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

Friday, January 15, 2010

Imagine your life if you had no access to banks, ATMs, credit cards, or savings and checking accounts — just cash that you needed to hide or carry around. It would be hard to save, plan, get ahead, take chances, or feel secure.

For billions of poor people in the developing world, that’s how life has always been — and it’s a big reason why many have remained poor. And because they’re poor, banks steer clear of them.

Enter the cell phone.

In recent years some mobile operators in emerging markets — most notably Safaricom in Kenya with its profitable M-Pesa service — have made a splash by allowing customers to send remittances and pay bills via SMS.

So far so good: millions of lives are much better for it. But what about savings? For telecommunications companies, that part is trickier.

“Regulators see savings as belonging to banks,” notes Samee Zafar, director at the consultancy Edgar Dunn & Company in London.

“Where they’re willing to give way as far as pure payments and money transfers are concerned, I think savings is going to be a much bigger battle against the regulators.”

As a result, what might become increasingly common in the developing world is close tie-ups between mobile operators and banks. Such an approach requires open minds.