NB Financial Innovation
NexThought Monday : Why mobile money is conspicuously ahead of other mobile-for-development sectors
If you want to change the world in some way, having an early notable success to showcase is really useful – to both inspire others and show the path. Who can deny that the global mobile money industry has burgeoned on the coattails of M-PESA in Kenya?
Yet I suspect, in hindsight, that the M-PESA effect actually would have been more effective if it hadn’t been so successful, so quickly. First, it created the wrong impression to would-be contenders that this is an easy business, a natural extension of what mobile operators already do. (See why I think it’s not). The GSMA, the global mobile operator association, still refers to promising mobile money providers as sprinters) rather than long-distance runners. Second, it scared financial regulators in many developing countries (especially the larger ones) and also some international standard-setters into thinking that mobile money could pose a clear and present challenge to the structure, stability and integrity of conventional banking systems. Mobile operators cast as barbarians at the gates of banking. Third, the performance gap between Kenya and everywhere else has been so large that it became easy to justify local failure to replicate M-PESA on the grounds of some kind of Kenyan exceptionalism.
Still, better an exaggerated success than none at all. In the same way that M-PESA became a showcase for mobile money, mobile money itself then became a showcase for m-anything: health, education, agriculture, women… you name it, it seems the GSMA’s Mobile for Development Fund now has a donor-funded program around it. I am by no means an expert in these sectors and I don’t want to pass judgment on the efficacy or potential of mobile technology’s impact within them. But one thing that strikes me is the fact that none seem to have struck their own undisputed, scaled-up enterprise. Many interesting case studies get written up in blogs and reports, but each feels small in comparison to M-PESA.
So what is it about mobile money—and in particular mobile payments— that sets it apart from the other mobile application areas? I’d highlight four intrinsic demand-side aspects, leaving aside all the business model and implementation stuff.
First, mobile money offers instant satisfaction to a need. “Do you have trouble sending money home? Do you need money, real quick? Try this, here, now.” You immediately can validate the benefits and the effectiveness of the mechanism experientially. The benefits of applications having to do with health, farming or education tend to take longer to play themselves out, and hence lack the immediate customer feedback/learning loops that mobile payments enjoy.
Second, mobile payments can propagate initially through personal and informal usage models. Early use cases of M-PESA involved sending money home, making travel without cash possible, and enabling small traders to source their goods from informal contacts further afield. Use of M-PESA by formal businesses came later, for they needed to run a business case, align their internal and external stakeholders, and find a budget to adapt their systems – all long-term activities. Most m-health and m-education activity is out of necessity, that is, connecting bureaucracies, including some major public ones. Meanwhile, a good deal of m-agriculture has to do with connecting with larger value chain players. In these sectors, it’s harder to imagine how to create a hotbed of informal use that can draw the attention of the larger, slower-footed players.
Third, mobile money is fundamentally about user-generated content. It’s my transaction, my balance. The internet has shown the value of engaging users based on what they want to say and do, inconsequential as that may appear to others, as compared to the old broadcast model where people were supplied content that was deemed right for them. Many mobile for development applications are still premised on what information the farmer or the community worker ought to know, rather than what information he/she wants to share.
Finally, mobile money requires the communication of very small amounts of highly standardizable data. To do a transaction all you need to do is to type in: who do you want to send money to (a phone number, ten digits at most), how much (maybe 4 digits), and your PIN (typically another 4.) This means that it can be made to work on the entire installed base of mobile phones, even the cheapest, and it is easy to learn the process through repetition. Most other mobile development applications have large and/or variable data entry and transmission requirements, so they typically require use of particular models of phones, which introduces significant capital expenditure and support hurdles.
Despite all this, I see as much inevitability about mobile devices becoming a fundamental tool for health, education and productive systems in developing countries as money management. The opportunity to leapfrog the PC-based environment is simply too large. The above considerations merely suggest that we should expect a more natural step-by-step process in the impact that mobiles can have in various development sectors. There are good reasons why mobile money is running first.
The good news for the other sectors is that if there is an inclusive and effective national digital micro-payment system in place, the scope for developing mobile health, education or agriculture applications will be that much larger. Money is a basic enabler, so it’s just as well that it go first.