NSL Blog

The transformative power of mobile money

February 7, 2013

Excerpt for chapter 5 : economic, organisational and societal transformation through mobile communications

In researching how mobile money, m-money, or m-banking is going to play an important economic role, I turned to my good friend and mobile industry expert Tomi Ahonen, who helped me understand that in the western world, we have credit cards, debit cards and bank accounts, and, for us, mobile payments offer some improved convenience. It won’t really change our lives. But most people on the planet do not have access to a bank account. Banking is very poorly developed in all African countries compared to the industrialised world. There are significant challenges to getting banking services working in Africa, ranging from the high costs of opening an account to very limited bank branches and services and remarkably bureaucratic requirements to verify identity – on a continent where identity documents are not always available. For them, cash can be a very serious issue. Imagine being poor in Africa, earning a dollar a day – 40% of Egyptians earn less than 2 dollars per day, and Egypt is one of the more affluent African countries.

A dollar a day: If you earn a dollar a day, and are paid once per week, that six dollars  is a fortune. The streets are not well lit, there aren’t many cops around, but there are plenty of AK 47 Kalashnikov assault rifles to help the criminally inclined to increase their wealth. Estonia saw they had crime related to parking meters. They eliminated cash; now all payments are in some digital form (credit cards, debit cards or mobile phones – most are on mobile) and the crime related to parking has been eliminated. Then, in Sweden, bus drivers were being robbed for the change that they carry in cash, and the Swedish authorities looked at what happened in Estonia, and decided, good idea. By eliminating cash as acceptable payment on buses (you can buy monthly tickets or pay by debit card – or pay by mobile) the robberies stopped.

Transformative: For many people living on this planet in big and small ways mobile money is simply transformative. Instead of having to walk half a day to meet someone to pay them, payment is made by mobile payment system. And as more money comes into and moves around an economy, economic growth becomes a by product of that activity. Four years after introducing mobile banking and mobile payment into Kenya, 25% of the total Kenyan economy is transmitted through mobile phones. Even if you lose your phone, mobile money is the most secure form of digital payments, more safe than credit or debit cards, and can be re-enabled by the banking and operator authorities within minutes. All you need is to borrow a friend’s phone, go pick up a prepaid SIM card and call up the operator and say your phone is lost, please disable the mobile wallet on that phone number and transfer it to this new one (and give your mother’s maiden name and your shoe size etc.) – easy! A plastic card takes days even if it is American Express.

Kenya has a 37 million population, yet there are only 3 million bank accounts. The local mobile banking system M-Pesa is, however, used by 1 million Kenyans. At least 25% of banking customers in Kenya have shifted to mobile phone-based banking. No wonder people get their full salaries submitted onto their phone. But perhaps even more radical is the development of mobile voice minutes and SMS text messages becoming a new currency. People in many countries now shift minutes from one customer to another so mobile is effectively becoming a new equivalent of money.