Mobile money: Revolution in the provision of financial services

Mobile money services are fast becoming big business in developing countries. Especially those in which the population is considered to be ‘under banked,’ that is where the traditional banking system does not have sufficient outreach to provide financial services to the vast majority of the poor and marginalised population, especially in remote areas.

A study released by Visa Incorporated, the credit card company, some time ago, reveals that consumers in six developing countries were already highly aware of mobile money services – the ability to make payments or send funds simply by accessing an account on their mobile phones. 90% of the consumers surveyed by the Visa funded survey expressed interest in making use of this service in the future.

The Visa Mobile Money study analyses the financial services needs and expectations of mobile money among nearly 2,500 customers, mobile money agents and merchants in Bangladesh, India, Pakistan, Indonesia in Asia and Ghana and Nigeria in Africa. The study revealed that consumer requirements were much more sophisticated than previously believed and went well beyond the type of typical basic services currently accessed.

The need to quickly transfer funds to family members living far away in remote villages, in areas not serviced by commercial banks, at a low transactional cost, was the fundamental requirement.

The CEO of Visa in Africa commented that there was a huge opportunity for the large number of people living in hitherto unbanked areas, yet which are connected up by a mobile service provider, to make payments and transfer funds using their mobile phone. This facility had the potential to drive far reaching, almost revolutionary changes in the financial services sector for the poor and marginalised in developing countries.

Huge volumes of new business can be generated for mobile phone service providers as well as financial service providers by listening to potential customers needs and responding accordingly. Products must be designed according to the customer’s requirement. The success of mobile financial services will determined by how deeply mobile money service providers understood their customers and tailor the service to the needs and requirements to facilitate the activities of customers and mobile money agents.

India

Governments the world over are become aware of this humongous potential built into mobile connectivity. In India the Government is considering plans to give millions of mobile phones to its poorest families to help lift them out of penury. The scheme called ‘Har Hath Mein Mobile’ – ‘A Mobile in Every Hand’ – could revolutionise government services and the provision of financial services to the poor by offering more than 200 million people presently without mobile phone connections access to banking services and information sites which would help boost their incomes.

Further mobile connectivity will also go a long way in securing access to whatever benefits they get, in the way of goods or services, protecting these from the greed of rent seeking and corrupt civil servants. It will eliminate the human interface at the point of delivery, which is the mother of all corruption. Initially the program is intended to target six million below poverty line families.

India like other South Asian nations has undergone a mobile phone revolution in the last decade, with cheap Chinese made mobile phones and ‘pay as you go’ services encouraging millions of poor, rickshaw pullers, micro business persons, domestic servants, subsistence farmers, fishermen, to subscribe. Despite chronic power outages in India, more than three quarters of India’s 1.2 billion people have mobile phone connections and use the service to boost their incomes.

Rickshaw pullers, like three wheel taxi drivers in Colombo, have established mobile phone booking services, while small holder farmers get text messages on weather forecasts, crop and input prices, fishermen call their home ports from out at sea on their mobiles to check out prices for their catch. The personal computer based e-Chaupal system which assists farmer groups in procuring seed material, fertiliser, insecticides, other chemical inputs and agro implements and machinery at wholesale prices and to sell their crop at the most competitive price, is now accessible on 3G mobile phones.

An independent analyst, Anil Kumar of Telecom Watchdog, says that government officials have discussed the scheme with him and they expect it to operational by the end of 2013. “The idea is to give all below the poverty line a mobile handset with 200 free talk minutes. They have yet to work out the details, but 2014 is an election year in India and it will take a year to invite tenders. It is mainly a political matter for them.”

In South Asia, what is not political?! Anti poverty campaigners in India have given the Har Hath Mein Mobile proposal a mixed reaction. Some welcome it as an empowering move. Others complain that more pressing needs have been overlooked. Like for example, India is in the midst of launching a massive national campaign to put an end to what is quaintly describes as ‘open defecation’.

Harsh Mandar social activist and the Indian Supreme Court’s Special Commissioner for the Right to Food says: “India has already been tagged as a nation with more mobile phones than toilets. Basic facilities for health care and food security should be available to the poor before planning to give them mobile phones’. One of India’s leading experts on ‘frugal innovation’ Professor Anil Gupta says the Har Hath Mein Mobile proposal was ‘potentially revolutionary ‘and could help reduce corruption’.

“It could be used for mobile banking. Camera phones could be used to record whether government school teachers come to school every day – a way of monitoring the bureaucracy. People could use mobile phones to create markets for things they have to sell.”

