Mobile Banking and Payments in Emerging Markets

Post PC Era: Mobile Banking and Payments in Emerging Markets

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Beyond Voice: New uses for mobile phones could launch another wave of development

The Economist recently published a special report on Telecoms in Emerging markets which is available here. The following is an extract from that.

In a field just outside the village of Bumwambu in eastern Uganda, surrounded by banana trees and cassava, with chickens running between the mudbrick houses, Frederick Makawa is thinking about tomatoes. It is late June and the rainy season is coming to an end. Tomatoes are a valuable cash crop during the coming dry season and Mr Makawa wants to plant his seedlings as soon as possible. But Uganda’s traditional growing seasons are shifting, so he is worried about droughts or cash foods that could destroy his crop. Michael Gizamba, a local villagephone operator, offers to help using Farmer’s Friend, an agricultural information service. He sends a text message to ask for a seasonal weather forecast for the region. Before long a reply arrives to say that normal, moderate rainfall is expected during July. Mr Makawa decides to plant his tomatoes.

The Farmer’s Friend service accepts text message queries such as "rice aphids", "tomato blight" or "how to plant bananas" and dispenses relevant advice from a database compiled by local partners. More complicated questions ("my chicken’s eyes are bulging") are relayed to human experts, who either call back within 15 minutes or, with particularly diffcult problems, promise to provide an answer within four days. These answers are then used to improve the database.

Farmer’s Friend is one of a range of phone based services launched in June by MTN, Google and the Grameen Foundation’s "Application Laboratory", or AppLab. As well as disseminating advice in agriculture, provided by the Busoga Rural Open Source and Development Initiative, the new services also provide health and market information. The Clinic Finder service points people to nearby clinics, and the Health Tips service explains the symptoms of common diseases.

Lastly there is Google Trader, a textbased system that matches buyers and sellers of agricultural produce and commodities. Sellers send a message to say where they are and what they have to offer, which will be available to potential buyers within 30km for seven days. Mr Makawa says his father used the service to look for a buyer for some pigs, which he sold to pay school fees. These services cost 110 shillings ($0.05) a time, the same as a standard text message, except for Google Trader, which costs double that. In their first five weeks the services received a total of more than 1m queries.

As with the Village Phone project, Grameen is trying to establish a model that can be scaled up and replicated in other countries. Offering agricultural and health information is more diffcult than offering a phone service, however, because such information must be localised and must take cultural di?erences into account.

Grameen’s collaboration with MTN and Google in Uganda is just one of dozens of services across the developing world that offer agricultural, market and health information via mobile phones. In India, for example, farmers can sign up for Reuters Market Lite, a textbased service that is available in parts of India. Its 125,000 users pay 200 rupees ($4.20) for a threemonth subscription, which provides them with local weather and price information four or five times a day. Many farmers say that their profits have gone up as a result.

Tata Consultancy Services, an Indian operator, offers a service called mKrishi which is similar to Farmer’s Friend, allowing farmers to send queries and receive personalised advice. "The rural population is willing to pay substantial subscription fees to get this information multiple times a day", says Kunal Bajaj of BDA. There have been lots of pilot schemes in the past, he says, but commercial offerings are now beginning to gain ground.

Nokia, the world’s largest handsetmaker, launched its own information service, Nokia Life Tools, in India in June. In addition to education and entertainment, it provides agricultural information, such as prices, weather data and farming tips, that can be called up from special menus on some Nokia handsets. The basic service costs 30 rupees a month, and a premium service which provides detailed local crop prices in ten states is available at twice that price. "It is in its early stages, but it has resonated extremely well with its target audience," says OlliPekka Kallasvuo, Nokia’s chief executive.

Services to help farmers have been most widely adopted in China, where China Mobile offers a service called Nong Xin Tong in conjunction with the agriculture ministry, as part of its push into rural areas. It has already signed up 50m users and is aiming for 100m within three years. The service provides news, weather information and details of farming related government policies.

