Technology

The New York Times recently highlighted the work of Jan Chipchase, a Nokia researcher trying to understand how the poor use mobile phones. The article includes a report that Ugandans are using prepaid airtime as an informal money transfer mechanism, particularly to get value back to family in rural areas.

“Ugandans are using prepaid airtime as a way of transferring money from place to place, something that’s especially important to those who do not use banks. Someone working in Kampala, for instance, who wishes to send the equivalent of $5 back to his mother in a village will buy a $5 prepaid airtime card, but rather than entering the code into his own phone, he will call the village phone operator (“phone ladies” often run their businesses from small kiosks) and read the code to her. She then uses the airtime for her phone and completes the transaction by giving the man’s mother the money, minus a small commission.”

We’ve seen this in many countries, such as DRC (several reports on this as far back as 2005) and more recently stories of overseas Kenyans using airtime to send value home to family members in need during the post-election turmoil.

While undeniably innovative, it also shows how sub-par other money transfer options are which the poor have available to them. Prepaid airtime as a currency substitute is quite costly in percentage terms, due to VAT (while a prepaid scratchcard is bought at fave value, VAT represents a hidden increase to the cost of minutes), operator’s discount (again, built into the cost of airtime), and a commission for whoever turns it back into cash (in the Uganda example).  We estimate the all-in cost from the Uganda example at at least 25% of the value sent. That’s quite high, and not all that far off from the high fees Western Union has been lambasted for charging with small value transfers.

Still, other options could be even more costly, especially if risk-adjusted, e.g. to account for the possibility of money lost when sending money with people. And other means also come with the hard-to-quantify but very real “worry factor” of waiting days or even weeks to know if the money arrived.

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Mobile operators find navigating financial regulation isn’t quite so easy as sailing through the telco world.

If they want to convince central bankers that hold the keys to the payments space, mobile operators will make persuasive arguments about how mobile financial services meet traditional thinking about deposits, the new domain of payment system regulation, and the hot button issue of anti-money laundering, especially when sending money across borders.

No operator better illustrates this than Vodafone and its M-PESA money transfer service. Read the rest of this page »

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RBI Executive Director R B Barman said this week that a central bank committee is examining the regulatory challenges raised by mobile banking. The committee is expected to report recommendations next month, leading next to RBI drafting the requisite changes to the country’s regulatory framework.

The report is the latest or progressively more encouraging signs from RBI that it plans to provide additional guidance for mobile banking to take off. In its Financial Sector Technology Vision document, released in October, RBI indicated it sees high potential for electronic banking to increase efficiency in retail banking. But RBI is also concerned about mobile security, particularly authenticating users accessing bank accounts remotely.

RBI is also closely watching several pilot schemes using mobile connectivity to improve access to financial services among low-income Indians. As the Economist reported earlier this month, one program in Andhra Pradesh is testing how to deliver pensions and unemployment benefits to around half a million people in villages, via specially-equipped mobile phones in the hands of local payment agents and smart cards issued to recipients. A parallel POS-based system is also being tested. So far, 40,000 cards have been issued.

What’s not yet clear is whether RBI guidance on mobile phone banking will be mostly concerned with mainstream banks providing mobile as an additional channel for current customers, or whether RBI will extend permission to some more far-reaching initiatives. Will mobile operators get a window to become licensed to provide electronic wallets for international remittances, bill payments and other payment services?

The G2P pilot in Andhra Pradesh also makes extensive use of local payment agents, and we understand at least some of these to be local merchants. In rural areas, its often the local store owner who has enough liquidity to pay out cash on the government’s behalf. But so far, RBI regulation on outsourcing doesn’t provide clear permission for banks, microfinance institutions or mobile operators to follow suit and use local merchants to extend banking services in places where bank branches may otherwise be too expensive to build. Will RBI make regulatory changes on issues like this, too?

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Conventional wisdom says cash is king. It’s cheap to use, attracting no fees or minimum balances, unlike credit and debit cards.

But the equation can radically change in emerging markets, making cash unduly expensive for financial service providers and clients alike.

