Mobilising the Unbanked

Date: 4/6/2009

A PDF version of this document can be downloaded here 

MAKING MOBILE WORK FOR THE WORLD'S ‘UNBANKED'
Mobile Money Services Are Crucial To the Future Inclusion
And Economic Development of Unbanked Populations
according to Norman Frankel, CEO of Mi-Pay

Around the world, there is a new mobile revolution underway - one that will pave the way for greater personal financial freedom and economic success. While the West has yet to feel its force, developing countries are now embracing ‘mobile money' as a powerful solution to their socio-economic needs. Whether accessing cash in rural communities, transfering funds to family and frends, or making domestic payments for goods and services; mobile money has the ability to reach the unreachable - turning ‘banking for the ubanked' from a political pipedream to a social reality.

So what are the true market drivers behind this? How are banks and mobile operators responding; and how will mobile financial services evolve?

A Different Perspective

Across the developed World, access to financial services is largely ubiquitous; there is an abundance of cash and credit on demand, from multiple channels, any location, 24 hours a day. It's a very different story in the developing World; here, cash rules and microfinance is the norm. Your trade goes as far as your hard currency will take you - usually about 20km (as far as can be walked in a day).

So why should banking be extended to these areas? Who will benefit - the people or the banks?

According to the United Nations ‘inclusive finance' is one of the best tools available to alleviate poverty and contribute to global development. It believes it can help poor households meet basic needs such as adequate housing, healthcare, and education for their children; and that it can tap into the entrepreneurial spirit of poor people, which is vital to eradicating poverty.

With worldwide mobile phone penetration at an all time high - outnumbering PCs, TVs, and land phones - there is a unique opportunity to deliver a new breed of financial services to remote and rural communities and other disenfranchised populations.

Payments Driving Demand
The key to making this vision a reality is by focusing first on PAYMENTS, not banking. Bank accounts are for people who understand banking. Payments are an inherent part of everyday life for the vast majority of people on the planet. Indeed, it is mainly the lack of a payments infrastructure that is currently driving the phenomenal uptake of mobile initiated money services.

In developing countries, such as Africa, where there is insufficient revenue from payments to justify the capital expense of rolling branch networks out across large geographical areas, Mobile initiated domestic financial services such as M-Pesa, Zap and Saraf are already filling the vacuum. Most potential customers here have never experienced "banking" as such and don't actually need it in their normal lives. They simply want to make payments in a cheap, safe and effective manner.

In fact the continent's demand for mobile payments is so great that it is now leapfrogging the West in terms of technology, applications and service roll-out.
Initiatives such as Saraf Mobile, one of the world's first mobile person-to-person, agent-based services, have already gone live in countries such as Sudan with many other roll-outs planned across North Africa.

In MENA and Eastern Europe, mobile payments/banking has also taken off - albeit more slowly. Here, these initial payment led services will expand hugely to encompass all financial services such as micro-finance, micro-insurance, pensions, savings plans, etc; and will become a critical factor in the development of inbound tax collection and outbound government payments.

The MENA region specifically lacks national payment switches to connect the various mobile/legacy banking services together. Operators and banks will need to partner through the national bank who can then sponsor a "light touch" regulated service to the local Government such as that already adopted in Pakistan.

In the US and Europe, the story is somewhat different. Mobile payments have to compete with many established channels and most consumers prefer to do domestic banking on their home PC. Although eager to promote new technology such as NFC, there is simply no solid commercial business model in place to make it viable. This will always be the case until there is first a contactless card network in place across most major retailers; and consumers start using it in big numbers. Consequently, mobile will always be a niche payment channel in mature banking markets.

Getting Value From Airtime
In many areas of the World, pre-pay value is becoming an informal payment currency in its own right with people settling small debts by instantly transferring pre-pay balances between handsets. It is possible that international top-up across country and operator boundaries will also become a major force in the transfer of value across the world.

Unlike money transfer, purchasing an international or domestic pre-pay top-up is simple, quick and effective with the value arriving directly onto the recipient's handset in a few minutes at most.

At Mi-Pay, we already provide airtime transfers to several recipient market operators in Europe, the Middle East and Africa on a white label basis through our GlobalTopup service (www.globaltopup.com). This is proving highly attractive to European based operators and MVNO's wanting to address their local ethnic markets.

