The Success of Mobile Money

With its boxy look and black-and-white screen, the basic cell phone may seem quaint in our app-fueled world of smartphones. But with its ordinary texting function, it has the power to help billions of the world’s poor through a new trend in “mobile money,” or instant cash transfers made by cell phones.

In the 2009 edition of  Index of Global Philanthropy and Remittances, the Center for Global Prosperity reported about the economic potential of mobile money in facilitating remittances in countries such as Kenya and Zimbabwe (See “Phoning Money Home”). Mobile money allows the poor—who often find traditional banking to be too expensive or inaccessible—to use financial services such as transferring cash, making deposits and paying bills or salaries.

Mobile money has recently taken off as a development tool because of the blistering growth of cell phone usage: there are currently 5 billion cell phone users in the world, up from 3.3 billion—or one cell phone for every two people in the world—at the end of 2007. Research from London Business School showed that an extra 10 cell phones per 100 people can increase GDP per capita by 0.6 points in developing countries. Mobile money has caught the attention of the U.S. State Department, which on August 2 held a conference highlighting the uses, challenges and potential for the cell phone service. Maria Otero, Under Secretary for Democracy and Global Affairs described two development policy concepts for the United States: using technology and innovative tools to develop nations, and ensuring financial inclusion through banking systems that offer a variety of services that reach everyone.

“At the nexus of these two concepts is mobile money,” Otero said. “By 2012, 1.7 billion low-income people will have cell phones. This trend alone has changed the course of human development.”

A simple way mobile money can grease an economy is by cutting down on wasted time, as in the case of the Yoban’tel bill pay service offered in Senegal, according to tech entrepreneur Carol Realini. Yoban’tel is focusing on bill pay, because, for example, it takes three days for Senegalese to pay their water bills: one day to travel to the billing site; one day to line up—starting at 6 a.m.; and one day to travel home.

In Afghanistan, the advent of mobile money had a serendipitous side effect: an apparent drop in corruption. Roshan, the largest mobile phone provider in Afghanistan, recently began issuing salary payments through its M-Paisa phone service to the Afghan police force, making all transactions “logged and fully traceable,” said Shainoor Khoja, director of corporate affairs. Between 10 to 15 percent of the money had previously been disappearing into “ghost accounts” that were not linked to real policemen. After the payment service launched, Khoja said, “we had police calling us and thanking us for the 30 percent pay rise.” Despite several good news stories, mobile money nevertheless faces challenges to being scaled up. One is that it can be time-consuming to combine banking with mobile phone services in the regulatory environments of several countries. Crucial to the widespread success of mobile money, Realini noted, will be the adoption of national identity cards in countries, and through low-cost low-tech mobile provider models that reach more of the population.

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