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
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.