Emerging markets are fertile ground for mobile banking

Mobile banking is beginning to get legs in emerging markets, but it’s not just the noble goals of empowering individuals and helping the downtrodden that is driving the space.
The Bill & Melinda Gates Foundation shone a spotlight on the space recently, announcing a $12.5 million donation to help bring cheap mobile financial services to people in developing markets. The money will back Mobile Money for the Unbanked, a program that works with industry players to overcome barriers in deploying m-banking services to the reported 1 billion users worldwide who have phones but no bank accounts.
The initiative hopes to support roughly 20 projects in Africa, Asia and Latin America, reaching 20 million previously unbanked people by 2012.
Kenyans cashing in
While these are still early days for m-banking in the poorest regions of the world, there are solid indications that mobile players can do well as they do good. Perhaps the most noted effort is M-Pesa, a Kenyan system developed by Vodafone and the carrier Safaricom Ltd. The service offers 4,200 locations nationwide and a network of more than 7,000 shopkeepers and other agents who take deposits and issue cash from users who authorize the transactions on their phones using a PIN code. M-Pesa supports transfers ranging from $1.25 up to $440 to any other cellphone, starting at about 40 cents per transaction (about 45% of traditional transfer services). The company claims its 5.5 million users – one-sixth of Kenya’s population – transferred more than $50 million in January.
M-Pesa’s success has given birth to imitators in other developing nations, too. Vodafone has launched services in Afghanistan and Tanzania, and Orange plans to roll out offerings in Cote d’Ivorie, Mali and Senegal. Macalla, an Ireland-based mobile-banking firm, last week unveiled a partnership with Saudi Telecom Co. to deploy its platform, payments engine and applications in Kuwait. And Fundamo, a South African outfit, has deployed similar services in Africa, central Asia and Latin America.

Juniper Research forecasts the average revenue opportunity for carriers, for both national and international mobile money transfers combined (based on estimated commission levels that they will be able to charge), is in excess of $5 billion by 2013
M-Pesa is bracing for a fight against a newcomer on its home turf, as well. Zain, which partnered with Citigroup and Standard Chartered, launched earlier this month in Kenya and Tanzania and is ramping up for deployment in Uganda. The ambitious startup aims to bring its service, dubbed Zap, to 100 million people in Africa, building on a phone-to-phone airtime credit transfer service that launched in 2005 and is now available in 22 countries in the Middle East and Africa. Zain has a couple of interesting selling points, too, with a 13-cent-per-transaction price point and the ability to pay utility bills with Zap.
Unlike developed markets, where mobile players must often force their way into a well-established value chain, emerging nations are fertile ground for m-banking services, analysts say. Mobile phones account for about 90% of all phone lines in Africa, for instance, but overall market penetration stands at only 30%, according to Research and Markets. Mobile coverage not only is much more widespread than wireline, there’s plenty of room for growth.
Moreover, onlookers say African financial institutions haven’t taken the economic beating many other banks have, allowing them to invest in telecommunications infrastructure and reach new customers.
Crucibles of innovation
So while the eyes of tech enthusiasts may glaze over at, say, real-time mobile videoconferencing and next-generation networks, that misdirected attention “tends to mask a different reality,” according to a worldwide mobile outlook released this week by IDC. “Specifically, that many developing markets, forced to address their domestic social, political and economic challenges – ranging from the absence of many critical infrastructures, like banking and electricity, to low literacy rates and low purchasing power that translates into low ARPUs – are also fast emerging as crucibles of innovation in such areas as mobile banking, mobile money transfer, and mobile education and medicine, not to mention green initiatives.”
That innovation, some analysts say, could actually help buoy global economies as they pull new consumers into the worldwide financial ecosystem. And it may provide valuable lessons for carriers in more developed markets.
“Leading mobile network operators in developing countries,” the report continued, “confronted with the rather challenging task of being profitable in low-ARPU markets, are increasingly experimenting with new and innovative business models that beg emulation by their counterparts in developed economies.”