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Virtual Banking For The Poor

August 7, 2008

One billion poor people will now have access to banking thanks to the help of the mighty cell phone signal.

Grameen Solutions, an affiliate of Nobel Prize winner Muhammad Yunus’ Grameen Bank, is working with Obopay Inc., a for-profit mobile payment company based in California.

“Today, it’s difficult to reach these people,” Obopay India Executive Director Aditya Menon said in India’s financial capital, Mumbai. “If you solve that problem, you are enabling them to enter the economy.”

By the year 2018, the joint venture wants to launch pilot programs in India and Bangladesh in October and aims to reach 1 billion people globally. They plan to keep costs ultra low – possibly through the help of charitable foundations.

Obopay, whose partners include Verizon Wireless, Citigroup, BlackBerry maker Research In Motion Ltd. and AT&T Inc., is already active in the U.S.

Obopay customers, who want to send money, pay 10 cents per transaction. They can also transfer money between bank accounts, credit cards and phones via text messages.

Obopay founder and CEO Carol Realini did not comment how much transaction fees would be for India and Bangladesh.

Mobile banking services have been popular in the Philippines, Kenya and South Africa

The payoff could be big for companies providing these services. According to an estimate by the Boston Consulting Group, those who are “unbanked” in China, India and Brazil alone could generate $85 billion in banking revenue by 2015.

In January, India’s ICICI Bank Ltd. (IBN), the nation’s second-largest bank, launched a mobile banking system. The 100 million customer State Bank of India has tapped Indian telecom Spanco Telesystems & Solutions Ltd. to set up its mobile banking systems.

A second public bank, The Bank of India, also plans to launch mobile services soon, allowing customers to transfer funds, pay bills and even buy movie tickets over the phone.

All banks have to wait for the finalization of India’s mobile banking guidelines, which the Reserve Bank of India says will happen soon. Reserve Bank spokeswoman Alpana Killawala says she can’t specify when “soon” might be.

Until that happens, Indian banks are restricted to offering informational services, like account balance and ATM locations.

Killawala noted the Reserve Bank supports nascent technology. She pointed to a pilot project with a women’s group in a remote district of Andhara Pradesh. It’s a largely rural state in southern India, where the participants, most of whom could not read and write, found the technology “convenient to use.”

Dean Tong, a managing director at the Boston Consulting Group, said the idea began to pick up speed by accident about four years ago. That’s when Globe Telecom Inc. let cell phone users in the Philippines transfer wireless minutes to each other.  The poorest consumers turned the minutes into a currency.

Globe then introduced G-Cash, which allows customers to transfer funds by text message.

Like mobile phone technology, mobile banking could be another area that the developing world beats the developed world.  For example, India and Cambodia have often skipped landlines in favor of installing only mobile phone technology.

It’s also easier and cheap to improver rural cell coverage than it is to build countless bank branches to serve a billion people living in remote areas.

According to the GSM Association, a mobile phone trade group, three billion people have mobile access with emerging markets responsible for 85 percent of new connections.

There are still hurdles to mobile banking, including carriers that must have broad enough coverage to connect urban and rural users. It could also be hard sell to villagers, many of whom are new to the concept of banking, that a virtual bank is a safe place to keep their hard-earned money.

“The trust must be there,” Tong said. “‘Put your money here, and oh, by the way, there’s nothing actually there.’ That’s a bit of a hard sell.”

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