M-Banking and M-Payments for Social Impact

Posted by sharakarasic on Oct 28, 2008

On the first day of MobileActive ’08 in Johannesburg, I attended "M-Banking and M-Payments for Social Impact", with Jonathan Donner, Tonny Omwansa, Jesse Moore, Brian Richardson, and Alex Comninos presenting to a packed room. The session gave an overview of m-banking (mobile banking) and m-payments (mobile payments), including specific mobile banking solutions such as M-PESA and Wizzit.

Brian Richardson, the CEO of Wizzit, began by stressing that mobile banking is becoming more and more common in African countries. In South Africa, more than 11 million people live with cash only. 600 million in Africa don’t have access to basic financial services because of affordability, accessibility, and availability. Without access to basic financial services, it’s hard to be an economic citizen.

Richardson described Wizzit as a mobile banking solution whose motto is “banking the unbanked”. Wizzit has no opening fees, and though it’s linked to a bank account, the customer doesn’t actually need to go to a bank. Richardson discussed the challenge of recruiting new customers, which is largely through word of mouth. If people don’t have bank accounts, it’s hard for them to conceptualize electronic banking. It can be difficult for the unbanked to see the benefits to mobile banking, but according to Richardson, the advantages are many – it’s risky to carry cash, the account doesn’t get closed for inactivity, and it’s pay-per-transaction.

“12 billion rand is under mattresses in South Africa,” said Richardson. “If we take this out, the impact on the economy would be enormous.”

Political economy researcher Alex Comninos, who focuses on Sub-Saharan Africa, also pointed to the potential for mobile banking’s growth. He said there are far more people in South Africa with mobile phones than bank accounts. The unbanked often think that because they don’t have regular income they can’t have a bank account. Many people have no collateral – in South Africa, many live on land they don’t own - and no transaction histories. Due to poor infrastructure, banks can be inconvenient.

Comninos added that many current m-payment solutions, though unlikely to draw in the unbanked, are useful to the currently banked. The mobile phone adds a new channel by which the banked can do their banking. They use m-payment solutions mainly for larger transfers.

Turning to future possibilities for m-banking, Comninos said that many in Africa use airtime as currency. The ability to use airtime as currency only works with a network effect – it needs wide acceptance. Right now, remittances from abroad are mostly received from bank accounts, not through mobiles.

Comninos concluded that the unbanked will only use m-banking services if there are no transaction costs and if doing so is convenient. He said, “Serving the unbanked profitably and sustainably requires a radically different approach than regular banking.”

Tonny Omwansa of Strathmore University in Kenya and Research ICT Africa then discussed interesting usage of m-transactions. According to Omwansa, among small and medium enterprises (SME’s) in Kenya, slightly over eight out of ten transactions are in cash. There is a positive correlation between teledensity and quality of life indicators. In African countries, teledensity in is as high as 60%, or as low as 20%.

Omwansa described how M-PESA works. People visit agents who load e-value on their mobiles. They can then transfer to anyone across the country. People can also go to an agent who can withdraw cash for them. In Kenya, 93% are aware of M-PESA.

Omwansa noted that in Kenya there is a swapping of virtual currency between Zain, Safari.com, and Telkom Kenya. A cashless society exists through airtime plus virtual currency.

SME’s in Kenya are making use of M-PESA. Most SME’s in Kenya using M-PESA also have bank accounts. M-PESA is liquid, flexible, acceptable, safe, and reliable. M-PESA has also had an impact on microfinance institutions. Members send virtual funds to their group leader, and group leaders give the funds to the microfinance organization.

In terms of remittances from abroad, Mukuru.com and Mamamikes.com allow people in the diaspora to electronically send purchase vouchers for specific goods and services to relatives and friends in Africa.

Omwansa asked, “How can we make mobile banking into an ecosystem that connects banks, postal systems, rural banks, MFIs, employers, and international donors? We need interconnections between mobiles, money, and operators.”