China Mobile also runs a website, 12582.com, that sends farmers information about planting techniques, pest management and market prices. The service, which costs two yuan ($0.30) a month, sends out 13m text messages a day and has over 40m users. There are dozens of other examples across the developing world.

TradeNet, launched in Ghana in 2005, now links buyers and sellers of agricultural products in nine African countries; CellBazaar provides a textbased classified ads service in Bangladesh.
Mobile phones are also being used in health care. Oneway text alerts, sent to everyone in a particular area, can be used to raise awareness of HIV; sending daily text messages to patients can help them remember to take their drugs for tuberculosis or HIV. Mobile phones can be used to gather health information in the field faster and more accurately than paper records and help with the management of drug stocks. Cameraphones are used to send pictures to remote specialists for diagnosis.

Quantifying the benefits of agricultural and health services is hard, and such services are still in their early days in much of the world. The mobile service that is delivering the most obvious economic benefits is money transfer, otherwise known as mobile banking (though for technical and regulatory reasons it is not, strictly speaking, banking). It has grown out of the widespread custom of using prepaid calling credit as an informal currency.

Suppose you want to send money from the city back to your family in the country. You could travel to the village and deliver I’m not selling for that the cash in person, but that takes time and money. Or you could ask an intermediary, such as a bus driver, to deliver the money, but that can be risky. More simply, you could buy a topup voucher for the amount you want to transfer (say, $10) and then call the villagephone operator or shopkeeper in your family’s village and read out the code on the voucher. The credit will be applied to the phone of the shopkeeper, who will hand cash to your family, minus a commission of 10-20%. In some countries, where airtime can be transferred directly from one phone to another by text message, the process is even simpler: load credit onto your phone, then send it to someone on the spot who in return gives cash to your intended recipient.

These methods became so widespread that some companies decided to set up mobile payment systems that allow real money, rather than just airtime, to be transferred from one user to another by phone. Once you have signed up, you pay money into the system by handing cash to an agent (usually a mobile operator’s airtime vendor), who credits the money to your mobilemoney account. You can withdraw money by visiting another agent, who checks that you have su?cient funds before debiting your account and handing over the cash.

You can also send money to other people, who will be sent a text message containing a special code that can be taken to an agent to withdraw cash. This allows cash to be sent from one place to another quickly and easily. The biggest successes in this field so far have been Gcash and Smart Money in the Philippines, Wizzit in South Africa, Celpay in Zambia and, above all, MPESA in Kenya, which has become the most widely adopted mobile money scheme in the world.

Launched in 2007 by Safaricom, Kenya’s largest mobile operator, it now has nearly 7m users. Not bad for a country of 38m people, 18.3m of whom have mobile phones. MPESA’s early adopters were young, male urban migrants who used it to send money home to their families in the country. But it has since become wildly popular and is used to pay for everything from school fees to taxis (drivers like it because it means they are carrying less cash around). Roughly $2m is transferred through the system each day, with an average amount of $20. ?In markets in Kenya, stallholders are happy to take MPESA payments.

"It’s pretty dramatic," says Bob Christen, head of the "Financial Services for the Poor" initiative at the Bill & Melinda Gates Foundation.

MTN’s launch of a mobile money service in Uganda in March 2009, in partnership with Stanbic Bank, provides further cause for optimism. MTN backed up its launch with a huge marketing campaign based around the simple idea of sending money home, as Safaricom had previously done in Kenya. After three months 60% of the population had heard of the service, a level of awareness that MPESA took a year to achieve, according to MTN. After four months the service had signed up 82,000 users. Of the $5.1m transferred in that period, half was in the fourth month, indicating a rapid take-off. MTN plans to increase the number of outlets that can handle mobile money to 5,000 by early 2010. MTN’s apparent success in Uganda seems to suggest that Kenya may not be a one-off after all. After fine-tuning its technology and procedures in Uganda, MTN plans to introduce the service in 20 other African and Middle Eastern countries; it has already launched in Ghana. Meanwhile Zain, which operates in several African markets, has started its own mobilemoney service, called Zap. According to CGAP, there will be over 120 mobilemoney schemes in developing countries by the end of 2009, more than double the number in 2008. By 2012, it predicts, some 1.7 billion people will have a mobile phone but no bank account, and 20% of them will be using mobile money.

