Phoney Finance

Friday, November 3, 2006

LIFE is now easier for Andile Mbatha, who owns a hair salon in Soweto. Gone are his days of trekking to his bank, which could take two hours by minibus, to send money to relatives. Nor does he keep piles of cash in his salon any more. Last year, he opened a bank account with Wizzit, an innovative provider of financial services. He now sends money to his sister in Cape Town whenever he wants, from wherever he wants, using a simple menu on his mobile phone. Half his customers no longer pay cash for their haircuts. They use their phones to move money from their accounts to his, in a few seconds. ?This has taken out a lot of stress,? says Mr Mbatha.

About half a million South Africans now use their mobile phones as a bank. Besides sending money to relatives and paying for goods, they can check balances, buy mobile airtime and settle utility bills. Traditional banks offer mobile banking as an added service to existing customers, most of whom are quite well off. But Wizzit, and to some extent First National Bank (FNB) and MTN Banking (a joint venture between Standard Bank and a mobile-phone network), are chasing another market: the 16m South Africans, over half of the adult population, with no bank account. Significantly, 30% of these people do have mobile phones. Wizzit hired and trained over 2,000 unemployed people, known as Wizzkids, to drum up business. It worked: eight out of ten Wizzit customers previously had no bank account and had never used an ATM.

Mobile banking is just one example of a wider phenomenon in South Africa. With its odd mix of advanced capitalism and developing-world economics, the country is successfully luring people who hitherto dealt only in cash or barter to the world of formal finance. A simplified kind of account called Mzansi was launched in 2004 to reach the unbanked, and portable banks and ATMs have been rolled out in townships and in the countryside. To this fast-changing scene, mobile-phone banking looks to be a promising addition. Millions of South Africans send money to their relatives in other parts of the country. And most of these sums, which add up to about 12 billion rand ($1.5 billion) each year, still move informally.

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Source: The Economist (link opens in a new window)