter their ID and password, and then head to the nearest 7-Eleven to add money from the store’s agent. The money on the user’s mobile account can then be used to “top up” mobile airtime minutes or pay for any True bills sans additional fees. Typically, for a value of a 50 baht (just over US $1.50) pre-paid airtime card, users pay an inflated price through retailers – up to 55 baht. By using mobile phones as transaction terminals, users pay 50 baht for a 50 baht value card.
While True Money had approximately seven million users as of 2010, it also faces the implementation challenges of insufficient vendor adoption. Until more retail stores accept True Money services, usage may not expand very quickly. However, True Money has begun to also shift into the online shopping realm. With the advent of bill payments comes more sophisticated ways of utilizing mobile banking, from online shopping to insurance premium payments.
Savings are an integral component of financial inclusion. For example, M-Kesho, which is linked to Kenya’s M-PESA users, allows mobile banking users to deposit money and even earn interest on it. However, few savings and deposit-making mechanisms currently exist through mobile banking. For one, savings through mobile phones still needs to be tied to a banking system. In Kenya, M-Kesho has partnered with Equity Bank to provide financial services to those who otherwise would not have access to credit and savings.
Still, this method of “banking the unbanked” requires some fine-tuning. Aside from risks of fraud and money-laundering, mobile banking operators sometimes don’t have the required banking licenses. Consequently, the number of these “corner stores” that act as mobile bank retailers is limited. In India, where M-PESA had launched a pilot money transfer service, regulators have pushed back, insisting that it partner with a licensed bank. In Afghanistan, a similar service, called M-PAISA, has been tested as a mobile currency for supporting salary payrolls, only to encounter initial problems of corruption. In 2009, the Afghan National Police began salary payments via mobile phone, but found that at least 10 percent of payments had been transferred to “ghost policemen” who never existed. Yet, M-PAISA’s partnership with the country’s Roshan mobile network reaches 230 cities in all of the country’s 34 provinces, covering its 12 million mobile subscribers out of nearly a 30 million population. Local corner stores, transformed into mobile “bank” branches, are on the rise, and are helping to disburse cash more widely.
Mobile money could have a huge impact in Asia. Not only is it faster, cheaper, and more efficient, but it is also a more feasible way to conduct cash transactions given the prevalence of mobile phone subscriptions across the developing world. In countries where banking infrastructure, roads, and post offices are limited, mobile phones can open access to financial services that many of these poor populations lack. In turn, time that would have been spent on long trips to banks can now be spent on more productive tasks. Mobile banking does present itself a compelling opportunity to more inclusively provide savings, credit, insurance, and payment services for the poor.
Michelle Chang is a program officer for The Asia Foundation’s Governance and Law program. She can be reached at email@example.com. Previously, she was a management consultant at Deloitte, where she worked on web technology projects. More recently, she worked at the UNDP International Policy Centre on Inclusive Growth in Brazil where she studied social protection schemes and South-South cooperation across Asia, Africa, and Latin America. The views and opinions expressed here are those of the individual author and not those of The Asia Foundation.
View all posts by Michelle Chang
Write a comment:
Comments are moderated. Please be polite and on-topic.