Ignacio Mas

The Big Idea: (UPDATED) Simple Truths About Mobile Money

Editor’s note: This post has been updated with a response from Jamie M. Zimmerman and Sascha Meinrath, of the New America Foundation, who authored the article published in Slate. Please see their response at the bottom of this post.

Wow, the role of mobile money has been hotly discussed across the mainstream media in recent weeks – even in Slate. Despite the startling title and sub-title (Mobile Phones Will Not Save the Poorest of the Poor, The cost of cellphone-based services is hurting huge swaths of the developing world) and the use of some antiquated data, there is much that I agree with in that article, and in a related critique of technology-centered development by Kentaro Toyama in CNN.

So let’s unpack some of the conclusions presented in these two articles.

Using mobile technology tends to increase the digital divide. Yes, it’s true; it’s also a matter of simple mathematics. To rise from 0 percent adoption towards 100 percent, you inevitably need to pass through 50 percent, the point of maximum divide. The fact that M-PESA crossed that line in three years or so is astounding, and to my mind it shows the strength of the value proposition to its customers. Once they are big enough – and scale is always the catch — communication and payment systems have strong network (snowball) effects because they become more and more useful with each new customer, and they naturally move toward that elusive 100% adoption rate.

Mobile solutions are not reaching the poorest. True, but that’s merely commenting on a further point on that adoption journey, closer to the 80 percent mark. Indeed, many people are still outside the grip of mobile operators. Governments could mandate mobile services everywhere, I suppose. But might the exclusion happen because these potential customers don’t have electricity to power their phones, or because they lack opportunities beyond their communities due to poor roads and market access?

Mobile money is expensive for small transfers. It’s true, the pricing of the service is not very good if you are poor and need to send a day’s wage. But it’s pretty good if you need to send a larger share of your weekly or monthly wage, which is typically what you’d do to support your relatives back home. Indeed there is much scope for making the service cheaper, but still I can’t help marveling at the fact that if you send $1 halfway across the country in Kenya, right to your relative’s village, the recipient still gets a good amount of change by the time it gets there – 88 percent of it, in fact.

Mobile money – or mobile anything, for that matter — is not the miracle cure for poverty. True, mobile money is used mainly for payments, and there’s no way people can pay their way out of poverty. The same is true for borrowing their way out of poverty. There are no silver bullets in development, and that applies to cell phones too, they’re just a tool. I do think the rate of progress of mobile money outside of Kenya tends to be exaggerated, but that doesn’t detract from its longer-term potential – as a facilitator for other non-mobile-centric stuff.

Here’s my main quibble with the Slate article: it did not mention convenience – a catch-all term for proximity, long opening hours, fast service with no lines, service by people who want to serve you, i.e. respect. M-PESA may not be the cheapest alternative available, but it has reminded us of the value of convenience to people, even if – or perhaps especially if — they are poor.

This all ties in nicely with Toyama’s main point: “What’s overhyped is a belief that mobile-centric programs are a cost-effective means to combat disease, improve education, or alleviate poverty, as if mobile or not were the essential question. What’s overhyped is a belief that mobile-centric programs are a cost-effective means to combat disease, improve education, or alleviate poverty, as if mobile or not were the essential question. What’s overhyped is technological innovation as a primary solution to complex social problems.”

Absolutely. But I really don’t see mobile money as a hot technological innovation. What could be less technologically sexy than SMSs driven off an application of a few dozen kilobytes running on the simplest of phones? M-PESA didn’t do anything that banks weren’t already doing. There really is no technological secret sauce in it. M-PESA’s breakthrough was in channel innovation: relying on independent stores rather than own brick-and-mortar branches allowed it to offer service through 100 times the number of outlets than any bank could manage. That’s two orders of magnitude improvement in convenience – sounds pretty people-centric to me.

Take out the hype: the premise of mobile money is not doing cool new stuff with cool new technology. It’s rather the opposite. It’s about simplifying banking to its bare essentials (store of value and means of payments), and leveraging what poor people already use and are comfortable with (local shops, mobile phones) rather than investing in new dedicated infrastructure (bank branches, point-of-sale terminals, and bank cards). M-PESA was a new service that was technologically merely good enough relative to the alternatives, but delivered big advantages in one key dimension that customers really valued – in this case, sheer convenience. It’s disruptive innovation in the purest Clayton Christensen sense.

Zimmerman and Meinrath Response:

Ignacio Mas offers many considered responses to our critique of how mobile money is being bandied about in the international development discourse, and he provides a well-thought out and optimistic picture of the accomplishments of M-Pesa in Kenya. We agree with his assessment of the real and potential benefits of M-Pesa (and mobile banking services generally) as a risk management and financial empowerment tool of the poor. However, his rebuttal misses the fundamental point of our article: our contention is not that M-Pesa or mobile money tools in general are hurting the poor; but that maximizing the potential positive impacts that are so frequently touted (particularly for the poorest of the poor) requires a harder look at the systems that create and control access to these tools.

Unfortunately, the shortcomings of these systems have been too often ignored in all the pro-mobile hype. To be sure, technologies exist that would ensure universal access to mobile technologies at prices vastly more accessible to those living in poverty than what is currently on offer. Indeed, the crux of our argument is not even about M-Pesa or mobile money per se — it is that without a more serious examination of the systemic barriers to universal access to mobile tools, an inevitable and increasing digital divide between the connected (haves) and disconnected (have nots) will dampen the potential for mobile solutions to help eliminate global poverty. As we highlighted in the recent expert panel on this topic, engaging in a debate on these issues is a first critical step, and we thank Ignacio for doing so.

financial inclusion