The NY Times had a good article yesterday from the always-worth-reading Anand Giridharadas on the role mobile phones are playing in the developing world. He asks if the U.S. is going to be left out of the next great wave of tech innovation because it will happen on simpler platforms-- cheap cell phones & SMS-- rather than on sexier platforms such as, say, the iPad (FD: I'm writing this post on an iPad[!]).
In the developing world, banking is happening more and more over mobile phones. So are commerce, information services, and every kind of communication. And with well over 4 billion mobile phone users on earth (compared to only about half a billion subscribers to broadband), one must imagine that there is a future for these new applications of mobile technology. But much of the mobile innovation is happening outside the U.S., because, basically, Americans just aren't that into it.
In the near term, American technology firms are making the right decisions: bringing iPads, HD video, and sweet apps to the slim but wealthy demographic that wants (but doesn't really need) these things. In the longer term, I hope, for their sake, that these companies are thinking about building products that work for the other 6 billion people on earth-- people who are (or will be) accessing the global network on their mobile devices, at slower speeds, and using it to seek information and services relevant to their lives.
To be sure, what's relevant to a mechanic in Nairobi might not be relevant for a Rajasthani farmer, but the point of access to the network will likely be similar-- a simple mobile device-- and the applications, if not the content, will be similar. In the mobile banking space, we're seeing some innovation in the U.S.-- Obopay is an early entrant here, and you can finally pay for DC parking meters in DC with your phone-- but given their experience and expertise operating in the developing world, it's not hard to imagine Safaricom dominating the space for a long time. Particularly among the 6 billion people who have neither money nor use for an iPad.
I had a great conversation today with Virginia Prescott of NHPR's "Word of Mouth" about the future (and past) of mobile banking, mobile payments, and mobile money transfer. We talked about Kenyan mBanking success story mPESA, recent action toward mobile payments taken by American banks and wireless carriers, and what limiting factors we might see in coming years. Thank goodness we were on radio, and nobody could see my cheat sheet:
You can listen to the whole show here (mBanking was the first segment). Enjoy!
In Americans' outpouring of support for the people of Haiti after the earthquake earlier this week, the Big Four mobile operators-- Verizon, AT&T, Sprint, and T-Mobile-- all made commendable efforts to maximize support for the Red Cross and other organizations. They waived fees on text messaged donations, they matched donations made by their employees, and they did something else that was, I think, even more significant: they advanced the transfer of of verified donations to the beneficiary organizations.
In the past, if you made a donation via text, your cell phone provider would add the charge to your bill at the end of the month, and then pass along the funds once you paid up. This time, they transferred a good chunk of the total before getting paid themselves.
This shift is a huge step toward mobile banking in the United States. In Kenya, about 20% of the population subscribes to mPESA, a mobile payments service operated by mobile provider Safaricom. mPESA allows mobile-to-mobile payments without any bank or credit card intermediary; it grew out of the practice-- common in the developing world-- of transferring pre-paid airtime among phones. This type of business has yet to take off in the United States, not for lack of demand, but more because of regulations that prevent telecom companies from acting like banks.
But by forwarding the donations to the Red Cross before recieving payment, the mobile operators took a subtle but very big step toward allowing payments via mobile. Now that we can all send money almost instantly to the Red Cross with a quick SMS, how long can it be before we'll be able to text $1.59 to CVS for a pack of gum, or wave our cell phones by a parking meter instead of pumping in quarters?
Before, the argument was that the telecom companies wouldn't want to be in the business of lending money, and didn't want complicated tie-ups with credit card companies or banks. Now, they've taken a step in that direction, and I expect they'll come out of it just fine-- and perhaps with an idea of the great business opportunity here.
As the American government struggles with what to do with its new ownership stake in storied corporate brands like AIG, Chrysler, Citigroup and General Motors, one of the fundamental questions that must be asked now is, can these brands - after months of stories about their insolvency - be saved?
Simon wasn't so sure, and neither am I. But if I were an executive at one of these banks, I would be doing everything I could to repair my brand. One of the worst problems these banks have caused is the global impression that America caused an international financial meltdown, which has been, to say the least, bad for both these banks and America’s interests abroad.
So what can they do? Here at NDN, and in particular Sam duPont's Global Mobile blog, we have been covering the role of mobile technology in what the State Department is calling 21st Century Statecraft. One of the most exciting innovations in this space is mobile banking, which Sam has been discussing quite a bit, and I blogged about a year and a half ago. (Sam recently posted a video of Alec Ross, the Senior Advisor on Innovation to Secretary Clinton, discussing this.) MBanking has the potential to revolutionize standards of living globally by connecting some of the world’s poorest economies to modern financial services without needing to create the physical infrastructure of a bank.
