These past few weeks we’ve been focused on Tanzania’s experience with mobile banking. We’re not alone. Gunnar Camner and Emil Sjöblom recently spent three months in Tanzania for their master’s thesis in Media Technology at the Royal Institute of Technology (KTH) in Stockholm, Sweden. Their study attempts to investigate mobile banking services from a user perspective. In which contexts do alternative uses, e.g. savings, become popular and why? The final report will be presented during autumn 2009 and made available at the project blog: http://valuablebits.com. Meanwhile, they sent us this dispatch.

While M-PESA in Tanzania has had a hard time competing with its sibling in Kenya in user uptake, there is one way of sending money via the mobile phone that is very popular in the country. That is by using airtime top-up vouchers. The most common way to do this is to buy an airtime voucher, scratch it in order to get the code and then text the code in an SMS to the person you want to send money to. It is then up to the recipient to go out and sell the code to people who want to buy airtime, or resellers and shops that in turn will sell it to people wanting airtime. The value of the voucher is reduced when selling it the second time, in most cases by about 10% but sometimes it is reduced by up to 40%. M-PESA and Zap are much cheaper and charge about 2-5% of the value sent.

We found that most often it is the sender that chooses which way to transfer the money. Because of the extensive network of airtime resellers throughout the country, sending vouchers is convenient for the sender. Almost regardless of any shop’s main business, they will also sell airtime vouchers and on every street corner you can find people selling them, as well. So there are “voucher agents” everywhere and no registration or identification is required. More importantly, the sender does not need to find a banking branch or m-banking agent, but can send  the money from almost any location. However, the convenience for the sender is associated with an inconvenience for the receiver, who has to find a buyer for the vouchers. This means a process which can take quite some time, even weeks for larger amounts, and includes a substantial reduction in the value in order to get the cash.

We illustrate a typical use case with Emanuel, a customer care employee from Dar es Salaam. When Emanuel wanted his cousin to visit him in his new house in the city, he was told to text his cousin top-up vouchers in order to help finance the bus ticket. His cousin, who is living in a remote part of the country, asked for 40.000 TZS (about $30US) worth of airtime credit. He wanted them to be divided between the two most popular operators in his area to speed up the process of selling them. The cousin estimated that it would take him ten days in order to get a reasonable exchange rate back to cash for the airtime sent. This was the most efficient way to receive money in the village, because there are no banking branches nearby, the bus companies offering money transfer services don’t pass that way, and there is not an m-banking agent near the village yet. But people have mobile phones and use them, so there is a market for airtime which can be translated into cash.

What is the greatest benefit of formal m-banking services versus vouchers? They are reliable. The sender can calculate the exact amount the recipient will get in the end. Also, the convenience of formal services increases when it can be used for payments, savings, or used outside the agent location. The method of sending money using vouchers is likely to decrease in the near future when m-banking services become more popular. At the same time it is unlikely that it will disappear completely when there is a strong pre-paid culture and quick turnover of airtime to cash.