Mobile Banking Conference at Chemonics International

Submitted by Ana Escalante on September 26, 2007 - 08:57.
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Last week I attended to a conference at Chemonics International by John Owens on mobile banking (m-banking). Almost every writer on NextBillion has written blog posts about this new approach to banking. According to John Owens -chief of party for MABS from Chemonics International- m-banking is the future of micro-finance and rural banking, especially in remote areas - and many people agree. With the increase in cell phone sales in the past years, more people have cell phones and therefore banking services have a broader market base in which to operate.

The advantages of mobile banking are many. It provides a more secure way of making transactions instead of carrying cash; it facilitates transactions such as deposits and withdrawals; and it makes operations much simpler for micro-entrepreneurs.

According to Business Week, Filipinos are the text messaging kings. They send an estimation of 200 million text messages on a given day. Chemonics has been leading the program called Microenterprise Access to Banking Services funded by USAID in the Philippines and it has proven to be of great success.

The new mobile banking service that the conference was about is called G-Cash. In a nutshell: an approximately 10 dollar cell phone is turned into an "electronic wallet" that people can use to send and receive all different types of payments via text message. People in the Philippines are using G-Cash to pay bills such as utilities, school tuition, as well as to purchase goods and services and receive their salary via 'text-a-sweldo' or remittances from abroad via 'text-a-remittance.'

As of March 2006, 1.3 million people were using the G-Cash system, which handles about $100 million per month. This includes microenterprise clients using their phones to bank. "Using cell phones to send and receive money isn't just something that big businesses can use," said John Owens, chief of party for MABS since 2001. "It can change the way rural microentrepreneurs operate and make a living."

I found this conference very interesting because this new approach to banking offers many advantages. First, it strengthens rural banks because they can provide more services and broaden their client base. Second, it reduces interest and transaction costs for the clients when they use these services and third, it is much more secure and simple in the rural areas of countries where banks and ATMs can’t make it and it goes a step further into having a cash-only economy.

"Text messaging is so easy for people to do," said John Owens at the conference. "Text messaging and cell phones have changed the way Filipinos live and connect with each other — and we think it will change microfinance."

To read more about the MABS project in the Philippines here’s the complete report.

Concluding, this model has proven to be a huge success in the Philippines. There are similar initiatives that have been covered on NextBillion such as WIZZIT, CelPay, Smart Money, ARYTY, and M-Pesa also CGAP has a really well documented report on M-banking and low-income consumers on the BOP. These projects are clearly a win-win situation between the people in the Philippines and the rural banks; it is interesting to see how well it is expanding.