Kenya

This Indian proposal for empowering the poor and the marginalised by providing them with mobile connectivity has been partly inspired by Kenya’s M-PESA mobile phone banking system which enables poor people to transfer money and receive payments via SMS text messages. While the ‘M’ in M-PESA stands for Mobile – Pesa is money in the Swahili language.

The money transfer and micro financing scheme is operated by Safaricom and Vodacom, the largest mobile service providers in Kenya and Tanzania. Currently considered to be the most developed mobile payments system in the world, M-PESA allows users with a National Identity Card or Passport to deposit, withdraw, and transfer money easily using a mobile phone.

M-PESA was launched in 2007, following on a donor funded pilot project. The service allows users to deposit money into an account stored on their mobile phones, to send balances using SMS technology to other users, including sellers of good and providers of services, and also to withdraw deposits of currency. Users are charged a small fee for sending and withdrawing money using the service.

The growth of M-PESA has been phenomenal, by 2012 around 17 million M-PESA accounts had been registered in Kenya alone. The initial concept was to create a service which allowed microfinance borrowers to conveniently receive and repay; loans using the network of Safaricom airtime resellers. The idea was to enable Micro Finance Institutions (MFI) to offer more competitive loan interest rates to their borrows, as there is a reduced cost compared to dealing in cash.

It was initially envisaged that the users of M-PESA would have the advantage of being able to track their balances and financial transactions easily. But human ingenuity being what it is- when M-PESA was trialed, users adopted the facility for a variety of alternative users, which Safaricom never even imagined possible. Safaricom, quick to see the business opportunity, refocused M-PESA and re-launched it with a changed value proposition- sending financial remittances across the country and making payments.

Today M-PEA is a virtual branchless banking service; it is designed to enable users to compete basic banking transactions without visiting a bank branch. The success of M-PESA in Kenya has been attributed to the creation of a highly popular, affordable payment service with only limited involvement of a formal financial service provider or bank. Customers are able to deposit and/or withdraw funds, transfer funds to their customers, pay bills, purchase airtime and transfer funds between M-PESA and a bank account, using a network of agents that includes airtime resellers for mobile phones and retail outlets acting as banking agents.

It is estimated that M-PESA has transacted around US$ 8.6 billion in Kenya in the first six months of 2012. M-PESA is also to be expanded to include international mobile money transfers for use across borders. M-PESA will be connected to an international remittance hub called Home Send, operated by Bics, a money transfer company, which covers more than 21 money transfer businesses in 35 countries. It was recently reported that the UK based telecoms provider operating in India – Vodafone is to combine with India’s ICICI Bank to introduce M-PESA to India.

Unique Identification Project

India’s Mobile in Every Hand Scheme will also benefit from the Government’s ambitious Unique Identification Project (UID) to record biometric details of every Indian and issue them a secure number, and a photo identity card verifiable 24/7 on line, to help them to access government service. More than 200 million people have already been given UID numbers. The target is to reach half a billion by 2014.

The Chairman of the Government of India’s UID Authority is Nandan Nilekani, former co chairman and CEO of Infosys Technologies which he co founded in 1981. Nilekani says that identity rights are vital in a market economy. Once people have documents to establish their identity in a verifiable manner, they can use it to get a job, open a bank account, collect savings, buy property, etc. All these things can happen after a person has a verifiable identity document. Nilekani says: “We have to link a verifiable identity to benefits available from the state.”

The UID number is 12 digit numbers - this allows us to make it unique for a couple of hundred years. The UID is going to be the platform for electronic benefit transfers through the banking system. The UID is going to be the basis for ‘know your customer’ for getting a mobile connection. Using the UID the entitlement benefits a person gets from the state, whether in cash or kind can go directly to the person account. This will have a huge impact on public service delivery.

The UID can be authenticated on line using biometric data which is available on an accessible data base. The information the UID has on an individual is very simple, the name, the address, date of birth, sex and optionally email, phone number and the bio metrics. When a bank uses the UID, they use it only to verify who the person is; the UID Authority only verifies the identity of the person on line. No other information is given.

A UID combined with a mobile phone connection will enable a person to have his identity verified through an on line system. Due to the phenomenal growth of mobile phone connectivity in India, the hitherto used 10 digit mobile phone number is almost fully utilised, with over 10 million subscribers being added every month. The department of Telecommunications Government of India is considering using the UID number as the subscribers mobile phone number.

