How can mobile money help the emerging markets?

Details: Category: Mobile Finance; 22 June 2009; 11510 views

The GSMA's Mobile Money Summit is timely in the light of several recent developments, all of which bring home the empowerment that mobile money can bring to those called the "unbanked"...

The GSMA's Mobile Money Summit is timely in the light of several recent developments, all of which bring home the empowerment that mobile money can bring to those called the "unbanked." Analysis by Michael Schwartz.

Favourable reports from last year's Mobile Money Summit do not just underline the success of this particular conference -they reflect a trend in telecommunications which has already brought benefits to many mobile users in the new and emerging markets. And a trend whose deliverers are looking towards the next 100 million beneficiaries.

The GSMA's event asks (and tries to answer) a number of questions. For example, having realised that mobile money is now a mainstream area of business, the event will attempt to define its size and potential revenue. Any enterprise trying to get involved with mobile money has to ask whether people earning under US$2 per day really have the potential to connect in the first place. One logical answer is that it is the relative(s) working overseas who can pay for the relevant running costs on behalf of the people they have left behind.

What has emerged from the GSMA is its Mobile Money for the Unbanked (MMU) Programme. MMU aims to unite industry players with a view to sharing learnings from the market, to educating that market on m-banking opportunities and to supporting mobile money deployments targeting the unbanked. MMU's target is for 20 million unbanked consumers to have access to financial services by 2011; the target's "bullseye" is those people with incomes of under US$2 per day.

(Developing Telecoms reported last month (Bharti Telesoft helps found GSMA Mobile Money for the Unbanked Programme) that Bharti Telesoft had been invited to become a founding member of the GSMA's MMU Working Group. Behind the invitation is Bharti Telesoft's own work in developing and deploying m-banking in the emerging markets).

There are many organisations that can help and, for that matter, hinder mobile money. For example, there are policy-makers who are well aware that one billion people worldwide do not have access to a "normal" bank account. They have recently been adopting the cause of mobile money, whether to allow the "unbanked" to benefit from mobile banking or to maintain greater scrutiny over the latter's financial affairs.

What mobile money can replace

The view of politicians in the developed world may be summed up in the words of UK Minister for International Development Mike Foster: "Mobile banking services offer millions of poor people a route out of poverty by helping them to improve their incomes and pay for healthcare and education. It is vital that policymakers ensure that the needs of the poor are central as they develop regulation for this innovative and emerging sector."

It is also noteworthy that at the recent second Global Leadership Seminar for high-level policy-makers and regulators several delegates came from some of the most important players in developing telecoms: Argentina, Bangladesh, Brazil, India, Kenya, The Philippines, and Russia. Mobile money and empowering the unbanked are real priorities for these countries - if they are already successful in mobile telephony, they will have realised the potential from mobile banking.

There will, of course, always be those who want to regulate a development like mobile money. One wonders whether these people really have the interests of potential customers as their main priority. There is, too, the risk that the existing banking structure will shrink as there are fewer customers wiling to pay higher interest rates and charges, and having to travel long distances to perform transactions within a bank. Will cuts in charges and interest rates follow as mainstream banks strive to compete?

In addition, people with more money might move around "disturbing the social order and mobility." This was, after all, a claim made when railways allowed people to travel more freely..

That some standards and specifications are needed is not to be doubted. The Global Leadership Seminar saw mobile banking as a triangle marked out by customer, provider and local merchant, the latter being the interface between the value registered on the customer's mobile and the local cash economy. Challenges to this scenario include the usual suspects, ie, financing terrorism and money-laundering, but on a more everyday basis consumer protection, mutual trustworthiness and combating monopolies all play their part.

Get someone big on your side

Also at this year's Mobile World Congress was the micro-finance group Consultative Group to Assist the Poor, which has the backing of Bill and Melinda Gates. If anything does demonstrate the need for the backing of a super-power, this must be the case in point. CGAP's Technology Programme presented some of its latest findings concerning client uptake and business models that make mobile banking work for poor people. As examples:

in the Philippines a bank branch transaction costs US$2.50 but only US$0.50 if on a mobile phone, while some m-banking commissions still fall short of what merchants earn from other products, eg, toothpaste makes a 10-12% profit margin but performing a mobile banking cash-in transaction earns just 1%;
in Pakistan the cost of setting up and operating an agent is 76 times lower than that of a bank branch; and
in Brazil, probably the most developed market where correspondent banking has taken hold, over 70 institutions are currently managing around 105,000 agents reaching nearly 6,000 municipalities.

At present, CGAP is providing funding and technical support to a South African operation called Wizzit, where the aim is to bring mobile banking services to poor South Africans living in small towns and rural areas. To date, Wizzit's mobile banking service has primarily been taken up by urban South Africans, presumably of the type who designed its visually spectacular website. One just hopes that electricity in the less affluent areas remains "on tap" long enough for local users to call up the home page and then select from its sumptuously designed menus.

Cynicism apart, Wizzit still wants to accomplish the following in remote areas:

facilitate easy Wizzit account opening and preferential pricing at outlets of retailer Dunns and DFX (a leading South
African retailer) in Limpopo Province (in the far north of South Africa) and Gauteng Province, with plans to expand to 300 stores nationwide;
enable consumers in Limpopo to open a Wizzit account with a single phone call and collect their bank card from 288
branches of the South African Post Office; and
set up a mobile phone banking payment service for five major wholesalers serving more than 500 spaza shops in the
township of Motherwell (where three in five people are unbanked) on the south coast of South Africa. To date,
Motherwell's distributors have used cash, which is costly to handle and presents security risks.