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Mobile Phone Banking Website
Submitted by John on September 29, 2007 - 09:06.
For those interested in learning more about the work Chemonics is doing in the field of mobile phone banking and mobile commerce in the Philippines, check out the website at www.mobilephonebanking.rbap.org
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Risk of mobile banking
Submitted by Peter on November 8, 2007 - 05:16.
Dear Madam/Sir, Mobile banking is a trend promoted by people and organisations that bear no responsability for the risks in mobile phone banking, in particular foreign donors and mobile phone banking companies that in agreements explicitly transfer risks to clients or to collaborating banks. Does mobile banking really bring professional banking near to the poor? NO, it allows mobile phone company agents or simply mobile phone users to collect the money of the poor under the (mostly false) impression that the money is in safe hands, meaning professional financial services managers who take responsibility through effective regulation and supervision. As I found in my work in South Africa (Wizzit - Bank of Athens, MTN, FSB Bank etc), monetary authorities have not yet studied the issues concerning the activities and the mobile phone companies generally do not accept risk of loss of money or loss or inaccuracy of data, but transfer them to the banks. The risks of mobile phone banking have already been signalled by CGAP on the high turnover og agents in similar activities in Bresil. There are instances of mobile phone banking activities in Europe having gone bankrupt and having been sold in Southern Africa, cases that are never mentioned, leave alone studied. Finally, the most successful trend in increasing safe outreach is banks and MFIs extending branches in more effective and cost-reducing ways. Kind regards, Peter van Dijk Independant MF/FSD Consultant Toulouse, France
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mobile banking
Submitted by suresh on December 20, 2007 - 09:54.
I am surprised by the negativity in Peter's message.I have been studying the mobile banking application over last 12 months and can confidently say that it will dramatically change the banking channels across customer segments.It is perhaps safer than internet banking and truly anytime anywhere. Telcos have done a better job than banks in many countries in reaching out to lower income segments.Banks have to take advantage of the same.
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Mobile Banking
Submitted by Philippe BREUL on December 21, 2007 - 03:06.
Dear Peter, Anna and Suresh. I do agree with Peter. There is a great risk that Mobile operators benefit from their large customer base (and throug from important economy of scale) to extend their services to financial ones. Their is a huge involvement of "for profit" actors (Telecoms and banks).... If there is such a huge involvment, it's probably because there is a market, a customer need (easy to use and cost effective) and profits ! In the other hand (social one), current implication of MFIs is very low on mobile banking. Funding is completely absent except from CGAP who conducts "experiments". I would think that " the most successful trend in increasing safe outreach is banks and MFIs extending branches in more effective and cost-reducing ways" will soon (2/3years) be old memory ! Best Regards Philippe Breul, independant consultant in Mobile Banking.
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Al Hammond weighs in
Submitted by Rob Katz on December 21, 2007 - 13:33.
Thanks Philippe, Peter, Anna and Suresh for your excellent comments. I asked Al Hammond to comment, but his response was a bit longer than the comment field! So he posted it as a blog instead. You can find it here: Seeing the Forest, Not the Trees - On Mobile Banking.
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Reducing the risks of mobile phone banking
Submitted by John Owens on December 23, 2007 - 22:44.
Peter:  I am also a bit surprised by your comments and I am sorry that you did not even request information before posting this message.  Working along with the banks, the telecom, and the regulators, I can say that we have gone to great lengths to ensure the highest standards of security and ensured that all parties bear the appopriate risks as well as ensuring that the system we use in the Philippines is in safe hands.  In fact, since the use of mobile phones for banking allows for two factor authentification http://www.info.gov.hk/hkma/eng/consumer/two_factor_auth_b.htm , these transactions are more secure than traditional internet banking and safer than credit cards.  The mobile phone company we use here set up a registered non-bank financial institution that is governed just like remittance companies and is as secure and closely regulated as any international remittance agency like Western Union.  I can say that the regulators also went to great lengths to work with us and to ensure that the systems that the banks are putting in place are secure and safe.  I do not agree that the most successful way to increase cost effective banking services for the poor is by extending more brick and mortar branches since there are many areas where this would never be very cost effective.  Technology is in fact shaping up to dramatically change the way the poor bank and will significantly reduce the costs of providing financial services to millions of people. I do agree that with all technologies, whether they be credit cards, ATMs, internet banking, or mobile phone banking, there are security risks that need to be taken into account and properly managed.  We all are working to ensure that the highest standards and security safeguards are in place.
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Security, regulation and development
Submitted by Philippe Breul on January 7, 2008 - 09:08.
Thanks John for this good example of securising mobile transactions. Indeed, security mechanisms already exist. Regulation is important to assure right customer protection but can also limit innovation. For example in Kenya (with a huge development without known fraud : M-Pesa) and in Egypt (with very limited development), Vodafone is present but the regulation is different !!
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Security of MONEY, mobile banking
Submitted by Peter van Dijk on February 3, 2008 - 05:25.
Dear all, Money is the means to value exchange of goods and services. The value of printed money and the expression of printed money by data of regulated financial institutions depends on the trust that people, entrepreneurs and government together have in those print-coins-(reliable, verifiable, closely and continuously supervised)data. Mobile phone companies are mostly not regulated by monetary authorities. Why not? Because they chose not to do so. There is no business or regulatory hindrance for mobile technology companies to apply for a banking license (as retail companies such as Ford and Walmart have done, and some retailers sold their financial services companies again, such as Tesco and GE if I am not mistaken). Then they will have to comply with all common sense security standards aiming at maintaining popular faith in the value of money and financial services. Especially in poorest countries, safety, again particularly in their rural and semi-urban areas, is an important issue; thus is the security of money that all manage. It is as simple as one and one. Money is not, and will not for more than over the next 2-3 years, Phillipe's estimate -based on what?- be only electronic data. The Societe General case, with that of Barings and others we do not hear about, in which individuals can easily and over lengths of time manipulate electronic data, especially when they are not directly supervised by monetary authorities (as mobile phone companies are not), demonstrate the common sense issues of safety of money and financial services. You do not hear banks speculate too much about the issues I explained, that seems mainly the work of mobile phone companies and consultants. This all the more disappointing from consultants in developing countries who witness from premier lounge the expansion of physical assets by banks and micro-finance institutions to integrate the poor and rural peoples into the formal financial services sector. I did not say that technology cannot support money and financial services to rural and poor peoples; not at all. But it needs to support safety, not weaken it. Kind regards, Peter
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