MobileActive08

Session: M-Banking and M-Payments for Social Impact

On the first day of the MobileActive '08 conference in Johannesburg, I attended the session M-banking and M-Payments for Social Impact, with Jonathan Donner, Tonny Omwansa, Jesse Moore, Brian Richardson, and Alex Comninos. This session gave an overview of m-banking (mobile banking) and m-payments (mobile payments). Wizzit and M-PESA are two examples of mobile banking solutions.

Telecom and banking are the two most regulated parts of the economy. Mobile banking lowers the cost of banking. It is popular in the Philippines, South Africa, and Kenya.

Brian Richardson, the CEO of Wizzit, says that in South Africa, more than 11 million people live with cash only. 600 million in Africa don’t have access to basic financial services. It’s hard to be an economic citizen without accessibility to basic financial services. People don’t have these because of affordability, accessibility, and availability.

Wizzit’s motto is “banking the unbanked”. They recruit new customers through word of mouth. If people don’t have bank accounts, it’s hard for them to conceptualize electronic banking. But there are advantages to mobile banking – it’s a risk to carry cash, the account doesn’t get closed for not using it, and you only pay per transaction. There are no opening fees. Wizzit is linked to a bank account but you don’t need to go to a bank.

“12 billion rand is under mattresses in South Africa. If we take this out, the impact on the economy would be enormous.”

Political economy researcher Alex Comninos, who focuses on Sub-Saharan Africa, says there are far more people in South Africa with phones than bank accounts. They say “I don’t have regular income” and think because of that they can’t have a bank account. Banks are inconvenient with bad infrastructure, and many people have no collateral (lots of people live on land they don’t own in South Africa) and no transaction histories.

Many current m-payment solutions are useful to the currently banked but unlikely to draw in the unbanked. The mobile phone adds a new channel for the banked to use to do their banking. They are mainly for larger transfers – they’re not for buying milk and bread.

Many in Africa use airtime as currency. The ability to use airtime as currency only works with a network effect – it needs wide acceptance. There is no transaction fee.

Remittances are mostly received from bank accounts.

The unbanked will only bank if there are no transaction costs and if doing so is convenient. Serving the unbanked profitably and sustainably requires a radically different approach.

Tonny Omwansa of Strathmore University in Kenya is part of Research ICT Africa. Tonny discussed interesting usage of m-transactions:

* slightly over 8/10 transactions are in cash in Kenya SME’s
* there is a positive correlation between teledensity and quality of life indicators
* teledensity in African countries is as high as 60% or as low as 20%

M-PESA works by people going to agents who load evalue on their mobiles. They can then transfer to anyone across the country. You can also go to an agent who will withdraw cash for you. 93% in Kenya are aware of M-PESA. There is a swapping of virtual currency between Zain, Safari.com, Telcom, and a cashless society through airtime plus virtual currency.

Most SME’s in Kenya using M-Pesa have bank accounts. M-PESA is liquid, flexible, acceptable, safe, and reliable.

M-PESA has had on impact on microfinance institutions. Members send virtual funds to their group leader, and group leaders give the funds to the microfinance organiziation.

Mukuru.com and Mamamikes.com allow people in the diaspora to electronically send purchase vouchers for specific goods and services to relatives and friends in Africa.

How can we make mobile banking into an ecosystem that connects banks, postal systems, rural banks, MFIs, employers, and international donors? We need interconnections between mobiles, money, and operators.

Jonathan Donner of Microsoft Research, Technology for Emerging Markets Group, Microsoft Research India, has done a lot of thinking about people with low literacy and how they can use m-banking. He does user interface prototyping for low literacy users.

“There’s no universal m-banking experience.”

Regulatory Structures of Mbanking:

* KYC (know your customer – the due diligence and bank regulation that financial institutions must perform)
* Anti-money laundering
* Interest
* Bank partners

Features/User Experience:

* Agent Network
* Languages
* Texting norms
* Fee structures
* Where fees are held

“People have ways of moving money already” – these include pawnshops, post offices, busses.

Studying use is important. Use is socially embedded, the context is important. The same act regarding a family member or friend is different. There are different notions of lending vs. giving vs. paying.

Is mobile money a wallet, a box, or an envelope? There are different ways to wrap a “gift” of digital money transfer. Donner suggests looking at use to write better questions about what you mean by impact.

“We don’t yet know what we want the impact to be” – aggregations, fundraising, new lending models, crowdsourcing.

M-banking can be used for:

* P2P Transfers – current remittances/community models, disaster response
* Payments – utility bills, airtime/microfinance, loan payments
* Disbursements – payroll, government benefits/NGO operations (field staff), incentives (health, education, etc.)

Brian Richardson of Wizzit says:

Big banks perceive m-banking doesn’t meet their revenue models. Innovation often comes from outside of the industry. Since banking is highly regulated, the barriers to entry are enormous. Once in the industry, you need marketing, education, changing behavior. You need to grow trust. It’s a margin business, you need the volumes.

Tonny Omwansa: M-PESA is now integrated with ATMs – you can send an instruction and receive money from an ATM. Possible mbanking models are:

* Technology-led model
* Telecom-led model – MPesa ex.
* Bank model – another channel for existing business

Jesse Moore of the GSMA Development Fund says that telecoms care more about transactions than income when thinking about mbanking business opportunities. They are stepping in as transaction agents.

Lending is evolving from mobile transactions – but it’s an extended road.

Alex Comninos says for users, mbanking advantages include a safer way to carry cash, a way to track saving, formal integration into traditional banking as the next step - Wizzit, for example, now has a student loan.

Jonathan Donner says:

“Don’t get hung up on the word ‘bank’”. Look at what is the social and cultural impact of these new transactions. Let users design the systems. To what extent are there open standards?

In Zimbabwe, most who earn money live in South Africa or London. Domestic markets are huge compared to international ones.

Cash in/cash out is difficult because of regulatory issues. Will Mbanking providers become punitive like others? Should that lead to interoperability?

Jesse Moore says there is “a different model w/ mbanking – users can easily switch, change SIM’s etc.”

From a cultural standpoint, mbanking provides:

* amplification effects – people do more of what they’re already doing

* change effects – women can control savings more

Alex Comninos says the negatives are “spending too much time in front of the phone” and more possibilities to spend too much.

Brian Richardson says that for users mbanking provides not only safety, convenience, and cheaper cost, but also the provides a psychological benefit of wellbeing and a feeling of being part of larger financial networks.

A negative is that acceptance infrastructure can be problematic. Money flows from the educated to the low-educated.

Jonathan Donner says that mbanking may strain our inclinations to talk face-to-face. There could be family strains. Mbanking may encourage families to live separately because it’s easier to transfer money from afar.

An audience member added that we should look at the history of banking to see how interoperability could develop: “In the early history of banking, central banks evolved because one could only redeem currency at the issuing bank and that caused rigidities.”

What would you be an advocate for five years in the future?

Donner: “We’ll see operator banks and third-parties understanding family dynamics better – the poor often move money around within the family instead of buying stuff.”

Comninos: “Transaction history is the starting point to educate people about finances. More web-based phones will allow more education.”

Richardson: “Big banks, Mastercard/Visa, mobile operators, Western Union all have a vested interest.”

Omwansa: “We will see many players and applications developed. There’s 12 billion rand under the mattress – it’s about new money coming into a system.”