NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

I’ve always thought that the next major technology disruption would come from the developing world. This could partly be just a bias on my part (most of my career has been developing computer businesses in emerging markets). The underlying logic behind this belief is that disruptive innovations are cheaper, easier to use, and bring some type of end user value that doesn’t exist in the current mainstream solution.

Emerging markets clearly require a more affordable solution. They also require something that is easy to use due to higher illiteracy rates and limited skills. Finally, in order for them to decide to use their hard-earned money on something, it has to be useful for them. Take a look at the PC. Even if someone gave PC’s away for free, you still wouldn’t see PC’s sales go through the roof. Sure, there’d be a big bump, but not to the penetration level you see with TV’s and other basic household appliances.

Even if a PC was made so easy to use (e.g. streamline and simplify the interface with large, logical icons) so someone that couldn’t read or had no computer skills could use the PC easily, they likely wouldn’t see that much value in it. The missing element is some unique value for consumers and micro-enterprises at the bottom of the pyramid. I don’t think this value exists in PC’s today.

Much has been written, by myself and others, on the tremendous growth of mobile phones in emerging markets. I’ve even considered whether it is the disruptive innovation for the PC. Mobile phones are relatively cheap (sub $100 vs. %7E$300-$400 for a PC), easy to use, and provides a unique value (voice/text communication for personal and business use). I’m not all the way there yet, as the small size will always limit what can realistically be done with a mobile phone. Mobile phones also did not take off in emerging markets first.They first appeared in mature markets years before they started making their way into developing countries. So my premise that a disruptive innovation for the PC would come from emerging markets doesn’t hold for the mobile phone.

But there is one thing that is happening with mobile phones that has started first in emerging markets that has not yet fully appeared in the developed world. Mobile banking. I wrote an article last year about one of my favorite “disruptive leaders,” Safaricom (Kenya’s mobile operator), regarding their text-based payment service. Recently, I have seen several more examples of mobile banking and payment services. The Great Equalizer, a recent blog article by Bill Barhdyt, discussed a good example of mobile banking in the Philippines, specifically the Microenterprise Access to Banking Services (MABS) program. Some highlights from the article:

“In 1998 there were 23 million bank accounts and less than 500 thousand mobile phone users. Today there are 32 million bank accounts and more than 65 million mobile phone users. Through MABS, microloans, deposits, withdrawals, payments, etc. are all being executed via a mobile wallet based platform. The program provides wide network coverage including 700 rural banks with 2100 branches managing over $3.5 billion in assets with 6 million small deposit accounts. Of 1.5 million total borrowers 800,000 are micro-enterprise clients.”

A friend and colleague, Janine Firpo, a microfinance “guru” that is currently in Indonesia on assignment for the World Bank to accelerate the development of mobile banking solutions posted an entry to her blog entitled Why Mobile Banking Matters. She talks about why mobile banking is perfect for the large rural populations of developing countries. In a nutshell, due to the lack of local bank branches, it takes too much time and money to use a traditional bank. She also references an article on how mobile banking is beginning in Cambodia. I’m sure I could find more examples of these type of services in the developing world. But you will be hard pressed to find a comprehensive text-based mobile banking service in mature markets.

Two of my banks, USAA and Chase, have excellent online banking capabilities. For example, I can deposit checks from home using my scanner. All my banking and payment transactions are done online. But what SMS/texting capabilities do they offer? Only one: checking your balance. Sure, smart phones are becoming more pervasive in mature markets, and will eventually increase the access to interactive banking services, whether through the internet or an application, but for the forseeable future, the majority of mobile phones in the developed world will only have basic voice and text capabilities.

My prediction: these disruptive mobile banking services will eventually make their way from the developing to the developed world.