Up to 70% of the 2000 ATMs installed in Pakistan are reportedly unable to dispense cash accurately. Pakistan’s has two Rs 1,000 notes in circulation, and the quality of the notes themselves can vary dramatically. As a result, ATMs routinely jam, or fail to accurately count notes dispensed. Branch-housed machines are repaired more quickly, but even there the error rate is reportedly 30%, according to a study by ShoreBank International. Consumers shy away from using ATMs, and banks’ investment in ATMs yields a diminished return, rather than cost savings they may have hoped for as customers are reluctant to give up the teller window for ATMs.

In Kenya, cash represents risk for ordinary people sending money home. Friends and bus companies are the preferred way to send money to family in other parts of the country, according to FinAccess, a nationwide survey of financial service behavior. However, Kenyans are quick to cite neither is perfect: money can too easily go “missing” with friends, and though bus companies are more reliable, the transit times are still long (often days). By contrast, clients of M-PESA, Safaricom’s mobile wallet service, say its cheaper for both them and their family, as there is often a Safaricom agent close by which will receive or dispense cash.

Cash can be costly for providers and clients alike. Moving transactions into electronic channels could make services more affordable to offer and use.

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Mobile banking and other technologies need a balanced regulatory approach

Washington D.C. (January 31, 2008) – Basic, everyday financial services are out of reach for more than two billion people in developing countries. But the rapid growth of branchless banking – including mobile phone banking – is reducing the cost and expanding the availability of such services.

“All of this innovation presents challenges and opportunities for regulators,” says Elizabeth Littlefield, CEO of CGAP. “Policy will determine not only where branchless banking is allowed, but also which business models turn out to make economic sense - and how far they will go in reaching poor people.”

Regulating Transformational Branchless Banking is a product of collaboration between CGAP and the UK’s Department for International Development (DFID), in partnership with the GSM Association, the global trade association for over 700 mobile phone operators. The authors also benefited from conducting three of seven diagnostic missions with the World Bank’s Financial Markets Integrity Unit.

Read the rest of this page »

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Monitise Launches NFC Payments and Ticketing Platform
ICICI Bank launches complete mobile banking services
Third World first: The rise of cellphone banking in India
Banking, with fingerprints and house calls

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South Africa’s mobile money
Unisys Identifies Five Security Issues Likely to Emerge Across Multiple Industries in 2008
Microfinance firms could avail of i-banking services
Even simple tech helps reduce poverty
Pakistan ends 2007 with 76.6 million mobile users
Econet sells stake to Essar to finance Kenya roll-out

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They both re-engineer something used for decades in rich countries , rethinking every assumption to make it affordable for low-income clients. And both may be safer than the alternatives poor people are already using.

Tata announced the Nano last week as an ultra simple but stylish car costing US$2500, closer to affordable for Indian families than any other new car. To slash prices, Tata engineers questioned everything conventional wisdom said is a “must have”: why not one large windshield wiper instead of two? Why does the beam connecting the wheel to the axle need to be made of solid steel? Today’s steel is far stronger than what Henry Ford started with, but no one had changed it yet. Less steel equals saved expense, and a lower cost in the quest for something rabidly cost-conscious consumers will buy in emerging markets like India.

But critics are bashing the Nano already for not getting close to meeting environmental and car safety standards like those in Europe, Japan and North America. Isn’t the Nano safer than the typical sight of an Indian family of 6 on one motorcycle, dodging trucks in traffic?

The lesson might be instructive for those watching the mobile banking space. Would mobile banking, through a licensed bank or reputable mobile carrier, be safer than the informal mechanisms poor people use now: stuffing cash in the mattress? or saving through poorly regulated cooperatives? sending money through bus drivers and friends, who might not deliver it at all? Research is needed to know. Read the rest of this page »

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Technology key to microfinance growth - Financial Insights

Mobilink registers 30 mln customers

Migration: Send me a number

Nokia Siemens deploys IVR platform for Airtel

Uganda’s first credit reference bureau to open in mid 2008

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Burried in the Economist’s recent article on “The frontier of finance” was the little number that M-PESA is about to hit 1 million users signed up for its mobile payments service in Kenya. So what: mobile banking is gathering steam. That’s old news.

But lost in all the buzz is the critical role third-party agents serve in the play for millions of low-income clients. A broad range of corner stores, petrol stations, lottery kiosks, post offices and other outlets feature prominently in the system architecture for such success stories as Safaricom’s M-PESA in Kenya, as well as in other countries, such as Globe Telecom’s GCash service in the Philippines.

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