Jonathan Donner of the Technology for Emerging Markets Group, Microsoft Research India, spoke next. He does user interface prototyping for low literacy users. He has done a lot of thinking about people with low literacy and how they can use m-banking.

According to Donner, “There is no universal m-banking experience.”

He went over the regulatory structures of m-banking, which include ‘know your customer’ (KYC) regulations that financial institutions must perform and anti-money laundering regulations.

Donner said the user experience of m-banking must consider the agent network, user languages, texting norms, and fee structures.

“People have ways of moving money already”, said Donner. “Money is moved through pawnshops, post offices, and even busses.”

Donner feels that studying use is crucial. Use is socially embedded, and the context is important. The same act regarding a family member or friend is different. There are different notions of lending versus giving versus paying. Is mobile money a wallet, a box, or an envelope? There are different ways to wrap a ‘gift’ of digital money transfer. Donner suggests that NGO’s look at use to write better questions about what they mean by impact.

He stressed that often with social mobile projects “we don’t yet know what we want the impact to be” whether it is aggregation, fundraising, new lending models, or crowdsourcing.

M-banking can be used for person-to-person (P2P) transfers including remittances or disaster response; payments such as utility bills, airtime, microfinance, and loans; disbursements such as payroll, government benefits, or NGO operations; and incentives for health or education.

Richardson added that big banks perceive m-banking doesn’t meet their revenue models. Innovation often comes from outside of the industry. Since banking is highly regulated, the barriers to entry are enormous. Doing m-banking requires marketing, education, changing behavior, and growing trust. It’s a margin business, so volumes are needed.

Omwansa said that M-PESA is now integrated with ATM’s – a user can send an instruction and receive money from an ATM. He added that there are three main models for m-banking- the technology-led model, the telecom-led model (such as M-PESA), and the bank model, which is based on creating another channel for existing business.

Jesse Moore of the GSMA Development Fund says that telecoms care more about transactions than income when thinking about m-banking business opportunities. They are stepping in as transaction agents. Lending is also evolving from mobile transactions – but it’s an extended road.

Comninos concluded that for users, m-banking advantages include a safer way to carry cash, a way to track savings, and formal integration into traditional banking as the next step. Wizzit, for example, now has a student loan.

Donner pointed out, “Don’t get hung up on the word ‘bank’.” Look at the social and cultural impact of these new transactions. Let users design the systems.”

A negative of m-banking is that cash in/cash out is difficult because of regulatory issues. Will m-banking providers become punitive like others? Should that lead to interoperability?

Moore said there is “a different model with m-banking – users can easily switch, or change SIM’s.”

From a cultural standpoint, m-banking provides amplification effects – people do more of what they’re already doing; and change effects – for example, women can control savings more.

Comninos said the negatives are “spending too much time in front of the phone” and more possibilities to spend too much.

Richardson said that for users m-banking provides safety, convenience, and cheaper cost. And often ignored but crucial: m-banking has psychological benefit in that people feel part of larger financial networks.
A negative is that acceptance infrastructure can be problematic. Money flows from the educated to the low-educated.

Donner said that m-banking may strain our inclinations to talk face-to-face. There could be family strains. M-banking may encourage families to live separately because it’s easier to transfer money.

An audience member added: “In the early history of banking, central banks evolved because one could only redeem currency at the issuing bank and that caused rigidities.”

Moore asked the panel: “What would you be an advocate for five years in the future?”

Donner said, “We’ll see operator banks and third-parties understanding family dynamics better – the poor often move money around within the family instead of buying stuff.”

Comninos said, “Transaction history is the starting point to educate people about finances. More web-based phones will allow more education.”

Richardson said, “Big banks, Mastercard/Visa, mobile operators, and Western Union all have a vested interest.”

Omwansa concluded, “We will see many players and applications developed -- there’s 12 billion rand under the mattress –- it’s about new money coming into a system.”

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