Global operator groups in the developing world also provide potential access to pre-pay top-up distribution networks. These are critical because they are extremely efficient at processing small cash-based transactions across entire countries through huge distribution networks employing thousands and thousands of agents.

Mi-Pay operates a service called StreetVendor that equips those top-up agents with a mobile phone loaded with a Java applet that eliminates the need for scratch-cards and coupons. Its main function, however, is to provide a cash management service that enables the agent to act as a mobile ATM processing cash both ways.

On one hand, there is a readily identifiable market of potential international transfer recipients, and on the other, a means of providing a "legal" money transfer service that offers the recipient all the advantages of a ‘Hawalla' like service - delivering value in the form of airtime or currency through the mobile phone, and using pre-pay agents to provide the cash-out leg of the remittance service.

Show me the Money...
Although M-Pesa has been a huge success, there have been problems in providing sufficient cash funds at remote locations. These generally tend to run at a net cash deficit with money being transferred from those relatives based in cities to their family and friends in the country.

One option is for scheme owners to facilitate a deal with the pre-pay phone top-up distributors who typically distribute top-up value in the form of vouchers, coupons or scratch cards that they buy in bulk at a discount from regional operators or super distributors.

Mi-Pay, for example, provides a voucher-free, electronic top-up service that enables each prepaid outlet to sell pre-pay phone top-ups to consumers; using the received cash balances as part of the overall working cash balance. This in turn supports both domestic and international money transfers. This scheme can also be extended to include the distributors of various consumer product goods (CPG) including soft drinks, household goods, cosmetics etc. All these various cash based transactions can be managed through a simple ‘GSM-aware' POS terminal or mobile phone that connects to the Mi-Pay service.

Over time, as the number of consumers using the service grows - and trust in mobile phone based payments develops - the actual need for cash, particularly in these regional areas should start to decline sharply. It may also pave the way for broader introduction and social acceptance of card-based payment services.

Banks v's Operators
Both Banks and Operators are eager to use mobile services as a tool to extend geographical reach, secure custom and build loyalty. Rather than battling over ownership the most successful players will be those who are able to collaborate.

Successful implementations have largely been in the form of joint ventures between banks and mobile operators. The bank acts as guarantor and licensed deposit holder and the operator acts as the distribution channel, creating networks of cash-handling agents acting as recruiters, mobile ATM's and advice centres that interact with consumers across the entire country.

Both typically rely on a third party service provider such as Mi-Pay to provide the mobile financial infrastructure elements. It is these companies that are the real technical innovators acting as the glue between the banks at the back-end and the operators at the front end.

As the mobile financial system evolves into near real-time national payment switches, this innovation will enable businesses, entrepreneurs and consumers to instantly exchange value with each other in a way that simply is not possible in the "west" even now.

Freedom for the Developing World
Mobile banking is only the beginning of a hugely innovative journey that is only just starting to gather pace.

In most countries, the killer application behind demand will be ‘payments'. It is likely that initial localised payments services will mature into two or more competing national ‘payment switches' in each country with connecting gateways to each other and to the central bank.

There will be no need for Visa or Mastercard and the inherent cost that entails. International transfers will happen through the partner banks or central bank as dictated by the National Government of each country who will reap the rewards of a slick and efficient PAYMENT service that will probably add anything between 2-5% (or even more) to their GDP.

‘Banking' as we know it will come much later; once these services are mature and local consumers trust the companies to hang onto their money over the longer term. And when it does come, it will not look or feel like Western banking but will have evolved into a new species of financial service. One with its own unique business and operational models; with customised services that reflect the real needs of indigenous populations; and which offers unprecedented freedom and financial inclusion to people throughout the developing world.

About Mi-Pay
Mi-Pay is a leading company in all aspects of mobile money, and provides an innovative range of products  and services that enable consumers around the world to undertake safe and secure financial transactions from their mobile phones.

With its International HQ based in the UK, Mi-Pay recognises the need to be local as well as global and has offices and operations in Dubai, Romania, and India, bringing a global perspective to the provision of secure transactions from the consumer's handset through to settlement.

Mi-Pay has vast expertise and service offerings that span mobile money transfer, mobile initiated payments, mobile banking, and pre-pay top ups. For more information visit: www.mi-pay.com.