Rob Katz

Financial Services for the BOP? The Ring Tone Tolls for Thee

Recent news stories in the New York Times, Red Herring, the Economist, and others note new features that allow cellular phones to serve as mobile wallets. While no article has said so explicitly, the potential application to BOP markets is huge. Cell phones are cheaper, hardier, and more functional than ever–and low-income consumers are snapping them up, driving penetration growth rates to astronomical levels in Africa, Asia, and Latin America. Meanwhile, a lack of existing credit card infrastructure opens the door wide for cell phone-enabled wallets, which may leapfrog more naturally than in developed markets. Financial services at the BOP? With apologies to John Donne, the ring tone tolls for thee.

Transforming cell phones into wallets involves embedding contactless chips into the phone during assembly; Nokia is already planning to make this standard on all their handsets. The Economist describes how it works:

?These contactless cards do not need batteries. Instead, when a card is placed close to a reader an electrical current is induced which powers up the card and enables it to exchange short bursts of data with the reader. Such induction happens only over very short distances, which is why close proximity between card and reader is required.?

This is how Exxon-Mobil’s SpeedPass technology works. You may also have noticed MasterCard launching a similar product with commercials on CBS during the NCAA tournament. What makes this especially groundbreaking is that it doesn?t require much electricity nor connectivity, breaking down traditional barriers at the outset.

Good for gas and trips to the arena’s snack stand? Absolutely–but ultimately, just a luxury. With credit and debit cards entrenched in US and European wallets, the real growth potential for contactless chips lies at the BOP, where consumers often have no choice but cash and already own phones. The New York Times describes how

?[t]he biggest push [for mobile wallets] is coming from big banks and card companies, which hope to generate hundreds of millions of dollars in new transaction fees to offset a slowdown in credit card use. And with prepaid plans, the companies hope to reach new customers and younger customers who may own a phone but lack a checking or credit card account.?

With the big players already at work, your cell phone may displace your AmEx sooner than you think–perhaps faster at the base of the pyramid as the technology leapfrogs credit cards altogether. For whom does the cell phone toll? With this technology, no consumer is an island, and the ring tone tolls for the BOP.