The Mobile Money Revolution - Improving the lives of consumers and businesses through enabling efficient payment systems

Notes from "The Macroeconomics of Mobile Money" hosted by Columbia University's Institute for Tele-Information on April 2, 2010.

This was a very good conference and discussion on mobile money, mostly focusing on mobile payments in the developing world, and implications on regulatory and legal frameworks. I am highlighting in particular the comments from Eli Noam of Columbia, Menekse Gencer of mPay Connect, and Judith O'Neill of Greenberg Traurig. See http://www4.gsb.columbia.edu/citi/events/mpayments

Mobile payments are the most revolutionary event in the history of finance. Uniquely, they are ubiquitous in time and space – the devices are always with us. In fact, mobile phones are the first ubiquitous communication device in human history. In addition to the opportunity in the developed world, this provides an unprecedented opportunity to address four billion people in emerging and survival markets, many living on less than $9 per day.  This combination of money and communication yields an information-rich, fungible commodity which “de-territorializes” and “de-governmentalizes” commerce, and disaggregates the macro economy. (1)

What factors characterize success for mobile financial technologies?

• Entrepreneurs need access to markets and prices. India’s NLT service provides farmers up-to-date information on crop prices. Worldstock.com provides artisans in developing countries ability to sell goods at fair trade prices to the developed world through a liquidation market. (2,3,6)
• Key leaders make public commitments to their community to serve as intermediary. For example, sanchalaks in India interface to the Internet on behalf of farmers. “Human ATMS” in Kenya disburse money for M-Pesa. Successful systems also repurpose the role of existing middlemen. For example, Samyojaks in India were formerly quasi dishonest agents now earn fees for distribution, cash handling and transportation. (2,4)
• Trust plays a role. Casas Bahia in Brazil provides installment lending for home goods for poor people, building unparalleled customer appreciation. Grameen Bank in Bangledesh uses peer pressure to ensure loan repayment. M-Pesa in Kenya enlisted the support of an exclusive agent network. (2,4)

“M-Pesa’s success was the result of a perfect storm,” Menekse Gencer, Director/Founder of mPay Connect

Kenya’s M-Pesa is obviously addressing an unmet need. They are growing six times faster than PayPal’s mobile offering in the U.S., despite Kenya’s per capita income being one hundreds times less than the U.S. (5)

“Cash is the last bastion of the underground economy, tax evaders and drug dealers,” Eli Noam, Director, Columbia University Institute for Tele-Information

“Criminals are the early adopters,” Carol Van Cleef, Patton Boggs LLP

What factors drove M-Pesa’s extraordinary success? Kenya’s underdeveloped banking infrastructure, high degree of poverty, unbanked consumers and large migrant population drove an unmet need to send money. Mobile phone penetration outstrips banked population by a factor of three to one. Safaricom is a large mobile operator with a dominant share with the wherewithal and the will to move the market. M-Pesa established a top notch, exclusive and trusted agent network. (4,5)

 Members of Maasai of Kenya using mobile phones

http://www.slideshare.net/mpayconnect/cusersmeneksedesktopfinal-preso-columbia-m-gencer

The benefits of mobile money in developing countries is systemic, societal and long-lasting. Economic activity is enhanced through the increased velocity of money, while reduced cash dependency formalizes the economy. It removes friction and acts as a catalyst to increase GDP. For example, decreasing money remittance commissions by only five percent is expected to double remittance flows, increasing incomes of rural recipients by up to a third. (5,6)

A ten percent increase in mobile phone subscriptions leads up to one percent increase in GDP. The effect of mobile money promises to be even greater. Just imagine for example, the ability of utilities in Africa to reliably send bills and receive payment without customers having to queue for hours at the utility’s office.

“Connectivity is productivity,” Iqbal Quadir, GrameenPhone founder and Director, Legatum Center for Development and Entrepreneurship at Massachusetts Institute of Technology

Sub-Saharan Africa’s 70% rural population is primed for mobile finance. Kenya is ahead of its peers in financial reform aspirations: it aspires to increase its banked population from 27% to 65% within 10 years. Many countries, such as Uganda, are nearly 100% cash-based and have virtually no national savings. Since bank account fees are three to five times higher than mobile banking fees, lower income customers are attracted to mobile finance, in which remittance comprises more than 50% of transactions.

Footnotes:

1. “The Macroeconomics of Mobile Money,” Eli Noam
2. The Fortune at the Bottom of the Pyramid: Eradicating Poverty Through Profits, C.K. Prahalad
3. http://www.overstock.com/1328/static.html
4. “The Use of Mobile Phones for the Unbanked in Saharan Africa,” Judith O'Neill
5. “Mobile Money: Catalyst to Jumpstart Emerging Markets,” Menekse Gencer
6. http://www.columbia.edu/itc/sipa/nelson/newmediadev/Empowering%20Farmers...
7. “Socio-Economic Benefits of Mobile Money Transfer,” Mohit Agrawal