It’s just data! Why “mobile money” will become “internet banking”

This post is written by Ryan Falvey, an SBI Consultant

We’ve all read the stories about how telecom-based mobile money services – such as M-PESA – are allowing new

Photo credit: WhyGo Business

players to shake up financial services in developing countries, besting banks and providing a superior alternative to cash. While there is certainly some truth to this, there is also a lot of hype. After all, with the exception of M-PESA, no telecom based offering has come close to achieving either the scale or the penetration of Safaricom’s mobile offering.  A question that many in the space have been asking is why. I propose that part of the reason may have to do with the fact that it isn’t mobile money that people want; it’s efficient, useful and inexpensive financial services.  Unfortunately, most MNO solutions are built on extremely expensive, awkward and limiting technologies: SMS and USSD.

SMS might be both the world’s most expensive way to send data and one of the least efficient. An SMS costs, on average about $0.10 per message, yet it only allows an individual to send 140 bits of data. USSD can transmit a bit more data and the costs are, usually, a bit lower. However, both technologies are absurdly expensive when compared to the cost data plans. In most countries, these are between $10-$50 for 2GB of data. 2 GB of data on SMS at 10 cents a message would cost a user $3,072,000. Even if USSD cost 1/10 of the price of SMS (which it doesn’t usually) it’s clear that both technologies are completely inappropriate for sending and receiving data.  They’re the equivalent of the compact disc: an expensive, awkward, and, eventually, obsolete technology for transmitting and storing data. As such, mobile money platforms built on SMS and USSD are expensive, awkward and limiting.

Luckily for consumers, the solution is here. It’s called the Internet. And, thankfully, due to the widespread expansion of 3G and 4G networks and increasingly ‘smart’ devices, the Internet is becoming omnipresent and creating opportunities for third parties to develop financial services that bypass the MNO and connect directly with customers.  We’re seeing this already with banks – who know a bit about moving and storing money (data) safely and securely – as they launch innovative platforms in Pakistan, Bangladesh, South Africa and India. I believe that this trend is going to continue as banks find value in leveraging their existing branch infrastructure, product knowledge, and regulatory advantages to leverage increasingly omnipresent internet access and extend banking services beyond the branch level.

At this point, I’m sure some readers are saying to themselves – “No way, it will take decades before the poor in developing countries have smart phones and access to the Internet!” Well, if you’re thinking that, you’re wrong for two reasons: Internet access solves one of the limiting factors of mobile money (the need for a mobile phone) and technology is moving very fast.

On the first point, why should a poor person have to have a mobile phone to access banking services? It’s not like only people who can afford mobile phones want banking services. In fact, a recent study we completed in Pakistan identified no difference in demand for “branchless banking” between those who own a phone and those that don’t. While it’s true that many people do own phones, many, many more have ACCESS to a mobile phone from either a family member, a friend or a neighbor. With Internet-based solutions, limiting identifiers, such as unique SIM cards, no longer matter. Instead, people can use a variety of existing identifiers to open accounts – much like we do in the U.S. with Social Security Numbers. This means that non-SMS systems can be more inclusive and serve larger populations than systems dependent on ownership of a mobile device.

As for technology, it’s already here:  Just check out the explosive growth in mobile enable data in emerging markets. It is also where the fastest growth for smart phones is occurring. The other objection is that smart phones will never be cheap enough for all of the poor to own them. On this front, only time will tell. However, if history is any guide, I have a feeling that our friends at these too will become as cheap – if not cheaper than – feature phones now.

So, what does this all mean: One, we should stop thinking about mobile phones as being a precondition of access to mobile money – it shouldn’t be. And two, we need to think about how we start encouraging the development of Internet enabled solutions that provide services and solutions – including financial services – to the poor. The technology to transmit and process data is already widely available. We need to start using it.


3 thoughts on “It’s just data! Why “mobile money” will become “internet banking”

  1. This is really interesting and spot on in terms of the evolution of technology, especially with affordable smartphones. As technology improves, it will definitely become cheaper to transmit data. Mobile phones are the tool right now, but it could easily change in the future depending on how communication tools change.

    However, it doesn’t necessarily improve the real sticky issue with mobile money interventions – making it more affordable and sustainable to build agent networks (the human face, which will always need to be there regardless of the type of technology). If affordable and Internet-enable smartphones are the next leg in the ladder for the technology component of mobile banking models, I wonder what will the parallel improvement will be in efficiently building agent networks.

  2. Excellent points. But it beats me why both experts/payment consultants and users in need of frictionless solutions do not go beyond the obvious and start recognizing payment methods that are far superior to and more affordable than SMS and NFC technologies. At least, in the small payments space.

    Our solution — if you forgive my self-promotion here — is very easy to implement and use, universal (platform agnostic) and safe. It is called Znak it! ( It separates transaction information processing (which has to be seamless and in real time) from money transfers, which can be done on an aggregated basis, just like telephone bills, once a week or month and through SSL-secure, PCI-complient channels.

    Because we use pre-paid virtual credits as the means to exchange value, there is no chargebacks and very little processing cost — plus all transactions are instant and (nearly) fraud-free. Nearly, because there is always risk, but in our case the risk is limited to a Murphy’s law type of risk. Also, we can process transactions as little as $0.05 or its equivalent in any major currency both off line, for physical goods, and online, to pay or charge for virtual goods and services.

  3. Great article and I think it’s spot on! Mobile Money is huge right now when you look at the number of cell phone and the number of unbanked and see the opportunity of aligning those two values. It’s a great solution to an immediate problem right now. But looking forward with the increasing penetration of internet, cheap smartphones, tablets, netbook, public internet access, etc it become harder to imagine a future where expensive and clumsy SMS or USSD is being used in place of internet banking.

    Part of the problem though is that it’s also difficult for Microfinance Organizations to provide Online Banking services. That’s usually expensive, complicated and reserved for the ‘big bank players’. So they let the telecom companies do the work (who get a juice cut of the revenue.) We’re hoping that using some modern tool (like what we’re working on at gives some of the power back to MFIs and levels the playing field with them and the big banks who might not be as interested in reaching out to the poor.

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