Mobile banking for the unbanked is HUGE! M-PESA now has over 10 million customers and 18,000 retail outlets, mainly in Africa, but they are already expanding beyond their African roots. G-Cash in the Philippines is now conducting P3.5 Billion (USD 75m) of transactions a month. Banking for the unbanked has arrived in no uncertain terms…
Banking on the Unbanked
Mainstream financial institutions generally shy away from developing economies because of the premise that low-income populations do not save and are bad borrowers. However, the microfinance revolution effectively shattered these myths by demonstrating that when poor households have access to financial services, not only do they save, but they also have high repayment rates and low default rates when they borrow. Muhammad Yunus, the founder of Grameen Bank (essentially meaning “Village” Bank) in Bangladesh, was awarded the Nobel Peace Prize in 2006 for his efforts to revolutionise microcredit on the subcontinent. The future success of mobile payments like M-PESA, G-CASH and other such initiatives show that this is not a flash in the pan.
Beyond microfinance, however, one of the largest sources of income for developing economies these days is the large population of expatriates living and working overseas, who remit funds back to their families in their home countries. Peer-to-peer money remittances enable an expatriated worker to send money across international borders to family or friends.
According to the World Bank, 175 million migrant workers each year send billions of dollars’ worth of international remittances to family and friends, many of whom do not have bank accounts. In 2008, recorded remittances to developing countries exceeded $328 billion, up from $221 billion in 2006 and almost three times the level reached in 2002.21 India, Mexico, China, the Philippines and Poland were the top five recipients of remittances in 2008, accounting for more than one-third of all remittances received by developing countries.
Riding the Behavioral Shift
If the unbanked in Kenya, Afghanistan, Philippines and other such locations love mobile banking, why aren’t we doing more remittances and payments via mobiles in the west?
Some would argue that the problem is the lack of a common mobile wallet/cash standard.
I reckon if someone sends you some cash via your mobile, that’s a pretty easy way to pick up customers. If someone sends me some cash, I’m not going to complain that it’s in the wrong format – or that I’d rather use a different m-wallet. The viral aspect is one reason why mobile cash and remittances has worked so well in Africa and Philippines to-date. If someone sends you cash, suddenly you are a mobile payment customer.
Some might argue that Cash is king, and there is no real incentive to move away from the tactile experience of carrying cash.
Those people probably are those that argue that we should still have travel agents, ring our broker for stock trades, leave the mobile at home and use public telephones if you need to contact someone – seriously, this is just progress. Besides, carrying cash COSTS the banks a great deal of money – rather than being just pure distribution points for cash, banks need a different value add.
Contactless is already growing rapidly
Visa is very bullish on contactless payments, in fact, they predict that just in the United Kingdom more than 12 million contactless cards will be issued by the end of 2010, this is more than 2 million more than the previous projections.
Micro products are perfect for mobile
Right now mobile cash providers and operators are scrambling to offer new products through the already successful platform. Micro loans, micro savings products and retail discounts and offers for using your mobile cash are the dominant initiatives being rolled out. But you can bet there are many more in the pipeline.
The success of mobile cash has shown that it takes nothing to be ubiquitous very quickly in this space. All we need is for Google and Apple to deploy mobile wallet and NFC technology in their handsets and very, very fast you’ll see that it is a mass market proposition in the west. There simply is no real advantage to carrying cash anymore, in fact, everything you can do on an ATM you can do on your iPhone now – except the cash stuff. But do we need cash?
Governments will argue that having less cash is good – it prevents crime and AML issues.
Banks would save money with mobile platforms for payments.
But organized crime, gambling, drugs and prostitution might be hard hit where individuals don’t want an audit trail – oh, well…can’t please everyone.