And if you cannot obtain the support of the Gates family, try one of today's more dynamic operators, Zain. Developing Telecoms has often expressed admiration for Zain's achievements.. Enter a service aimed at 100 million people in Kenya, Tanzania and Uganda, a region where 80% of Kenya's population and 95% of Tanzania's and Uganda's populations do not currently have access to banking services.

Known as Zap, the service is claimed by Zain to "provide the most comprehensive and accessible package of mobile banking features currently available on the African continent...Zap represents the most comprehensive mobile banking service ever launched and will provide millions of people with access to banking for the very first time."

The last paragraph may be ambitious to put it mildly but Zain will partner with Citigroup and Standard Chartered. Both these highly experienced banks will help Zap customers in the three countries to use pay bills, goods and services, receive and send money to friends and family (as well as to bank accounts), withdraw cash, top up airtime accounts and send airtime to Zain customers in East Africa. The latter will be via Zain's One Network service.

What is more signing up will be free: Zain customers can complete an application form and hand it over to registered Zain agents in tens of thousands of villages, towns and cities across East Africa. Zain will then provide the customer with a mobile wallet, which will allow them to use their mobile phone in much the same way as a bank account debit card and manage their money through their handset. The service is supported on all handsets including ultra-low-cost handsets (ULCH) which Zain is rolling out across the continent.

Trials so far are looking good: during a three-month trial phase the service was used by several international companies, including Coca Cola who used it to pay their dealers in Tanzania.

...and it may lead to competition

If Zain's presence in Africa is not enough, then one can always find out what another major operator in Africa is doing. South Africa's MTN Group has just invested almost US$10 million in bringing banking facilities to a potential 80 million subscribers across 21 countries in the Middle East and Africa. One can only imagine what MTN thinks of Zain and what Zain thinks of MTN...

Contract beneficiary is Fundamo, which claims to be "the world's largest specialist mobile financial services provider." Fundamo's Mobile Wallet solution will power MTN's MobileMoney service via what has been dubbed "the largest mobile banking software deal ever to have been announced." The two enterprises have already been active in South Africa and success there has triggered expansion into 20 more countries.

Fundamo has specifically designed its Mobile Wallet version 3.1 to meet the needs of MTN's subscriber base. It is SIM-based and uses technologies that offer ATM level security, as well as a PIN system that prevents sensitive information from residing on the handset.

On a more regulatory note, Mobile Wallet is designed to comply with all banking and accounting regulations, enabling banks to log in to the system and manage the banking elements of the service while MTN focuses on customer acquisition and retention.

MobileMoney, in addition, does not require users even to set up a bank account. Instead it offers money transfer, mobile payments, balance checking, mobile purchases and real-time airtime purchases. To round off the facilities on offer MobileMoney customers can turn up at an ATM with a branded MTN MobileMoney debit card that can be used to withdraw cash from ATMs.

Zain and MTN are obviously aware of their target markets and their announcements show their awareness of how restricted their clients' means really are. When one of the two companies, Zain, talks about ultra-low-cost handsets one thinks of those people in the developed countries who showed interest in the sub-US$30 handset. Experience of the developing regions of the world may yet inspire companies to offer "developing" products to those who are cost-conscious in the developed sector.

You can still think small

Our final case-study involves a country which has scarcely appeared on Developing Telecoms' radar but which has just attracted investment from both a telecoms service provider and a billing and mobile money solutions provider. Gabon can expect to experience convergent billing and mobile money solutions from Redknee Solutions of Toronto, commissioned by the Bahrain-based Bintel.

What Bintel envisages is a means to differentiate its offering and provide an enhanced subscriber experience when it extends its mobile service in Gabon later this year. Bintel is confident that it will "soon be rolling out advanced personalised services to its subscribers at a reduced delivery cost, bringing value-add to the highly penetrated market of Gabon."

Redknee's solution (intended for pre- and post-paid voice, data, and messaging) is designed to deliver a platform that extends beyond basic rating, charging and billing models, and that will enable operators to differentiate service offerings in competitive markets. It is supported by the company's Mobile Money Airtime Reseller, which "enables voucherless, prepaid wireless airtime top-up, and addresses the needs of many high-growth network operators and their subscribers."

Historically, the purchase of prepaid top-up minutes has largely occurred through a physical voucher-based distribution system, which can prove difficult to support in remote, rural regions. Voucherless top-ups are completed through the electronic, mobile-to-mobile transfer of minutes from a local reseller to the subscriber, boosting the productivity and efficiency of all entities involved in these services.

Bintel has emerged as a telecoms service provider in West Africa ready to expand market share in the Central African Republic and Somaliland. The company seems ambitious enough not to want to stop at just a handful of countries and may well be aiming at rivaling the mobile banking giants already discussed here. US$250 million has already been assigned for investment in the region although with just a handful of markets at present one wonders how much more than this sum will have to be committed by Bintel to join the big players - and whether the sums that will be spent by extremely poor customers (albeit with more affluent relatives working abroad) will justify the expenditure.

Conclusion

This website is, of course, biased in favour of the new markets in communication. We still believe that Africa can play a pioneering role in m-banking - the existing giants are showing that it can revolutionise the finances of some of the world's poorest citizens. The vastly more affluent nations too can learn from these developments.

And yes, there is one overall advantage that mobile money in the emerging markets possesses. There may be a recession in the G20 countries where fortunes are being lost. In the case of the new markets there is often no money to begin with so there can be no further suffering: the only direction is up!

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