Operators do not expect to make much money from mobile banking, says Mr Okoudjou, but it can help keep customers from defecting to rivals and cut costs by allowing people to top up their airtime directly on their phones, as well as providing wider social and economic benefits that reflect well on operators. Most importantly, he says, mobile banking can help the industry repeat the huge impact made when mobile phones were first introduced. "This is a second wave that can unleash the potential of mobile phones again," he says. "So we need to do this, and we need to do it properly, and we need to do it all over."

Bank inside a Phone

Yes you read it correctly, A Little World (ALW), a Mumbai-based company, which has come up with a unique idea: turning a regular mobile phone to play the role of a bank’s branch.

Faced with the challenge of creating affordable solutions to enable penetration of banking in rural areas, ALW came up with this solution. The equipment costs not more than Rs 30,000 (pounds 400 or $700) through which a bank’s branch becomes functional and offers facilities like depositing/withdrawing money, electronic money transfer, crediting of pension money and also having an online passbook.

Other peripherals that make up the branch are a printer-cum-fingerprint scanning machine, cash box to store upto Rs one lakh in cash and a high resolution camera. The mobile phone can store data of upto 50,000 customers including the entire identification profile comprising a picture and six fingerprint templates among other details.

A big opportunity was unlocked after RBI announced a new policy initiative to allow banks to do business using the ‘business correspondent’ model. Under this, a bank ties up with third parties like ALW’s clients Zero Mass to conduct business in far-off areas on behalf of the banks. All the mobile phones have latest security features and are connected to ALW (the technology and backend partner for Zero mass) servers using GPRS or EDGE technology. The ALW server is in turn connected to the core-banking server of the client bank due to which a transaction is made possible just like it happens in a conventional way.

The critical necessity to opening a branch though is the availability of mobile coverage at the villages and ALW has tie ups with all the major GSM mobile phone operators in the country. Zero Mass currently has tie ups with 24 banks to operate their banking operations in remote and unserviced areas across 18 Indian states.

Christened as ‘Zero Platform’ for branchless banking based on mobile, a branch is typically set up in the village grocery store or panchayat office. Peripherals like the printer and camera are connected to the mobile phone using Bluetooth technology and the entire system has been designed so that it can function even during power cuts, which the villages often experience. “The selected handset (either Nokia or Motorola) has features for encryption and decryption of data through which we can make use of a public medium like GPRS to send data,” says ALW’s Chief Technology Officer Anurag Gupta.

In a short span of a year, ALW has set up over 2,800 branches for Zero Mass across the country and has plans to increase the total number of branches to 5,000 by December this year. The accounts are opened free for a period of 10 years and Zero Mass currently boasts of over 12 lakh accounts with around 20,000 added everyday. “The mobile phone operated branch is a great idea. I fail to understand why others in the same space like us have not made use of existing technologies to come up with feasible solutions like this which offer exponential growth opportunity due to low capital expenditure,” says Gupta.

Zero Mass’s motto is to increase electronic transactions like payments and crediting of accounts , Gupta says. Keeping this in view, customers are encouraged to use the account for electronic money transfer, insurance premium payments, depositing of National Rural Employment Guarantee Scheme (NREGS) wages and pension funds in the account. As a pilot project, mobile recharge payments are also being done through Zero Mass-operated branches.

ALW gets a certain amount as technical fees for rendering its services while Zero Mass gets a percentage as commission for each deposit and withdrawal transaction made at the branch. Gupta, also a director at Zero Mass, says the way forward for the company is to make use of the platform for more profitable transactions offering bigger commissions such as mobile phone recharges and railway ticket booking.