The power of mobile money
From The Economist print edition
Mobile phones have transformed lives in the poor world. Mobile money could have just as big an impact
ONCE
the toys of rich yuppies, mobile phones have evolved in a few short
years to become tools of economic empowerment for the world’s poorest
people. These phones compensate for inadequate infrastructure, such as
bad roads and slow postal services, allowing information to move more
freely, making markets more efficient and unleashing entrepreneurship.
All this has a direct impact on economic growth: an extra ten phones
per 100 people in a typical developing country boosts GDP growth by 0.8
percentage points, according to the World Bank. More than 4 billion
handsets are now in use worldwide, three-quarters of them in the
developing world (see our special report). Even in Africa, four in ten people now have a mobile phone.
With such
phones now so commonplace, a new opportunity beckons: mobile money,
which allows cash to travel as quickly as a text message. Across the
developing world, corner shops are where people buy vouchers to top up
their calling credit. Mobile-money services allow these small retailers
to act rather like bank branches. They can take your cash, and (by
sending a special kind of text message) credit it to your mobile-money
account. You can then transfer money (again, via text message) to other
registered users, who can withdraw it by visiting their own local
corner shops. You can even send money to people who are not registered
users; they receive a text message with a code that can be redeemed for
cash.
By far the
most successful example of mobile money is M-PESA, launched in 2007 by
Safaricom of Kenya. It now has nearly 7m users—not bad for a country of
38m people, 18.3m of whom have mobile phones. M-PESA first became
popular as a way for young, male urban migrants to send money back to
their families in the countryside. It is now used to pay for everything
from school fees (no need to queue up at the bank every month to hand
over a wad of bills) to taxis (drivers like it because they are
carrying around less cash). Similar schemes are popular in the
Philippines and South Africa.
Extending
mobile money to other poor countries, particularly in Africa and Asia,
would have a huge impact. It is a faster, cheaper and safer way to
transfer money than the alternatives, such as slow, costly transfers
via banks and post offices, or handing an envelope of cash to a bus
driver. Rather than spend a day travelling by bus to the nearest bank,
recipients in rural areas can spend their time doing more productive
things. The incomes of Kenyan households using M-PESA have increased by
5-30% since they started mobile banking, according to a recent study.
Mobile money
also provides a stepping stone to formal financial services for the
billions of people who lack access to savings accounts, credit and
insurance. Although for regulatory reasons M-PESA accounts do not pay
interest, the service is used by some people as a savings account.
Having even a small cushion of savings to fall back on allows people to
deal with unexpected expenses, such as medical treatment, without
having to sell a cow or take a child out of school. Mobile banking is
safer than storing wealth in the form of cattle (which can become
diseased and die), gold (which can be stolen), in neighbourhood savings
schemes (which may be fraudulent) or by stuffing banknotes into a
mattress. In the Maldives many people lost their savings in the tsunami
of 2004; it hopes to introduce universal mobile banking next year.
Financial
innovation has a bad reputation at the moment, because exotic
derivatives were one of the causes of the credit crunch. But mobile
money and other new ideas that could help the poor provide a useful
reminder that financial innovation in itself is not always a bad thing.
Given all of
its benefits, why is mobile money not more widespread? Its progress has
been impeded by banks, which fear that mobile operators will eat their
lunch, and by regulators, who worry that mobile-money schemes will be
abused by fraudsters and money-launderers. In many countries mobile
money has been blocked because operators do not have banking licences
and their networks of corner-shop retailers do not meet the strict
criteria for formal bank branches. And some mobile-money schemes that
have been launched, such as one in Tanzania, failed to catch on. As
recently as a year ago people wondered whether M-PESA’s success was a
fluke.
But in recent
months there have been some more hopeful signs. Kenya’s success story
has demonstrated mobile money’s potential, and its benefits are
starting to be more widely appreciated. More enlightened regulators are
no longer insisting that these services meet the rigid rules for formal
banking. Some banks, meanwhile, have come to see mobile money not as a
threat but as an opportunity, and are teaming up with operators. And
phone companies have studied Kenya closely to learn how to establish
and market a successful mobile-money scheme. MTN, Africa’s biggest
operator, has launched a mobile-money service in Uganda in conjunction
with Standard Bank; it appears to be doing well. MTN is fine-tuning its
service in Uganda before rolling it out across Africa.
Banks and
regulators elsewhere should take note. Instead of lobbying against
mobile money, banks should see it as an exciting chance to exploit
telecoms firms’ vast retail networks and powerful brands to reach new
customers. Tie-ups between banks and operators will help reassure
regulators. But they, too, need to be prepared to be more flexible.
People who want to sign up for mobile-money services should not, for
example, have to jump through all the hoops required to open a bank
account. Concerns about money-laundering can be dealt with by imposing
limits (typically $100) on the size of mobile-money transactions, and
on the maximum balance. And inflexible rules governing the types of
establishments where cash can be paid in and taken out ought to be
relaxed.
Mobile money
presents a shining opportunity to start a second wave of mobile-led
development across the poor world. Operators, banks and regulators
should seize it.
