Seeing the Forest, Not the Trees - On Mobile Banking

Submitted by Al Hammond on December 21, 2007 - 13:29.
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I found Peter van Dijk's comments on Ana's report from the Mobile Banking Conference interesting but not convincing. Not surprisingly, the evolution of mobile phone banking has not been without false steps, fraudulent operators, and systems that have flaws. But evolution also tends to produce winners that survive because they solve those problems. And the experience with G-Cash and Smart Money in the Philippines, with M-Pesa in Kenya, and, yes, with Wizzit in South Africa is that customers on the whole find a significant value proposition.

If these systems didn't work, didn't protect their customers' money, and didn't deliver value, they would hardly be growing at the rate they are. M-Pesa already has over 1 million customers (in 9 months), and the buzz on the street is very positive. But let's not pretend that these services are perfect, yet, but rather ask: What is the alternative for the several billion people who are unbanked?

Microfinance has had decades to fill that need, and has not--yes, it is very high value for most of the 100 million customers it does reach, but still a drop in the bucket. Mobile phone banking, on the other hand, has a realistic potential to add 1 billion customers to the banking system in the next 5 years (indeed, more than 1 billion low-income people in developing countries already own mobile phones). That potential is the big picture--the forest. It is especially important to many rural people who live far from banks and from micro-credit sources.

Of course, the evolution of mobile banking systems is hardly finished. A big remaining piece is enhanced security--to protect customers against fraud, and to protect banking systems against money laundering and other sophisticated criminal activities. But even this issue will yield to progress. In fact, we at WRI have recently completed research that suggests a biometric identification system on mobile phones is within easy reach--and we will be publishing that research next month.

We believe that much more secure ID for mobile transactions (including remittances) will greatly improve consumer protection and up the barriers to criminal activity--thus removing one of the main hesitations of banking regulators to the rollout of mobile banking. That in turn should accelerate what already seems like the next big wave of value-added services over phones in developing countries, with growing activity in Africa, Latin America, and Asia.
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Comment on Al, mobile banking
Submitted by Peter van Dijk on April 12, 2008 - 06:39.
Dear all, I am more than surprised by the absence of common sense and depth of analysis that seems to found Mr. Al Hammond's reasoning. Reading his focus on the apparent great trends in mobile telecommunication and laying that next to the needs for financial services with the poor and rural peoples of this world. This naivite is near criminal in itself. If Mr. Hammond would only work daily in environments where the rural poor are uninformed, uneducated and distrustful of depositing the money they depend on for day-to-day life, their so strong need for guaranteed safe alternatives to the unsafe, unstable environments they now manage their money in, he would be ashamed of his for me unbearable lightness of arguments. I hope soon he will take (any kind of) responsability for the losses of money of poor people through fraud and mismanagement, especially in structures motivated by socio-political objectives. If things were so simple, then it will be a piece of cake for the great minds of Muhammad Yunus, Prof. Jefrey Sachs (UN SG Advisor) and Sam daley (MicroCredit Summit Director), and their widespread following and funding to reach the Millenium Development Goals (MDG) in now less than 5 years isn't it with microcredit. I bet my career they will not reach those goals and they will not take responsibility. For Micro-Finance to achieve its potential, which it certainly has, it requires full ownership, long-term commitment and capabilities of governments in the countries that face mass poverty challenges. If they do not take that responsibility, structure the process and acquire the right skills, and if socalled donors do not integrate their support fully into those local processes, FAILURE is guaranteed, obviously. Just to end with a simple question: how do you think 100.000% inflation rate in Zimbabwe can be reduced and by whom other then the population with its government? That directly affects the value of money and of financial services - where is the role of mobile technology there or of whatever magical solution? Anything else but trying to improve government - peoples relations is but windowdressing and paparazzi entertainment (over the backs of hungering and fleeing peoples). Certainly technology can have a role, but only on the basis of sound real structures and controls that ensure and further enhance trust relationships. Kind regards, Peter
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