Millions and millions of low-income, unbanked people stand to benefit (and maybe prosper) from the development of mobile financial services in the coming months. Many people already transfer payments and remittances through mobile phones, and even store and save money on them as a virtual bank. And the number of people across Africa, Latin America and Asia, without a bank account but with a mobile phone, is set to to grow to 1.7 billion by 2012, according to a recent study by CGAP (Consultative Group to Assist the Poor) and the GSM Association (GSMA).
There have been several success stories in African and Asian markets, and many efforts to expand, replicate or launch similar services, but stiff opposition from bankers and regulators has slowed development in many instances. In India, for example, the Reserve Bank of India has opposed allowing mobile-based financial services (via non-bank led model) saying it would be difficult to control the creation of credit outside the banking system. The Indian Home Ministry additionally expressed concerns regarding misuse and the possible security implications.
It is doubtful whether such obstacles can delay the progress of m-banking services for long, but meanwhile there are several technological, logistical, and security challenges that must be ironed to make these alternative financial services more inclusive for the unbanked sector. Furthermore, another CGAP study from February of two of the fastest growing mobile banking networks serving poor people—M-PESA in Kenya and GCash in the Philippines—revealed that despite their rapid growth, the providers continue to face difficulties turning a profit as well as paying sustainable fees to the small shops and agents that earn commissions on transactions.
M-PESA in Kenya
One of the most quoted success stories of m-banking for the unbanked has been Safaricom’s M-PESA in Kenya.
Since M-PESA has been launched in 2007, the service has impacted the lives of many East Africans, a significant number of whom, until then, had been unserved by the traditional banking system. By March 2009, M-PESA already had 6.8 million registered users in Kenya and that number is growing by the day.
The “early adopters” of M-PESA were most likely migrant workers in need of an economical yet reliable channel to send money “back home”. However, the benefits of the service soon drew others , who were otherwise neglected by the traditional banking system. This innovative financial service was a convenient, easily accessible and more economical channel, than the ‘distant’, traditional banking systems that had failed to include them in their ambit.
Exploring future options for the unbanked
Using the Philippines as a case in point, the CGAP-GSMA Mobile Money Market Sizing Study offers further insight into the various needs among this unbanked segment. It states:
People who use mobile money-users are not all alike. One third of mobile money-users do no remittances at all, bucking the prevailing perception of the service. A significant group use
mobile money quite intensively: more than four times per month, with more than half of their transactions going to something other than sending/receiving money, i.e. airtime top-up or cashless purchases in stores. Surprisingly, 12 per cent of low-income mobile money-users do not own their phone. These represent sub-segments of the population worth exploring further.
Operators should explore services beyond remittances and airtime top-up. Savings holds particular promise as a highly demanded service. When asked what additional services they would be likely to try over mobile money, low income-users enthusiastically said savings (65 per cent). One in ten unbanked mobile money users is already storing an average of $31 in their mobile wallet, or about one-quarter of their household savings.
In their October 2009 paper Scenarios for Branchless Banking in 2020, Mark Pickens, David Porteous, and Sarah Rotman indicate the forces that will shape the future of branchless banking include demographic changes, activist governments, security concerns, internet browsing capabilities, and the global financial crisis. According to their report, wiring the electronic retail payment infrastructure is an important goal, but it is not sufficient on its own to alleviate poverty.
Katrin Verclas, the co-founder and editor of mobileactive.org—a citizen media source that tracks developments in this area—feels that we still have a long way to go before moving money on mobiles through m-banking can truly benefit the poorest of the poor. In a blog post in 2008, she said: Mobile financial transactions do reach the poorest of the poor in two areas right now: 1. Micro-finance, where mobile financial services are being explored as a way to facilitate instant transfer of loans and repayments via mobile, and 2. Cash aid (mobile cash payments) by donor countries and humanitarian organisations which provide relief in famine or post-conflict areas.
The future is indeed bright for moving money on mobiles in many developing and middle-income countries but extending the benefits to the poorest of the poor are still elusive. Recent studies, most notably from the World Bank’s InfoDev and the British development agency DFID, indicate that there is little evidence that m-banking services as they exist today have been “transformational”.
As far as the future success of the ‘m-banking for the unbanked’ is concerned, Katrin’s observations are as follows:
In short, questions around consumer adoption and the ill-defined and complex regulations hinder this market and the potentially transformational idea of m-banking to date, requiring thoughtful approaches on both fronts and enabling environment where mobile banking can thrive.
By Aparna Ray