Access is Everything

Third World IOU

Julian Smith Writer

Mobile banking systems empower people in the developing world to transfer funds, pay off loans and save for the future.

Thinking back to the first mobile phones, it’s hard to imagine people being excited about being able to make phone calls to anyone at any time. Especially now that smartphones give users the ability to surf the Internet, communicate in many ways and share cat videos.

The advent of mobile banking systems promises to be another technological game-changer. In the developing world, these systems have the potential to improve the lives of 2.5 billion adults by allowing them to transfer funds, pay off loans and save for the future.

“In a country like Kenya, absolutely everyone has a cell phone nowadays,” said David Wolman, author of The End of Money: Counterfeiters, Preachers, Techies, Dreamers — and the Coming Cashless Society. “And most people are using them to send and receive money.”

Barely more than 40 percent of people in the developing world have traditional financial accounts. Often, these accounts are expensive and require some kind of credit history, not to mention significant banking infrastructure already in place.

Between 2000 and 2010, according to the World Bank, developing countries saw mobile usages jump from 29 to 77 percent, more than in developed nations. Mobile money accounts worldwide have jumped from 155 million in 2012 to 299 million by the end of 2014, much of them in the poorest parts of the world.

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Surprisingly, Africa has spearheaded the boom in digital payments, said Wolman.

Why is this happening in the poorest inhabited continent in the world? Rafe Mazer of the Consultative Group to Assist the Poor ascribes it to the rapid expansion of mobile phone access on top of a severe lack of existing financial infrastructure.

“This created incentives for customers to use the services, since alternate options were not available or not targeting the mass market, and [to] trust the providers,” he said.

Launched in 2007, Kenya’s M-Pesa system has become the poster child for mobile financial transactions. In 2013, a total of approximately $24 billion in mobile transactions accounted for more than half the country’s GNP.

The service has expanded so quickly that the number of registered accounts actually surpasses the number of adult Kenyans. Neighboring Tanzania leads the continent in total transaction value, although at least eight countries in Africa have more mobile accounts than traditional bank accounts.

Asia and the Middle East are catching up. Telenor Pakistan, one of the largest mobile operators in the world, launched Easypaisa, the country’s first mobile banking service, in 2009.

Pakistan is also ripe for mobile banking, with more than 190 million residents but only about 15 million bank accounts. Within five years, Easypaisa had processed more than 100 million transactions with a total value of over $1.4 billion.

Today, it’s the third largest mobile money service in the world. Six million customers can do almost all their banking on the mobile devices. If they need assistance, they can go to one of 25,000 Easypaisa shops in 750 cities and towns across the country.

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On the other side of India, Dutch Bangla Bank opened the first mobile banking service in Bangladesh in 2011. At the time only about 13 percent of the country’s 160 million citizens had bank accounts, but close to half of its mostly rural population used mobile phones.

Anyone who subscribes to one of the six existing mobile operators can use the service to transfer funds between people, merchants or utilities. They can also withdraw cash from ATMs or receive government allowances. As in Pakistan, the service employs thousands of agents around the country to help users open accounts and handle cash services, at a significantly lower costs than normal bank branches.

In Nepal, Laxmi Bank Limited launched the Mobile Khata payment system in 2012. The name comes from a traditional ceremonial scarf in Tibetan Buddhism that symbolizes compassion and purity, two adjectives not normally associated with financial services. Nevertheless, the service works with every provider in Nepal and was one of the first to be interoperable between multiple financial institutions.

Other countries throughout the developing world have seen the arrival of successful mobile money services as well, including Guatemala, Iran, Mexico and even Somalia.

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Mobile Banking Systems Empower Women

One thing all these systems share is the potential to empower women, who are traditionally even more excluded from the formal banking system than are men, according to the World Bank.

“Cash is a disadvantage to the poor,” said Wolman. “It doesn’t earn interest, it can be stolen — it’s even unhygienic. Digital money is better in just about every way.”

So even if a woman controls the household finances, using cash makes it difficult or impossible for her to plan her family’s fiscal future.

Digital banking avoids these pitfalls, and makes it easier to save for routine expenses like school supplies and major events such as childbirth. And women tend to be more responsible in their spending and invest more in their families, prioritizing things like education, nutrition and healthcare, said Melinda Gates of the Gates Foundation.

Women in developing countries are still less likely than men to own mobile phones. For example, 44 percent of Bangladeshi women have them compared to 72 percent of men.

The gap represents a potential $170 billion market over the next five years, according to the GSMA, an association of mobile operators.

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Better-Connected Banking

While many of these mobile systems are still limited to a single network, country or currency, this is slowly changing.

A new mobile savings platform called Vumi, launched in South Africa in August, is designed to work on any network or mobile-money provider — and empower women at the same time.

The pilot project is part of a nationwide program aimed at encouraging young girls to save money through their phones. Instead of relying on slow and expansive bank or wire transfer networks to transmit money, it uses a low-cost, open-source protocol called Stellar.

In the largest sense, everyone stands to benefit from these technologies.

A 2011 Telenor survey estimated that mobile financial services could increase Pakistan’s GDP by up to 5 percent by 2020.

Platforms such as Venmo, Simple and Square are also starting to catch on in the developed world, says Seema Desai, Head of Mobile Money for GSMA. Yet given that penetration of mobile connections in markets where mobile money is available is still only about 8 percent, Desai says there’s still room for improvement. “Expect to see a lot more change in this space going forward.”

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