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Mobile Money Substituted For Banking In Developing Nations

June 15, 2009

The Consultative Group to Assist the Poor (CGAP), a microfinance group working to expand access to financial services for the poor in developing countries, says that mobile financial services will be offered to the poor people in burgeoning markets. They believe that the increase in mobile coverage is responsible for this growth.

This would mean that over a billion people in the developing world would have access to a mobile phone, but not to a bank account. The CGAP expects this number to hit 1.7 billion by 2012, with approximately one in five using mobile money, thus creating the $5 billion market.

Bill Gates committed to helping the poor access banking services in February 2009 by pledging $12.5 million.

Mobile Money refers to a PIN-based mobile payment system that utilizes the mobile device to buy and sell anytime and anywhere. This gives the freedom to shoppers to buy products online and pay the merchant using his/her mobile phone without being physically present at the store.

Mobile money has become one of the most important issues in the wireless community, however there is a limited number of services marketing mobile money and online banking has remained a more popular, better understood mode of money transfer. 

“There’s a lot of excitement, but very little understanding what’s going on as the number of implementations is still limited,” says microfinance analyst Mark Pickens of CGAP.

The market began in early 2007 with a launch of Safaricom’s M-PESA (M is for mobile and pesa is the Swahili word for money) in Kenya, which has obtained 6.5 million customers, or one in six Kenyans.

Many mobile operators in several emerging countries have followed suit being perfectly situated to implement mobile banking services in the developing world since banks are not likely to put in the huge investment necessary to set up branches across a country. The CGAP expects the number to reach 120 mobile money implementations in developing markets.

“Customers have already purchased point of sale – it’s in their pocket,” said Pickens. 

Pickens says that telecom operators have the potential to save $2 billion on top of the $5 billion from lower customer turnover alone and that the implementation of financial services would increase their average monthly revenue per user (ARPU) by $1.10.

Only one in five Africans have a bank account. This is likely due to the repressive cost to the banks in having operating branches in remote parts of a continent where a great deal of the population survive on mere dollars a day or less.

But mobile phones are spreading extremely fast: to 270 million in 2007 from just 50 million in 2003, according to GSMA.

The range of mobile financial services in these markets has grown rapidly from text message cash transfers to paying for a haircut or dinner at a restaurant.

Telecom operators are in the perfect position to launch mobile financial services in most emerging countries because most banks know they cannot compete on their own. The banks are then satisfied to provide the necessary cash float for the systems, hoping that this will open the door for potential customers down the road. 

Pickens warns investors not to expect returns for a few months.

East Africa’s biggest mobile operator, Safaricom told Reuters last week that the two-year-old M-PESA should generate a profit this year.

Operators such as South Africa’s MTN, the continent’s biggest operator, and Kuwait’s Zain are adding services much like M-PESA in a several countries including South Africa and Nigeria, and have pilot projects spanning from the Middle East to Afghanistan.

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