So here’s my modest proposal to American bankers, a group of people who’ve been particularly good at innovating over the last two decades: Call up State, say you want to build - for free - a modern, mobile communication device based banking system for less developed nations and that you want to put your best people on it.
Imagine if every time a sizeable percentage of the world’s population did a financial transaction, they knew it was because of the American government and the American financial sector. There’s plenty of profit motive in it for banks, as the additional customers alone would be a boon. Not only would this be great for America’s standing in the world and help these banks repair their image, it would have that nice added benefit of dramatically improving people’s lives.
The latest Economist covers the powers and wonders of mBanking-- it's good to see the subject getting attention from the foremost weekly newspaper of the former British Empire. M-PESA, the success story from Kenyan mobile operator Safaricom, gets some attention in the article, which then extrapolates outward:
Extending mobile money to other poor countries, particularly in Africa and Asia, would have a huge impact. It is a faster, cheaper and safer way to transfer money than the alternatives, such as slow, costly transfers via banks and post offices, or handing an envelope of cash to a bus driver. Rather than spend a day travelling by bus to the nearest bank, recipients in rural areas can spend their time doing more productive things. The incomes of Kenyan households using M-PESA have increased by 5-30% since they started mobile banking, according to a recent study.
Why haven't we seen more of this? Well, it's a combination of banks nervous about losing market share, government regulators nervous about fraud, and existing laws that prevent corner-shop retailers from behaving like banks. But there are ways around (or through) these obstacles, says the Economist's usual omniscient-sounding editorial voice:
Instead of lobbying against mobile money, banks should see it as an exciting chance to exploit telecoms firms’ vast retail networks and powerful brands to reach new customers. Tie-ups between banks and operators will help reassure regulators. But they, too, need to be prepared to be more flexible. People who want to sign up for mobile-money services should not, for example, have to jump through all the hoops required to open a bank account. Concerns about money-laundering can be dealt with by imposing limits (typically $100) on the size of mobile-money transactions, and on the maximum balance. And inflexible rules governing the types of establishments where cash can be paid in and taken out ought to be relaxed.
Mobile money presents a shining opportunity to start a second wave of mobile-led development across the poor world. Operators, banks and regulators should seize it.
UPDATE: Silly me for missing this-- the above article actually comes out of a whole special report in this week's Economist devoted to telecom in the developing world. Six more articles for your consumption!:
Mobile marvels Poor countries have already benefited hugely from mobile phones. Now get ready for a second round, says Tom Standage
Nearly three billion poor people in developing countries lack access to basic financial services such as savings, credit, insurance, and money transfers. As CGAP (Consultative Group to Assist the Poor) notes, “Access to financial services enables the poor to build their own path out of poverty …. When poor people have access to financial services, they invest in assets such as sending their children to school, buying medicines and more nutritious foods, fixing a leaky roof, or building income-earning potential by investing in their own enterprises.”...
Mobile technology has the potential to expand the reach of financial services to the poor. Branchless banking using mobile phones and a network of third-party agents (e.g. post offices, small retailers) can reduce the two biggest costs associated with providing financial services: building and maintaining a physical presence, and handling small transactions.
He goes on to describe M-PESA, one of the more successful mBanking services, based in Kenya and born of a partnership between the Vodaphone Group and DFID (the British development agency).
Well, there will soon be another option for would-be mBankers around the world-- Nokia announced today that it would begin offering mBanking services starting next year. The move (announced in a press release, reported by TechCrunch, Appfrica, & the FT), is part of Nokia's expansion beyond handset manufacturing to services.
The press release points out that, while there are only 1.6 billion bank accounts in the world, there are 4 billion mobile phones, and turning those handsets into financial tools will give billions financial power they currently lack. From the release:
Nokia Money has been designed to be as simple and convenient as making a voice call or sending an SMS. It will enable consumers to send money to another person just by using the person's mobile phone number, as well as to pay merchants for goods and services, pay their utility bills, or recharge their prepaid SIM cards (SIM top-up). The services can be accessed 24 hours a day from anywhere, meaning savings in travel costs and time.
Many of the details aren't yet clear-- Will the service operate independent of local carriers? Will it be fee-based? how interoperable will it be with other mBanking platforms? Still, given Nokia's heavyweight status among handset makers and name-recognition, this is one of the biggest steps forward in mBanking that we've seen to date.
"Older politicians will have to get beyond their ideological blinders to recognize the opportunity waiting for any candidate or political party that can embrace both halves of the Millennial era civic ethos paradox."