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Friday, December 21, 2007

Seeing the Forest, Not the Trees - On Mobile Banking

By Al Hammond

GCash in ActionI found Peter van Dijk's comments on Ana's report from the Mobile Banking Conference interesting but not convincing. Not surprisingly, the evolution of mobile phone banking has not been without false steps, fraudulent operators, and systems that have flaws. But evolution also tends to produce winners that survive because they solve those problems. And the experience with G-Cash and Smart Money in the Philippines, with M-Pesa in Kenya, and, yes, with Wizzit in South Africa is that customers on the whole find a significant value proposition.

If these systems didn't work, didn't protect their customers' money, and didn't deliver value, they would hardly be growing at the rate they are. M-Pesa already has over 1 million customers (in 9 months), and the buzz on the street is very positive. But let's not pretend that these services are perfect, yet, but rather ask: What is the alternative for the several billion people who are unbanked?Microfinance has had decades to fill that need, and has not--yes, it is very high value for most of the 100 million customers it does reach, but still a drop in the bucket. Mobile phone banking, on the other hand, has a realistic potential to add 1 billion customers to the banking system in the next 5 years (indeed, more than 1 billion low-income people in developing countries already own mobile phones). That potential is the big picture--the forest. It is especially important to many rural people who live far from banks and from micro-credit sources.

Of course, the evolution of mobile banking systems is hardly finished. A big remaining piece is enhanced security--to protect customers against fraud, and to protect banking systems against money laundering and other sophisticated criminal activities. But even this issue will yield to progress. In fact, we at WRI have recently completed research that suggests a biometric identification system on mobile phones is within easy reach--and we will be publishing that research next month.

We believe that much more secure ID for mobile transactions (including remittances) will greatly improve consumer protection and up the barriers to criminal activity--thus removing one of the main hesitations of banking regulators to the rollout of mobile banking. That in turn should accelerate what already seems like the next big wave of value-added services over phones in developing countries, with growing activity in Africa, Latin America, and Asia.
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