Question: What happens when 81% of a country’s population is unbanked, few have access to PCs, but over 55% have a cell phone? Answer: a disruptive new financial services infrastructure that reaches the population through the cell phone.
I’ve been following mobile banking/payments now for four years (2 years at PayPal Mobile and 2 years with banks) and am convinced that the action is in emerging markets… Africa, India, Philippines, etc. where there is a huge consumer financial need to address, where banks have completely ignored most of the population… and where cash is king. In Kenya, most people earn less than $1 per day. If someone actually manages to have enough funds to qualify for a bank account, the nearest ATM may be miles away from his home. And yet, everyone has a cell phone. Last summer, I traveled to Tanzania and had the opportunity to visit a Masai tribe while there. Same deal. And what about India? $1 billion people who use predominantly cash. Holy smoke! Of course, I’m not the only one who believes this. Global telecom operators and cell phone device manufacturers are now moving at light speed to get in on the action.
Less than 2 years ago, Vodafone invested in Kenya’s wireless operator Safaricom and launched a new way of moving money… using your cell phone. With some help from DFID (UK’s version of USAID), Vodafone’s m-Pesa project was up and running in a short period of time. In less than two years, over 5 million people have begun to use m-Pesa to move money to their family members and friends and to withdraw funds. Imagine what this could mean for micro-lending, remittances, and raising that $1 per day salary cap. Check this out to see how it works: http://www.youtube.com/watch?v=NSdBDZy982o
Just like wireless communications has leapfrogged fixed wire in countries that lacked a telecom infrastructure, so too will mobile payments leapfrog our “traditional” financial infrastructure that we enjoy in the developed world. The cell phone is the “last mile” to the entire world population and will be the device to access electronic funds moving forward. Today, these electronic funds are ultimately getting converted to cash in many of these geographies. In the future, cash will be supplanted with financial systems that debit the electronic funds account (a non-bank account). While this type of easy money transfer raises regulatory concerns for money laundering, fraud, terrorist support, etc. regulatory agencies will have to come to terms with this as they will be essentially unable to stop the progress (just as the Internet exploded.) I welcome this progress. Fluidity of money transfer and leveraging a device that is in the hands of the poor will enable those of us with money to help those without with efficiency never before seen. This last mile device, coupled with electronic money transfer, will help stabilize not only the global economy, but also global socio-political conditions. Of course, ask anyone who’s worked in the financial services sector and they will say “the devil is in the details” and it certainly is. But the details will be worked out. It’s time to use our cell phone connectivity not only to share ideas, but to share our financial assets. Go m-Pesa!