The connection between social welfare payments by government and the mobile money account of the recipients is a new phenomenon. It is a tool to expand financial inclusion as well as provide economic opportunities. According to data collected by Global Savings and Social Protection Initiative at the New America foundation, excluding pensions, of the 560 million beneficiaries of social protection transfers (similar to Samurdhi) nearly 400 million now receive their payment or a portion of it, in some electronic form.

There is a growing shift away from cash payments to electronic platforms. Mobile money accounts are only a step away. Other than Kenya, in the developing world, mobile money systems are available in Tanzania, Afghanistan, South Africa and India.

Sri Lanka

Sri Lanka also offers a huge potential. It is estimated that close to 80% of the population have mobile phones. There are an estimated 17 million mobile connections among a population of around 20 million.

One of the mobile connectivity service providers, Dialog Axiata PLC, is offering eZ, which allows a subscriber who has a Dialog mobile phone to perform a wide array of financial transactions. eZ enables the subscriber to have a cash account in his mobile phone in which money can be topped up and a range of transactions can be carried out direct from a mobile phone.

eZ Cash was inaugurated on 13 June 2012 and today has 750,000 accounts. Using the eZ Cash mobile money account, customers can send and receive money to and from more than 750,000 Dialog eZ Cash users, settle utility bills and make payments for other goods and services direct from the mobile phone.

In April 2012, Dialog’s eZ was awarded a license in terms of the Payments and Settlements Act no. 28 of 2005. Custodial banking services for eZ Cash are provided by Hatton National Bank PLC. Dialog’s eZ cash Mobile Payments System is further secured through the institution of a Trust Instrument administered by Deutsche Bank AG.

The Tri-Partite Trust Instrument between Hatton National Bank, Deutsche Bank and Dialog, in terms of the regulations framed by the Central Bank of Sri Lanka, it is said, provides eZ Cash with a state-of-the-art customer protection environment. Dialog has over 2000, 2G and 1,200, 3G base stations in Sri Lanka and is the island’s largest mobile service provider with 7.5 million subscribers.

It is reported that the daily transactions on eZ Cash average as follows: Dialog bill payments Rs. 4 million; utilities Rs. 1.5 million; cash withdrawal over Rs. 1 million; and customer to customer transfers over Rs. 100,000.

Geographically 34% of the customers are in Western Province, 24% in Northern and Southern Provinces, 22% Central & Eastern Provinces and 20% in North Central, North Western and Sabaragamuwa Provinces. Other mobile phone service provides are also planning to get into mobile money services.

Social welfare payments

In such an operating environment, it is time Sri Lanka considered, using mobile money services for social welfare payments such as Samurdhi benefit payments and other governmental assistance programs. It is the only sure way of eliminating corruption in the process of distributing welfare payments like Samurdhi, the human interface, where a petty official has to physically make the cash payment or hand over the voucher to the beneficiary, is the vulnerable point at which space is provided for the grandmother of all corruption.

Transferring funds to a mobile phone account eliminates this. Another positive factor is that every Sri Lanka over the age of 18 years has a Unique Identity Number on his or her National Identity Card (NIC). This gives us a head-start. All we have to do is to collect biometric data of all NIC holders, put it on an online data base, which will be accessible 24/7 and issue all NIC holders with a smart card which will have the biometric identity information on it. Then the unique NIC number can be correlated to all other relevant data bases such as passports, tax files, Customs documentation, vehicle registration, Samurdhi and other welfare registers, bank data bases and mobile phone number data bases, etc.

The ease of doing business and transacting with government agencies will improve considerably. This is a development tool which would empower the poor and marginalised giving them a verifiable identity which would entitle them to maximise the opportunities provided by the social welfare system. For the economically better off part of the population also it will make commerce much easier and facilitate the market economy.

A verifiable identity empowers like no other. Mobile money services are the future, available today. It is a mystery why we do not exploit our unique advantage of every adult citizen already having a Unique Identity Number fully and provide online verification of identity universally. There is also the issue of taxation on mobile calls, which is counterproductive. It kills the goose which lays the golden egg. The revenue boys in Kenya have tried to put a tax on M-PESA transfers, but the President is expected to reject the proposal. Presidential elections are due soon in Kenya! Such are the joys of a functional democracy!

(The writer is a lawyer, who has over 30 years experience as a CEO in both government and private sectors. He retired from the office of Secretary, Ministry of Finance and currently is the Managing Director of the Sri Lanka Business Development Centre.)